Policy Statement On Penalty Guidelines

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130 FERC ¶ 61,220

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Jon Wellinghoff, Chairman;

Marc Spitzer, Philip D. Moeller,

and John R. Norris.

Enforcement of Statutes, Orders, Rules,

and Regulations

Docket No. PL10-4-000

POLICY STATEMENT ON PENALTY GUIDELINES

(Issued March 18, 2010)

The Commission issues this Policy Statement on Penalty Guidelines for the

purpose of adding greater fairness, consistency, and transparency to our civil penalty

determinations. The Commission’s Penalty Guidelines (Penalty Guidelines) are modeled

on portions of the United States Sentencing Guidelines (Sentencing Guidelines), with

appropriate modifications to account for Commission-specific considerations. The

Penalty Guidelines are contained at the end of this Policy Statement.

Introduction

The Commission’s present adoption of a guidelines approach as a significant factor

to be considered in determining civil penalties is the latest in a line of policy statements

and initiatives we have implemented since passage of the Energy Policy Act of 2005

(EPAct 2005) to add greater fairness, consistency, and transparency to our enforcement

program.1 The Penalty Guidelines accomplish this by using a set of objective

characteristics to determine penalties that are transparent. The Penalty Guidelines will

promote greater consistency by basing penalties on a set of uniform factors that are

1 A guidelines approach allows for the discretion to depart from the indicated

penalty where necessary.

1 The Penalty Guidelines accomplish this by using a set of objective

characteristics to determine penalties that are transparent. The Penalty Guidelines will

promote greater consistency by basing penalties on a set of uniform factors that are

1 A guidelines approach allows for the discretion to depart from the indicated

penalty where necessary.

Docket No. PL10-4-000

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assigned transparent values and weighted similarly for similar types of violations and

similar types of violators. Organizations will be provided more notice and certainty as to

how we will determine appropriate civil penalties.2 Application of the Penalty

Guidelines, however, is discretionary, not mandatory. As such, deviations in penalties

may be necessary to account for the specific facts and circumstances of a violation.

The Commission’s approach to determine penalties has evolved during the almost

four-and-a-half years since EPAct 2005 first went into effect in August 2005. We have

given the question careful consideration at many junctures, weighing the benefits and

costs and considering how other federal agencies determine civil penalties. We have paid

close attention to the Sentencing Guidelines because they rely on many of the same

factors that are at the core of our enforcement program.3 We now believe that it is in the

public interest to advance our past use of the Sentencing Guidelines’ principles by

implementing a guidelines approach patterned after the Sentencing Guidelines, which

apply factors in a focused manner to promote fairness and consistency, while still

allowing for the discretion to depart from the indicated penalty where necessary.

The purpose of this Policy Statement is to explain how we have come to the

decision to adopt the Penalty Guidelines, to explain the benefits of a guidelines approach,

and to set forth how our Penalty Guidelines will work in practice.

II.

Background

Energy Policy Act of 2005

istency, while still

allowing for the discretion to depart from the indicated penalty where necessary.

The purpose of this Policy Statement is to explain how we have come to the

decision to adopt the Penalty Guidelines, to explain the benefits of a guidelines approach,

and to set forth how our Penalty Guidelines will work in practice.

II.

Background

Energy Policy Act of 2005

The Commission has various enforcement tools in policing the areas of the electric,

natural gas, hydroelectric, and oil pipeline industries within our jurisdiction. Specifically,

we can require compliance plans and disgorgement of unjust profits, we have the ability

to condition, suspend, or revoke market-based rate authority, certificate authority, or

blanket certificate authority, we have the ability to refer matters to the Department of

Justice for criminal prosecution, and we have civil penalty authority. With respect to

civil penalties, the Commission received a significant enhancement to its

2 “Organization” is defined in the Penalty Guidelines as “any entity other than a

natural person.” Penalty Guidelines § 1A1.1 (Commentary note 1).

3 See, e.g., Compliance with Statutes, Regulations, and Orders, 125 FERC

¶ 61,058, PP 23-25 (2008) (Policy Statement on Compliance).

Docket No. PL10-4-000

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enforcement program with the passage of EPAct 2005.4 Prior to EPAct 2005, the

Commission’s authority to assess civil penalties was limited to: (1) $11,000 per day

under Part I of the Federal Power Act (FPA); (2) $11,000 per day under sections 211

through 214 of Part II of the FPA; and (3) $5,500 per day under the Natural Gas Policy

Act of 1978 (NGPA).5 The Commission lacked civil penalty authority entirely under the

Natural Gas Act (NGA). Congress significantly expanded this authority in EPAct 2005

through three primary enhancements

) $11,000 per day

under Part I of the Federal Power Act (FPA); (2) $11,000 per day under sections 211

through 214 of Part II of the FPA; and (3) $5,500 per day under the Natural Gas Policy

Act of 1978 (NGPA).5 The Commission lacked civil penalty authority entirely under the

Natural Gas Act (NGA). Congress significantly expanded this authority in EPAct 2005

through three primary enhancements. First, Congress expanded the Commission’s FPA

civil penalty authority to cover all provisions of FPA Part II and any rule or order issued

thereunder.6 Second, Congress extended our civil penalty authority to cover the NGA

and any rule, regulation, restriction, condition, or order made or imposed by the

Commission under the NGA.7 Third, Congress increased the maximum civil penalty the

Commission can assess to $1,000,000 per day, per violation for any violation of the

NGA, NGPA, and Part II of the FPA.8 With this expansion came the responsibility to

carefully implement our new authority and to seek to improve our application of it in

light of experience. This Policy Statement represents such an improvement.

While granting the Commission this greater civil penalty authority, EPAct 2005

also mandated that we consider certain factors in determining the amount of a particular

penalty. Specifically, EPAct 2005 amended the NGA to provide that “[i]n determining

the amount of a proposed penalty, the Commission shall take into consideration the

nature and seriousness of the violation and the efforts to remedy the violation.”9 Thus, in

4 See Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005) (EPAct

2005).

5 16 U.S.C. § 823b(c) (2000) (FPA Part I); 16 U.S.C. § 825o-1(b) (2000) (FPA

Part II); 15 U.S.C. § 3414(b)(6) (2000) (NGPA); 18 C.F.R. § 385.1602 (2009).

6 EPAct 2005 § 1284(e)(1) (amending FPA § 316A(a)).

7 EPAct 2005 § 314(b)(1) (inserting new NGA § 22)

he efforts to remedy the violation.”9 Thus, in

4 See Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005) (EPAct

2005).

5 16 U.S.C. § 823b(c) (2000) (FPA Part I); 16 U.S.C. § 825o-1(b) (2000) (FPA

Part II); 15 U.S.C. § 3414(b)(6) (2000) (NGPA); 18 C.F.R. § 385.1602 (2009).

6 EPAct 2005 § 1284(e)(1) (amending FPA § 316A(a)).

7 EPAct 2005 § 314(b)(1) (inserting new NGA § 22).

8 EPAct 2005 § 314(b)(1) (inserting new NGA § 22(a)); EPAct 2005 § 314(b)(2)

(amending NGPA § 504(b)(6)(A)); EPAct 2005 § 1284(e)(2) (amending FPA §

316A(b)). EPAct did not change the Commission’s existing $11,000 per day authority

under Part I of the FPA. See section 385.1602(b) of the Commission’s regulations, 18

C.F.R. § 385.1602(b) (2009).

9 15 U.S.C. § 717t-1 (added by EPAct 2005§ 314(b)). A similar directive already

had existed in the FPA.

Docket No. PL10-4-000

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determining an appropriate penalty, Congress instructs that we must specifically consider

the seriousness of the violation and the efforts a company takes to remedy it. As we will

discuss more fully below, these two factors have been at the forefront of our penalty

determinations since EPAct 2005 and will continue to be significant factors under the

Penalty Guidelines that we announce here.

The Commission’s First Policy Statement on Enforcement

Following the passage of enhanced civil penalty authority in EPAct 2005, the

Commission issued the first Policy Statement on Enforcement on October 20, 2005 (2005

Policy Statement), for the purpose of providing guidance and regulatory certainty

regarding our statutes, orders, rules, and regulations.10 We made clear that our purpose

was to provide “firm but fair enforcement” of our laws and to provide notice to

jurisdictional organizations of the consequences of violating our laws.11 The

Commission described factors that we would consider in determining appropriate

penalties under our enhanced penalty authority.12

tainty

regarding our statutes, orders, rules, and regulations.10 We made clear that our purpose

was to provide “firm but fair enforcement” of our laws and to provide notice to

jurisdictional organizations of the consequences of violating our laws.11 The

Commission described factors that we would consider in determining appropriate

penalties under our enhanced penalty authority.12

In deciding what criteria would guide our penalty determinations, we considered

our statutory mandates from EPAct 2005 as well as the enforcement policies of other

federal agencies, including the Securities and Exchange Commission (SEC), the

Commodity Futures Trading Commission (CFTC), and the Department of Justice (DOJ).

We explained that the “first touchstone for our determination” would be the seriousness

of the violation, given that this was a statutorily mandated consideration.13 We listed

some factors we would consider in judging the seriousness of the violation, including the

harm caused by the violation and whether the violation resulted from manipulation,

deceit, or artifice.14 We also looked to the second statutory criterion, specifically, the

efforts made by the company to remedy the violation in a timely manner.15 This criterion

10 Enforcement of Statutes, Orders, Rules, and Regulations, 113 FERC ¶ 61,068

(2005) (2005 Policy Statement).

11 Id. P 1.

12 Id. PP 17-27.

13 Id. P 11.

14 Id. P 20.

15 Id. P 21.

ice.14 We also looked to the second statutory criterion, specifically, the

efforts made by the company to remedy the violation in a timely manner.15 This criterion

10 Enforcement of Statutes, Orders, Rules, and Regulations, 113 FERC ¶ 61,068

(2005) (2005 Policy Statement).

11 Id. P 1.

12 Id. PP 17-27.

13 Id. P 11.

14 Id. P 20.

15 Id. P 21.

Docket No. PL10-4-000

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also includes several factors, including efforts relating to internal compliance, self-

reporting, and cooperation.16 We encouraged organizations to create comprehensive

compliance programs, develop a culture of compliance, and to self-report and cooperate

with the Commission if violations were to occur.17

At the time, the Commission also considered the most effective way to apply the

various factors to determine a penalty. It did this, in part, by considering the enforcement

programs at other federal agencies. In 2001, the SEC issued a decision in which it listed

thirteen factors it considers in determining whether, and how much, credit it gives for

self-policing, self-reporting, remediation, and cooperation.18 While listing these factors,

the SEC declined to adopt a guidelines approach, emphasizing that it was not limiting its

broad discretion to evaluate each case individually.19 The CFTC also has listed relevant

factors it considers to determine penalties, but like the SEC, has declined to adopt a

guidelines approach. Other agencies, however, have adopted guidelines approaches. For

example, the Environmental Protection Agency uses various matrices to calculate civil

penalty amounts.20 Similarly, the Nuclear Regulatory Commission uses a guidelines

model to determine penalties.21 The Federal Communications Commission employs

guidelines to assess forfeiture penalties.22 In addition, the Occupational Safety and

Health Administration uses a guidelines approach to determine penalties.23 We also

16 Id. PP 21-27

ncy uses various matrices to calculate civil

penalty amounts.20 Similarly, the Nuclear Regulatory Commission uses a guidelines

model to determine penalties.21 The Federal Communications Commission employs

guidelines to assess forfeiture penalties.22 In addition, the Occupational Safety and

Health Administration uses a guidelines approach to determine penalties.23 We also

16 Id. PP 21-27.

17 See, e.g., id. P 2.

18 Accounting and Auditing Enforcement, SEC Release No. 1470 (October 23,

2001).

19 Id.

20 See generally Calculation of the Economic Benefit of Noncompliance in EPA’s

Civil Penalty Enforcement Cases, 64 Fed. Reg. 32,948 (Envtl. Prot. Agency June 18,

1999); Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of

Violations, 65 Fed .Reg. 19,618 (Envtl. Prot. Agency April 11, 2000).

21 See NRC Enforcement Policy at 18-21, available at http://www.nrc.gov/about-

nrc/regulatory/enforcement/enforc-pol.pdf.

22 See 47 C.F.R. § 1.80 (2009).

23 See OSHA’s Field Operations Manual, Chapter 6 (Nov. 9, 2009).

Docket No. PL10-4-000

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considered the practice of the DOJ, which, pursuant to the Sentencing Reform Act of

1984, uses the Sentencing Guidelines to determine penalties.24 After weighing our

options, we chose, like the SEC and CFTC, to determine penalties based on a case-by-

case approach, hoping to retain more discretion and flexibility to address each case on its

individual set of facts.25

10.

Although we declined at the time to adopt a guidelines approach like that used by

the DOJ, we were heavily influenced by the Sentencing Guidelines and the practices of

the DOJ in deciding which factors would guide our penalty analyses

ermine penalties based on a case-by-

case approach, hoping to retain more discretion and flexibility to address each case on its

individual set of facts.25

10.

Although we declined at the time to adopt a guidelines approach like that used by

the DOJ, we were heavily influenced by the Sentencing Guidelines and the practices of

the DOJ in deciding which factors would guide our penalty analyses. For example, as

with our approach, the Sentencing Guidelines consider the seriousness of an offense, in

part, by calculating the gain to the organization or the loss caused by the conduct,26 and

the number of victims.27 Also, the Sentencing Guidelines consider the organization’s

culpability, including whether the organization has a prior history, whether the

organization has self-reported the offense, whether high-level personnel were involved in

the offense, and whether the organization cooperated with governmental authorities.28

Moreover, the Sentencing Guidelines provide credit for organizations with effective

compliance programs.29 The Commission incorporated all of these factors into its 2005

Policy Statement and it has continued to weigh these factors in its penalty determinations,

albeit in a less structured manner than is found in the Sentencing Guidelines.

Early Experience with Civil Penalties and Feedback from Regulated

Community

11.

The Commission’s early experience with our enhanced civil penalty authority

reflected the “firm but fair enforcement” policy that we articulated in our 2005 Policy

Statement. We imposed civil penalties in the context of negotiated settlements where

24 2005 Policy Statement at P 8.

25 Id. P 13.

26 United States Sentencing Commission, Guidelines Manual (U.S.S.G.), §

8C2.4(a).

27 Id. § 2B1.1(b)(1-2).

28 Id. § 8C2.5.

29 Id. §§ 8C2.5(f); 8B2.1.

fair enforcement” policy that we articulated in our 2005 Policy

Statement. We imposed civil penalties in the context of negotiated settlements where

24 2005 Policy Statement at P 8.

25 Id. P 13.

26 United States Sentencing Commission, Guidelines Manual (U.S.S.G.), §

8C2.4(a).

27 Id. § 2B1.1(b)(1-2).

28 Id. § 8C2.5.

29 Id. §§ 8C2.5(f); 8B2.1.

Docket No. PL10-4-000

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d in

appropriate, but we also closed many investigations with no sanctions and required

compliance measures instead of penalties in others. Between 2005 and 2007, the

Commission’s Office of Enforcement staff (Enforcement staff) closed forty-seven out of

sixty-four investigations without any sanctions being imposed, even though Enforcement

staff found a violation in twenty-two of those closed investigations.30 Only the

remaining one-quarter of the total investigations completed during this period resulte

civil penalties.31 In addition, Enforcement staff closed with no action more than half of

the seventy-four self-reports submitted to Enforcement staff during this period.32

Enforcement staff frequently exercised prosecutorial discretion to resolve minor

infractions with agreed-upon compliance measures rather than with penalties.

12.

Between 2005 and the end of 2007, all of the post-EPAct 2005 investigations

resulting in civil penalties were resolved by settlement between Enforcement staff and the

subject companies. The Commission issued 12 orders approving these settlements.33

The civil penalties ranged from $300,000 to $10 million, and reflected a wide variety in

the type and seriousness of the violations at issue. In some of these cases, disgorgement

or other monetary remedies were imposed as well, and all but three of the settlements

also required compliance plans designed to prevent reoccurrence of the violations

issued 12 orders approving these settlements.33

The civil penalties ranged from $300,000 to $10 million, and reflected a wide variety in

the type and seriousness of the violations at issue. In some of these cases, disgorgement

or other monetary remedies were imposed as well, and all but three of the settlements

also required compliance plans designed to prevent reoccurrence of the violations. We

also issued two Orders to Show Cause, based on Enforcement staff’s allegations of

30 Report on Enforcement, Docket No. AD07-13-000, at 21 (Nov. 14, 2007). No

sanctions were imposed in the twenty-two investigations because the violations were

relatively minor in nature and resulted in little or no actual harm. In addition, in some of

those investigations, the violations predated the effective date of the Commission’s

expanded penalty authority under EPAct 2005.

31 Id.

32 Id. at 15.

33 See In re BP Energy Co., 121 FERC ¶ 61,088 (2007); In re MGTC, Inc., 121

FERC ¶ 61,087 (2007); In re Gexa Energy L.L.C., 120 FERC ¶ 61,175 (2007); In re

Cleco Power, LLC, 119 FERC ¶ 61,271 (2007); In re Columbia Gulf Transmission Co.,

119 FERC ¶ 61,174 (2007); In re Calpine Energy Services, L.P., 119 FERC ¶ 61,125

(2007); In re Bangor Gas Co., 118 FERC ¶ 61,186 (2007); In re NRG Energy, Inc.,

118 FERC ¶ 61,025 (2007); In re NorthWestern Corp., 118 FERC ¶ 61,029 (2007); In re

Entergy Services, Inc., 118 FERC ¶ 61,027 (2007); In re SCANA Corp.; 118 FERC

¶ 61,028 (2007); In re PacifiCorp, 118 FERC ¶ 61,026 (2007).

9 FERC ¶ 61,174 (2007); In re Calpine Energy Services, L.P., 119 FERC ¶ 61,125

(2007); In re Bangor Gas Co., 118 FERC ¶ 61,186 (2007); In re NRG Energy, Inc.,

118 FERC ¶ 61,025 (2007); In re NorthWestern Corp., 118 FERC ¶ 61,029 (2007); In re

Entergy Services, Inc., 118 FERC ¶ 61,027 (2007); In re SCANA Corp.; 118 FERC

¶ 61,028 (2007); In re PacifiCorp, 118 FERC ¶ 61,026 (2007).

Docket No. PL10-4-000

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possible violations of a former Market Behavior Rule34 and the current Anti-

Manipulation Rule.35 Reflecting the seriousness of the allegations in those cases, those

orders portended the possibility of near maximum statutory penalties.

13.

Given the importance and nascence of this new enforcement regime, Enforcement

staff prepared a report summarizing the enforcement actions it took in the first two years

after issuance of EPAct 2005,36 and the Commission held a widely-attended Conference

on Enforcement Policy (Enforcement Conference) on November 16, 2007, to entertain

questions and suggestions regarding our enforcement program.37

14.

The Enforcement Conference generated many thoughtful comments, questions, and

suggestions, including requests for additional information on how we apply the factors

set out in our 2005 Policy Statement and suggestions that the Commission adopt a

guidelines approach to determine penalties. These requests and suggestions led the

Commission to issue a Revised Policy Statement on Enforcement (Revised Policy

Statement).

Revised Policy Statement on Enforcement and Policy Statement on

Compliance

15.

In 2008, we issued two additional policy statements to provide further guidance on

our enforcement program. First, on May 15, 2008, the Commission issued the Revised

Policy Statement to supersede the 2005 Policy Statement and provide industry with a

34 18 C.F.R

evised Policy Statement on Enforcement and Policy Statement on

Compliance

15.

In 2008, we issued two additional policy statements to provide further guidance on

our enforcement program. First, on May 15, 2008, the Commission issued the Revised

Policy Statement to supersede the 2005 Policy Statement and provide industry with a

34 18 C.F.R. § 284.403(a)(2005) (at the time of the alleged violations, this

regulation included the now rescinded Market Behavior Rule 2); Energy Transfer

Partners, L.P., 120 FERC ¶ 61,086 (2007).

35 18 C.F.R. § 1c.1-1c.2 (2007); Amaranth Advisors LLC, 120 FERC ¶ 61,085

(2007).

36 Report on Enforcement, Docket No. AD07-13-000 (Nov. 14, 2007). This report

was well-received by the regulated community, and Enforcement staff has continued to

issue this report on an annual basis.

37 Conference on Enforcement Policy, Docket No. AD07-13-000 (Nov. 16, 2007).

Docket No. PL10-4-000

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fuller picture of Enforcement staff’s investigative process and the factors we consider to

determine whether a penalty is warranted and, if so, the amount of such penalty.38

Second, on October 16, 2008, we issued the Policy Statement on Compliance to discuss

factors related to effective compliance that the Commission will consider in determining

whether to reduce or, where appropriate, even eliminate civil penalties for violations.39

16.

In the Revised Policy Statement, the Commission re-emphasized that the two most

important factors are seriousness of the offense and the strength of an organization’s

commitment to compliance.40 As to the compliance factor, the Commission provided

additional guidance not included in the 2005 Policy Statement as to what specifically

constitutes an effective compliance program.41 The Policy Statement on Compliance

further supplemented our discussion as to the specific factors underpinning effective

compliance programs

and the strength of an organization’s

commitment to compliance.40 As to the compliance factor, the Commission provided

additional guidance not included in the 2005 Policy Statement as to what specifically

constitutes an effective compliance program.41 The Policy Statement on Compliance

further supplemented our discussion as to the specific factors underpinning effective

compliance programs. There, we enumerated four hallmarks of effective compliance

programs: active engagement and leadership by senior management; effective preventive

measures; prompt detection and cessation of violations and voluntary reporting of

violations; and remediation of the misconduct.42 Thus, with both the Revised Policy

Statement and Policy Statement on Compliance, the Commission placed a renewed and

heavy emphasis on promoting industry-wide compliance and the creation of effective

compliance programs.

17.

As was the case with the 2005 Policy Statement, the Commission once again was

heavily influenced by the factors enumerated in the Sentencing Guidelines. For example,

the hallmarks of an effective compliance program that we listed in the Policy Statement

on Compliance are all included in the Sentencing Guidelines.43 Nevertheless, the

Commission continued to decline various commenters’ suggestions that we adopt a

penalty guidelines approach like that used by the DOJ. We explained in the Revised

38 Enforcement of Statutes, Regulations and Orders, 123 FERC ¶ 61,156 (2008)

(Revised Policy Statement).

39 Policy Statement on Compliance, 125 FERC ¶ 61,058 (2008).

40 Revised Policy Statement at P 54.

41 Id. P 59.

42 Policy Statement on Compliance at PP 13-21.

43 See U.S.S.G. § 8B2.1.

s that we adopt a

penalty guidelines approach like that used by the DOJ. We explained in the Revised

38 Enforcement of Statutes, Regulations and Orders, 123 FERC ¶ 61,156 (2008)

(Revised Policy Statement).

39 Policy Statement on Compliance, 125 FERC ¶ 61,058 (2008).

40 Revised Policy Statement at P 54.

41 Id. P 59.

42 Policy Statement on Compliance at PP 13-21.

43 See U.S.S.G. § 8B2.1.

Docket No. PL10-4-000

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Policy Statement that “[o]ur two years of experience in administering the enhanced

penalty authority granted under EPAct 2005 has not yet convinced us to revise our

decision [from the 2005 Policy Statement] at this time.”44 We left open the possibility of

moving to a guidelines approach in the future, indicating that a guidelines approach might

be more feasible when “the Commission develops more experience in reviewing matters

involving its enforcement authority.”45

United States Sentencing Guidelines

18.

The section of the Sentencing Guidelines that applies to organizations involves a

two-step process to determine the ultimate fine range that an organization will be

required to pay after being sentenced for a crime. First, the Sentencing Guidelines

require the calculation of a base fine.46 The base fine is the greater of the gain to the

organization, the loss caused by the conduct, or a pre-determined amount that is

generated by the offense level and is enumerated in the guidelines.47 Second, the

Sentencing Guidelines produce a multiplier range for the base fine, which requires an

analysis of the organization’s culpability, considering factors similar to those the

Commission considers, such as whether the organization has a prior history of violations,

whether high-level management was involved in the offense, whether the organization

has self-reported and accepted responsibility for its conduct, whether the organization had

an effective compliance program at the time it committed its offense, and whether the

organization cooperated with government author

mmission considers, such as whether the organization has a prior history of violations,

whether high-level management was involved in the offense, whether the organization

has self-reported and accepted responsibility for its conduct, whether the organization had

an effective compliance program at the time it committed its offense, and whether the

organization cooperated with government authorities.48 The multiplier and the base fine

are then combined to calculate a fine range for the conduct.49

19.

Imposing a sentence or fine generated by the Sentencing Guidelines is not

mandatory. The Sentencing Guidelines themselves provide for a departure process where

44 Revised Policy Statement at P 52.

45 Id. P 53. See also Policy Statement on Compliance at P 22 (explaining that the

“appropriate result must be determined on a case-by-case basis”).

46 See U.S.S.G. § 8C2.4.

47 Id.

48 See id. § 8C2.5.

49 See id. § 8C2.6.

Docket No. PL10-4-000

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a judge may impose a sentence higher or lower than the relevant guidelines range.50 In

addition, the Supreme Court in United States v. Booker held that under the Sixth

Amendment the Sentencing Guidelines are advisory, not mandatory, in nature and that

federal judges are required only to consider the guidelines.51 As a practical matter,

though, a majority of federal criminal sentences fall within the designated Sentencing

Guidelines range.52

20.

For over two decades, federal courts have used the Sentencing Guidelines to

determine sentences and fines in federal criminal cases. Although the Sentencing

Guidelines have not existed without controversy in the criminal law community, they are

designed to promote many of the same policy goals that we promote at the Commission

es fall within the designated Sentencing

Guidelines range.52

20.

For over two decades, federal courts have used the Sentencing Guidelines to

determine sentences and fines in federal criminal cases. Although the Sentencing

Guidelines have not existed without controversy in the criminal law community, they are

designed to promote many of the same policy goals that we promote at the Commission.

Specifically, the Sentencing Guidelines are designed to provide certainty and fairness by

avoiding unjustified disparity among offenders with similar characteristics, while

permitting enough flexibility to account for applicable aggravating and mitigating

factors.53 Moreover, by providing a predictable sentence, the Sentencing Guidelines

operate as a deterrent to misconduct. Since nationwide implementation of the Sentencing

Guidelines in January 1989, federal judges have sentenced more than one million

defendants under the Sentencing Guidelines.54

50 See, e.g., id. §§ 1B1.4; 5K2.0 (“A departure may be warranted in the exceptional

case in which there is present a circumstance that the Commission has not identified in

the guidelines but that nevertheless is relevant to determining the appropriate sentence.”).

51 543 U.S. 220, 264 (2005).

52 Since Booker, the United States Sentencing Commission has conducted national

comparisons of sentences imposed by judges relative to the Sentencing Guidelines range.

Since 2006, approximately sixty percent of sentences have fallen within the guidelines

range annually. See United States Sentencing Commission, Final Quarterly Data Report,

Fiscal Year 2006, at 1 (61.7 percent); Fiscal Year 2007, at 1 (60.8 percent); Fiscal Year

2008, at 1 (59.4 percent); Preliminary Report, Fiscal Year 2009, at 1 (57.1 percent

through September 30, 2009).

53 See An Overview of the United States Sentencing Commission at 1, June 2009,

available at http://www.ussc.gov/general/USSC_Overview_200906.pdf.

54 Id. at 2.

, Final Quarterly Data Report,

Fiscal Year 2006, at 1 (61.7 percent); Fiscal Year 2007, at 1 (60.8 percent); Fiscal Year

2008, at 1 (59.4 percent); Preliminary Report, Fiscal Year 2009, at 1 (57.1 percent

through September 30, 2009).

53 See An Overview of the United States Sentencing Commission at 1, June 2009,

available at http://www.ussc.gov/general/USSC_Overview_200906.pdf.

54 Id. at 2.

Docket No. PL10-4-000

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ease

21.

In 1991, the United States Sentencing Commission (Sentencing Commission)

created a new chapter of the Sentencing Guidelines related to sentencing of

organizations. The purpose of this chapter, much like the Commission’s purpose in

assessing penalties against organizations, is to provide “just punishment, adequate

deterrence, and incentives for organizations to maintain internal mechanisms for

preventing, detecting, and reporting criminal conduct.”55 After implementing this

chapter related to organizations in 1991, the number of indicted organizations increased

rapidly, then declined, and has now continued to increase in recent years.56 The incr

in indictments has led corporations to operate more cautiously and to devote significan

attention and resources to self-policing programs.57

22.

Since the Sentencing Guidelines went into effect nationwide in 1989, the Supreme

Court has upheld their constitutionality, even while rejecting the mandatory nature of

them in Booker. In 1989, defendants began challenging the constitutionality of the

Sentencing Guidelines, arguing that they represented improper legislative delegation and

a violation of the separation of powers doctrine. The Court rejected these arguments in

Mistretta v

ct nationwide in 1989, the Supreme

Court has upheld their constitutionality, even while rejecting the mandatory nature of

them in Booker. In 1989, defendants began challenging the constitutionality of the

Sentencing Guidelines, arguing that they represented improper legislative delegation and

a violation of the separation of powers doctrine. The Court rejected these arguments in

Mistretta v. United States.58 In Booker, the Court held that the Sixth Amendment right to

a jury trial applies to the Sentencing Guidelines.59 As a result, the Court held that district

courts are not bound by the Sentencing Guidelines, but they must at least consult them

when sentencing.60 Even while making the Sentencing Guidelines advisory, the Court in

Booker recognized that the guidelines still would serve the purpose of “provid[ing]

certainty and fairness in meeting the purposes of sentencing, [while] avoiding

unwarranted sentencing disparities . . . [and] maintaining sufficient flexibility to permit

individualized sentences when warranted.”61

55 U.S.S.G. § 8A1.1 (Introductory Commentary).

56 Melissa Ku & Lee Pepper, Corporate Criminal Liability, 45 Am. Crim. L. Rev.

275, 289 (2008).

57 Id.

58 488 U.S. 361 (1989).

59 543 U.S. 220, 226-27 (2005).

60 Id.

61 Id. (citation and internal quotations omitted).

Docket No. PL10-4-000

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23.

Thus, the Sentencing Guidelines have been tested for more than twenty years and

used to promote fairness, consistency, and efficiency in sentencing for federal criminal

cases. More than one million defendants, including many organizations, have been

sentenced and fined under the Sentencing Guidelines.

III.

Discussion

24.

As demonstrated above, since the passage of EPAct 2005 we have continuously

sought and implemented methods to bring more fairness, consistency, and transparency

to our enforcement program

d efficiency in sentencing for federal criminal

cases. More than one million defendants, including many organizations, have been

sentenced and fined under the Sentencing Guidelines.

III.

Discussion

24.

As demonstrated above, since the passage of EPAct 2005 we have continuously

sought and implemented methods to bring more fairness, consistency, and transparency

to our enforcement program. Most recently, we: (1) formalized a process by which

Enforcement staff will provide exculpatory evidence to subjects of its investigations and

respondents in administrative enforcement proceedings;62 and (2) authorized the Director

of the Office of Enforcement to direct the Secretary of the Commission to issue

Enforcement staff’s preliminary notice of violations after the subject of an investigation

has had an opportunity to respond to Enforcement staff’s preliminary findings letter.63

25.

Until now, however, we have chosen not to use the Sentencing Guidelines, or any

other guidelines approach, to apply various penalty factors. Instead, we have chosen to

apply the factors more generally. For the reasons discussed below, we now believe that

the advantages of a penalty guidelines approach outweigh the disadvantages and that we

have gained sufficient experience to employ a guidelines approach as a significant factor

to be considered in determining civil penalties.

The Penalty Guidelines Approach

26.

On balance, the Commission believes that it is in the public’s interest to use a

guidelines approach to determine civil penalties patterned after the Sentencing Guidelines

related to organizations. The multiple advantages of a guidelines approach outweigh the

disadvantages, and we believe that we now have enough experience with various types of

enforcement actions to implement such an approach

n balance, the Commission believes that it is in the public’s interest to use a

guidelines approach to determine civil penalties patterned after the Sentencing Guidelines

related to organizations. The multiple advantages of a guidelines approach outweigh the

disadvantages, and we believe that we now have enough experience with various types of

enforcement actions to implement such an approach. We believe further that the

Sentencing Guidelines provide the best model to adapt to Commission purposes because

they focus on factors—such as the seriousness and remediation of a violation—that

reflect the requirements of EPAct 2005 and that we believe are the centerpiece of our

penalty regime. Moreover, the Sentencing Guidelines allow for the consideration of a

62 Enforcement of Statutes, Regulations, and Orders, 129 FERC ¶ 61,248 (2009),

reh’g pending.

63 Enforcement of Statutes, Regulations, and Orders, 129 FERC ¶ 61,247 (2009).

Docket No. PL10-4-000

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wide range of additional factors that are also important, while still providing sufficient

flexibility to allow for departures where necessary.

27.

The advantages of the penalty guidelines approach we adopt today reflect our

continual efforts to promote greater fairness, consistency, and transparency in our

enforcement program. The adoption of the Penalty Guidelines promotes greater fairness

and ensures greater proportionality in violations by more rigorously imposing

appropriately different penalties for conduct of differing severity. At the same time, the

Commission retains the discretion to depart from the Penalty Guidelines as necessary.

28.

Determining penalties based on a guidelines approach also promotes consistency

by basing the penalty calculations on a set of uniform factors that are weighted similarly

for similar types of violations and similar types of violators. To date, we have attempted

to treat cases consistently

time, the

Commission retains the discretion to depart from the Penalty Guidelines as necessary.

28.

Determining penalties based on a guidelines approach also promotes consistency

by basing the penalty calculations on a set of uniform factors that are weighted similarly

for similar types of violations and similar types of violators. To date, we have attempted

to treat cases consistently. As an analytical exercise, however, it is simply more difficult

to compare outcomes in particular cases and determine if they are “consistent” as

opposed to consistently applying the same factors to all cases to reach results. This

problem of “back end” consistency review becomes even greater as the “database” of

cases grows and the cases become ever more varied from one another. The uniformity of

the guidelines approach reduces the potential disparities in penalties that might otherwise

arise for similar violations committed by similarly situated offenders, particularly

because a uniform approach ensures that similar cases are considered based on more than

just institutional judgment.

29.

The guidelines approach promotes greater transparency by providing notice to

organizations as to how we will determine civil penalties for violations of the statutes,

rules, regulations, restrictions, conditions, or orders overseen by the Commission. This

will add to organizations’ confidence in the fairness and consistency of our enforcement

program. Determining penalties based on the Penalty Guidelines avoids potential

confusion in the industry regarding the bases behind particular penalties. Further,

organizations will gain a greater understanding of which types of violations the

Commission views as most important. This, in turn, will help organizations best allocate

resources to the most important compliance objectives, leading to more robust and

effective compliance.

30.

Another benefit of using a guidelines approach is the relative ease of administration

in determining civil penalties

rganizations will gain a greater understanding of which types of violations the

Commission views as most important. This, in turn, will help organizations best allocate

resources to the most important compliance objectives, leading to more robust and

effective compliance.

30.

Another benefit of using a guidelines approach is the relative ease of administration

in determining civil penalties. Determining appropriate civil penalties has been a

complex process, made more difficult and time consuming by the present and inevitable

lack of uniformity of the analyses in cases. Modeled on the Sentencing Guidelines, the

Penalty Guidelines allow for a more straightforward process, while still allowing us the

discretion to depart from the guidelines where appropriate.

Docket No. PL10-4-000

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31.

We have confidence in the fairness of the Penalty Guidelines because they are

modeled on the Sentencing Guidelines. We base our new approach on the Sentencing

Guidelines because they are largely driven by the same factors in our policy statements

on enforcement and that we believe should be the focus of our penalty regime. The

Sentencing Guidelines consider similar factors to those present in our policy statements

on enforcement, but do so in a more focused manner. For instance, while the current

enforcement statements consider generally the harm caused by the violation, the

Sentencing Guidelines explicitly incorporate a dollar value estimate of the harm into the

base penalty determination.64 Similarly, the current enforcement policy statement

considers whether the organization had a robust internal compliance program generally.

In contrast, the Sentencing Guidelines provide a specified and substantial reduction in the

culpability score if the violation occurred while the organization had such a program in

place.65

32.

We recognize that a guidelines approach is not without some disadvantages

rrent enforcement policy statement

considers whether the organization had a robust internal compliance program generally.

In contrast, the Sentencing Guidelines provide a specified and substantial reduction in the

culpability score if the violation occurred while the organization had such a program in

place.65

32.

We recognize that a guidelines approach is not without some disadvantages. A

guidelines approach provides less flexibility and discretion than a more generalized

approach. Similarly, a guidelines approach always creates the possibility of outcomes not

adequately accounting for all of the specifics of a case. This is inevitable with any

guidelines-based system, including the Sentencing Guidelines. Indeed, a system tailored

to fit every conceivable circumstance of a case would likely prove unworkable. The

Penalty Guidelines, however, reduce the impact of this concern by allowing us to depart

from the guidelines where we deem appropriate. This departure mechanism allows us to

account for unique or exceptional factors that might arise in a case. In addition, we have

made certain modifications and changes to the Sentencing Guidelines in our Penalty

Guidelines to account for recurring Commission-specific considerations that have arisen

in our experience since EPAct 2005. Also, the Commission will continue to determine

penalties based on the individual facts and circumstances for certain violations, such as

for natural persons as opposed to organizations,66 and for cases involving multiple types

of violations.67 Finally, we also retain some discretion because the Penalty Guidelines

produce a penalty range, rather than an absolute figure. Specific facts of each case will

determine where in the range the ultimate penalty might fall. Overall, we retain sufficient

64 Compare Revised Policy Statement at P 55, with U.S.S.G § 8C2.4.

65 Compare Revised Policy Statement at PP 57-60, with U.S.S.G § 8B2.1.

66 Penalty Guidelines § 1A1.1 (Commentary note 1).

67 Id. § 1C2.1(b).

produce a penalty range, rather than an absolute figure. Specific facts of each case will

determine where in the range the ultimate penalty might fall. Overall, we retain sufficient

64 Compare Revised Policy Statement at P 55, with U.S.S.G § 8C2.4.

65 Compare Revised Policy Statement at PP 57-60, with U.S.S.G § 8B2.1.

66 Penalty Guidelines § 1A1.1 (Commentary note 1).

67 Id. § 1C2.1(b).

Docket No. PL10-4-000

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discretion and flexibility in those cases where the Penalty Guidelines produce a penalty

that does not “fit” the violation for one reason or another. We do not intend to depart

from the Penalty Guidelines regularly, but neither will we always adhere to a rigid

application of them.

33.

With the Penalty Guidelines, organizations may be able to estimate their civil

penalty exposure with various violations. As such, some would argue that the guidelines

approach creates the potential that organizations will engage in cost-benefit analyses and

decide that the benefits of committing a violation outweigh the cost of a potential civil

penalty. On the other hand, it would be difficult for an organization to adequately predict

all of the effects of its misconduct before committing the violations. This uncertainty in

how an organization’s violation would actually “play out” would likely hinder the

organization’s ability to accurately estimate, in advance of the misconduct, its civil

penalty. Also, such gaming by organizations would likely trigger penalty enhancements

intended to deter willful misconduct.68

34.

Another consideration weighing against adopting a guidelines approach is the

continuing need to keep the model current with statutory, regulatory, and policy changes.

The Commission’s priorities change over time, and we have a history of re-examining

and refining our approach to determining civil penalties. This is a cost that is embedded

in all approaches to determining penalties

34.

Another consideration weighing against adopting a guidelines approach is the

continuing need to keep the model current with statutory, regulatory, and policy changes.

The Commission’s priorities change over time, and we have a history of re-examining

and refining our approach to determining civil penalties. This is a cost that is embedded

in all approaches to determining penalties. Indeed, when Congress created the

Sentencing Guidelines regime, it directed the Sentencing Commission to continually

monitor the Sentencing Guidelines, to submit to Congress appropriate modifications to

the Sentencing Guidelines, and to establish education and research programs related to

the guidelines. In so directing the Sentencing Commission, Congress recognized that

“sentencing is a dynamic field that requires continuing review by an expert body to revise

sentencing policies, in light of application experience, as new criminal statutes are

enacted, and as more is learned about what motivates and controls criminal behavior.”69

Enforcement staff, working with the Commission, will have to attend to this task, but it is

not an unreasonably difficult one. We anticipate that the Penalty Guidelines will be

adjusted and amended as necessary and appropriate in light of reason and experience, as

well as to reflect changes in the law and enforcement practice and policy. In addition,

Enforcement staff will hold a technical conference one year from the implementation of

the Penalty Guidelines to discuss how the Penalty Guidelines have worked and to permit

comments and questions from the industry.

68 See, e.g., id. § 1C2.3(b)(1)-(5).

69 U.S.S.G., Chapter 1, Part A, Introductory Commentary.

to reflect changes in the law and enforcement practice and policy. In addition,

Enforcement staff will hold a technical conference one year from the implementation of

the Penalty Guidelines to discuss how the Penalty Guidelines have worked and to permit

comments and questions from the industry.

68 See, e.g., id. § 1C2.3(b)(1)-(5).

69 U.S.S.G., Chapter 1, Part A, Introductory Commentary.

Docket No. PL10-4-000

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35.

After balancing the foregoing factors, we believe that the benefits outweigh the

disadvantages and that a guidelines approach to determining penalties is best for the

Commission, organizations, and the public at large. Most of the potential downsides are

minimal, more perceived than likely, and more administrative than substantive. We have

several years of experience in determining penalties and, at this juncture, determine it

appropriate to use the Penalty Guidelines.

36.

Courts have acknowledged the benefits of an agency issuing a policy statement

designed to inform the public as to the approach the agency plans to take in future

cases.70 Courts have also recognized the limitations of policy statements. Consistent

with this precedent, we recognize that, as a policy statement, the Penalty Guidelines are

neither a rule nor a precedent but instead are an announcement to the public of the course

the Commission intends to follow in future penalty determinations. In addition, when the

Commission applies the Penalty Guidelines, we must be prepared to support the

application of the Guidelines.

IV. Description of the Commission’s Penalty Guidelines

Calculation of Civil Penalties Under Penalty Guidelines

37.

The attached Penalty Guidelines provide the details of our new approach and need

to be carefully applied in each case. The purpose of this section, however, is to describe

in summary fashion how our new Penalty Guidelines work in practice. Like the

Sentencing Guidelines, our model generates a penalty range based on the combination of:

lation of Civil Penalties Under Penalty Guidelines

37.

The attached Penalty Guidelines provide the details of our new approach and need

to be carefully applied in each case. The purpose of this section, however, is to describe

in summary fashion how our new Penalty Guidelines work in practice. Like the

Sentencing Guidelines, our model generates a penalty range based on the combination of:

(1) a violation level, consisting of a base level that is adjusted for various seriousness

factors; and (2) a culpability score, which considers an organization’s past and current

conduct and efforts to remedy the violation. Generating a final penalty range can be

broken down into five discrete steps.

Step One: Base Violation Level

38.

Step one involves identifying the “base violation level” from an applicable Chapter

Two guideline.71 Specifically, Chapter Two consists of three separate guidelines for

various types of violations, each containing a unique “base violation level:”

70 Pacific Gas and Electric v. FPC, 506 F.2d 33, 38 (D.C. Cir. 1974) (PGE);

Panhandle Eastern Pipe Line Co. v. FERC, 198 F.3d 266, 269-70 (D.C. Cir. 1999).

71 Penalty Guidelines § 1C2.1(a).

Docket No. PL10-4-000

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” of eighteen.

(1) violations of the Reliability Standards for the Bulk Electric System of North America

carry a “base violation level” of sixteen;72 (2) violations involving fraud, manipulation,

or anti-competitive conduct and violations of rules, tariffs, and orders carry a “base

violation level” of six;73 and (3) violations involving misrepresentations and false

statements to the Commission carry a “base violation level

ii.

Step Two: Adjustments

lk Electric System of North America

carry a “base violation level” of sixteen;72 (2) violations involving fraud, manipulation,

or anti-competitive conduct and violations of rules, tariffs, and orders carry a “base

violation level” of six;73 and (3) violations involving misrepresentations and false

statements to the Commission carry a “base violation level

ii.

Step Two: Adjustments

39.

Step two involves applying, in the order listed, any appropriate adjustments

contained in the applicable Chapter Two guideline.75 Specifically, each Chapter Two

guideline contains specific adjustments that account for circumstances that are specific to

the type of violation at issue. For example, the guideline for violations of the Reliability

Standards has adjustments based on the risk of loss caused by the particular violation.76

Many violations of the Reliability Standards pose a risk of serious harm, but did not, on

their facts, result in actual harm. These adjustments account for this reality and consider

two primary factors: the amount of potential injury and the likelihood of that injury

actually occurring. As an example, if we find that the violation created either a high risk

of substantial harm or a low risk of major harm, seven points will be added to the “base

violation level.”77

40.

The guideline for violations involving fraud, manipulation, or anti-competitive

conduct and violations of rules, tariffs, and orders contains adjustments for the monetary

gain or loss caused by the violation and the scope of the violation.78 The adjustment for

gain or loss has the potential to significantly increase an organization’s civil penalty. For

example, if an organization causes a loss of more than $1 million, sixteen points would

be added to the “base violation level” and, as a result, the ultimate penalty would increase

72 Id. § 2A1.1(a).

73 Id. § 2B1.1(a).

74 Id. § 2C1.1(a).

75 Id. § 1C2.1(a).

76 See id. § 2A1.1(b)(1).

77 Id

ificantly increase an organization’s civil penalty. For

example, if an organization causes a loss of more than $1 million, sixteen points would

be added to the “base violation level” and, as a result, the ultimate penalty would increase

72 Id. § 2A1.1(a).

73 Id. § 2B1.1(a).

74 Id. § 2C1.1(a).

75 Id. § 1C2.1(a).

76 See id. § 2A1.1(b)(1).

77 Id. § 2A1.1(b)(1)(D).

78 Id. § 2B1.1(b)(1)-(2).

Docket No. PL10-4-000

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accordingly. The adjustments for scope consider the volume of energy involved in the

violation as well as the violation’s duration.79 Further, this guideline contains an

adjustment that creates a floor violation level of sixteen for violations that present a

serious threat to market transparency.80 The guideline for misrepresentations and false

statements contains upward adjustments for violations resulting in substantial

interference with the administration of justice and violations involving spoliation of

records or that are otherwise extensive in scope, planning, or preparation.81

41.

Applying the foregoing adjustments to the “base violation level” from step one

generates a final “violation level.” Each “violation level” then corresponds to a specific

dollar amount listed in a table in Chapter One, section 1C2.2(b), which plays a role in

determining the “base penalty,” discussed below.

iii.

Step Three: Base Penalty

42.

Step three involves calculating a “base penalty,” which is the greater of: (1) the

dollar amount from the table in section 1C2.2(b) that corresponds to the applicable

violation level, described above; (2) the pecuniary gain to the organization from the

violation; or (3) the pecuniary loss from the violation caused by the organization.82 As

79 Id. § 2B1.1(b)(2).

80 Id. § 2B1.1(b)(3). “Flipping” transactions, for example, present a serious threat

to market transparency

2.2(b) that corresponds to the applicable

violation level, described above; (2) the pecuniary gain to the organization from the

violation; or (3) the pecuniary loss from the violation caused by the organization.82 As

79 Id. § 2B1.1(b)(2).

80 Id. § 2B1.1(b)(3). “Flipping” transactions, for example, present a serious threat

to market transparency. These transactions disguise what is in effect a long-term

discounted release of firm capacity as a series of short-term releases, circumventing the

Commission’s capacity release rules that require competitive bidding for long-term

discounted releases and, thereby, denying access to the capacity to interested market

participants. See, e.g., In re BP Energy Co., 121 FERC ¶ 61,088 (2007). Violations of

an organization’s Open Access Same-time Information System (OASIS) posting

requirements provide another example. An organization’s failure to post information on

OASIS, for example, results in a lack of transparency because transmission customers are

not able to view information regarding the transmission system, including information

about available products and desired services. See, e.g., Entergy Servs., Inc., 118 FERC

¶ 61,027 (2007).

81 Id. § 2C1.1(b)(1)-(2). “Substantial interference with the administration of

justice” includes the unnecessary expenditure of substantial Commission resources.

82 Id. § 1C2.2(a)(1)-(3).

are

not able to view information regarding the transmission system, including information

about available products and desired services. See, e.g., Entergy Servs., Inc., 118 FERC

¶ 61,027 (2007).

81 Id. § 2C1.1(b)(1)-(2). “Substantial interference with the administration of

justice” includes the unnecessary expenditure of substantial Commission resources.

82 Id. § 1C2.2(a)(1)-(3).

Docket No. PL10-4-000

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described in step five, this “base penalty” will be combined with “minimum and

maximum multipliers,” stemming from an organization’s “culpability score,” to generate

penalty ranges.

iv.

Step Four: Culpability Score

43.

Step four involves calculating an organization’s “culpability score.” Each

organization’s “culpability score” starts with a base score of five and is then adjusted

upward or downward depending on six separate considerations.83

44.

First, we will adjust the “culpability score” upwards in pre-determined amounts

where high-level personnel of the organization or unit of the organization within which

the violation occurred participated in, condoned, or were willfully ignorant of the

violation.84 We also consider whether tolerance of the violation by substantial authority

personnel was pervasive throughout the organization or unit of the organization within

which the violation occurred.85 Following the Sentencing Guidelines, this factor is tied

to the size of the organization and the unit of the organization within which the violatio

occurred. For example, we will increase the “culpability score” by five points where this

factor applies to an organization with 5,000 or more employees, four points if 1,000 or

more employees, three points if 200 or more employees, two points if fifty or more

employees, and one point if ten or more employees.

45.

Second, we will increase the “culpability score” where the organization has a prior

history of committing violations

factor applies to an organization with 5,000 or more employees, four points if 1,000 or

more employees, three points if 200 or more employees, two points if fifty or more

employees, and one point if ten or more employees.

45.

Second, we will increase the “culpability score” where the organization has a prior

history of committing violations. We will increase the “culpability score” by one point

where the organization committed any part of the instant violation less than ten years

after a prior Commission adjudication of any violation or less than ten years after an

adjudication of similar misconduct by other enforcement agencies.87 We will increase

83 Id. § 1C2.3(a).

84 Id. § 1C2.3(b).

85 Id.

86 Id. § 1C2.3(b)(1)-(5).

87 Id. § 1C2.3(c)(1). The other enforcement agencies would include those Federal

and state enforcement agencies that adjudicate similar types of matters as the

Commission.

Docket No. PL10-4-000

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the score by two points where the organization committed any part of the instant violation

less than five years after a prior Commission adjudication of any violation or less than

five years after an adjudication of similar misconduct by other enforcement agencies.88

46.

Third, following the Sentencing Guidelines, we will increase the “culpability

score” by two points if the violation violated a judicial or Commission order or injunction

directed at the organization by the Commission or other Federal and state enforcement

agencies that adjudicate similar types of matters as the Commission.89

ion of similar misconduct by other enforcement agencies.88

46.

Third, following the Sentencing Guidelines, we will increase the “culpability

score” by two points if the violation violated a judicial or Commission order or injunction

directed at the organization by the Commission or other Federal and state enforcement

agencies that adjudicate similar types of matters as the Commission.89

47.

Fourth, also following the Sentencing Guidelines, we will increase the “culpability

score” by three points where the organization obstructed justice, or encouraged

obstruction of justice, during the investigation or resolution of the violation.90 Three

points will also be added if the organization knew of such obstruction, but failed to take

reasonable steps to prevent it.91

48.

The fifth adjustment to the “culpability score” deals with an organization’s

compliance and ethics program and reemphasizes from our previous policy statements

the importance we place on compliance. Specifically, we will reduce an organization’s

“culpability score” by three points if the violation occurred despite the existence of an

effective compliance and ethics program at the time of the violation.92 Moreover,

Chapter One, Part B of our Penalty Guidelines details what is required for an

organization to have an effective compliance and ethics program.93 Part B is modeled

after section 8B2.1 of the Sentencing Guidelines, but is consistent with the four hallmarks

of effective compliance programs that we enumerated in our Policy Statement on

Compliance: active engagement and leadership by senior management; effective

88 Id. § 1C2.3(c)(2). “Prior adjudication” is defined in the Penalty Guidelines as

“any resolution, whether by trial or settlement, regardless whether the settlement included

an admission of the violation.” Penalty Guidelines § 1A1.1 (Commentary note 3(e)).

89 Id. § 1C2.3(d).

90 Id. § 1C2.3(e).

91 Id.

92 Id. § 1C2.3(f)(1).

93 See id. § 1B2.1.

leadership by senior management; effective

88 Id. § 1C2.3(c)(2). “Prior adjudication” is defined in the Penalty Guidelines as

“any resolution, whether by trial or settlement, regardless whether the settlement included

an admission of the violation.” Penalty Guidelines § 1A1.1 (Commentary note 3(e)).

89 Id. § 1C2.3(d).

90 Id. § 1C2.3(e).

91 Id.

92 Id. § 1C2.3(f)(1).

93 See id. § 1B2.1.

Docket No. PL10-4-000

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preventive measures; prompt detection and cessation of violations and voluntary

reporting of violations; and remediation of the misconduct.94

49.

Finally, we will decrease the “culpability score” for self-reporting, cooperation,

and acceptance of responsibility.95 We have always considered self-reporting and

cooperation, but we now also will give specific, transparent, and measurable credit if the

organization clearly demonstrates recognition and affirmative acceptance of

responsibility for its violation. Moreover, we will also reduce the “culpability score”

where the organization resolves the matter without the need for a trial-type hearing.

Organizations can substantially reduce their scores if they satisfy each of these elements.

Specifically, if an organization self-reports, exhibits full cooperation during the

investigation, admits the violation, and resolves the matter without the need for a trial-

type hearing, we will reduce the “culpability score” by five points.96

50.

Thus, the base “culpability score” of five is adjusted based on the six culpability

factors to produce a final “culpability score.” The final “culpability score” corresponds

to a set of “minimum and maximum multipliers” that are listed in a table in section 1C2.4

of our Penalty Guidelines

thout the need for a trial-

type hearing, we will reduce the “culpability score” by five points.96

50.

Thus, the base “culpability score” of five is adjusted based on the six culpability

factors to produce a final “culpability score.” The final “culpability score” corresponds

to a set of “minimum and maximum multipliers” that are listed in a table in section 1C2.4

of our Penalty Guidelines. For example, any “culpability score” of ten or higher

corresponds to “minimum and maximum multipliers” of 2.00 and 4.00.97 A “culpability

score” of zero or less corresponds to “minimum and maximum multipliers” of 0.05 and

0.20.98 “Culpability scores” one through nine also have corresponding “minimum and

maximum multipliers.”

Step Five: Multiplication of Base Penalty by Minimum and

Maximum Multipliers

51.

The fifth and final step involves multiplying the “base penalty” amount (from step

three) by the “minimum and maximum multipliers” (from step four) to produce the

94 Policy Statement on Compliance at PP 13-21.

95 Penalty Guidelines § 1C2.3(g).

96 Id. § 1C2.3(g)(1).

97 Id. § 1C2.4.

98 Id.

Docket No. PL10-4-000

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applicable penalty range.99 For example, a case involving a base penalty of $1 million

and “minimum and maximum multipliers” of 0.80 and 1.60 would generate a penalty

range of $800,000 to $1,600,000.

Specific Examples Calculating Civil Penalties Under the Penalty

Guidelines

52.

In addition to our general description above setting forth the steps involved in

calculating civil penalties under the Penalty Guidelines, we add further guidance below

by applying the guidelines using specific hypothetical examples.100

Example One: Market Manipulation in Violation of 18 C.F.R. §

53.

Our first example involves Organization A, a 450-employee organization that has

violated the Commission’s anti-manipulation regulation, 18 C.F.R. § 1c

involved in

calculating civil penalties under the Penalty Guidelines, we add further guidance below

by applying the guidelines using specific hypothetical examples.100

Example One: Market Manipulation in Violation of 18 C.F.R. §

53.

Our first example involves Organization A, a 450-employee organization that has

violated the Commission’s anti-manipulation regulation, 18 C.F.R. § 1c. Enforcement

staff learned, through a call to the Enforcement Hotline and through subsequent data

responses, that Organization A manipulated a specific market for a period of three weeks

and caused a loss of $75 million to other market participants. Organization A committed

multiple violations on each day during the three-week period. Organization A’s senior

management knew about and condoned the manipulative conduct, Organization A does

not have a prior history before the Commission, it did not violate an order specifically

directed at Organization A, and did not engage in obstruction of justice. At the time of its

violation, Organization A lacked an effective compliance program. Organization A fully

cooperated with Enforcement staff throughout Enforcement staff’s investigation.

Although it settled the case, Organization A refused to demonstrate an affirmative

acceptance of responsibility for its violations. To calculate a civil penalty for

Organization A, we would take the following steps:

 Step One: Base Violation Level

o Base violation for market manipulation = 6 (§ 2B1.1(a))

99 Id. § 1C2.5.

100 These examples are entirely hypothetical and the facts are not taken from any

of Enforcement staff’s prior or pending investigations.

ts violations. To calculate a civil penalty for

Organization A, we would take the following steps:

 Step One: Base Violation Level

o Base violation for market manipulation = 6 (§ 2B1.1(a))

99 Id. § 1C2.5.

100 These examples are entirely hypothetical and the facts are not taken from any

of Enforcement staff’s prior or pending investigations.

Docket No. PL10-4-000

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 Step Two: Adjustments

o Applicable Adjustments:

 Manipulation caused a loss of $75 million = add 24

(§ 2B1.1(b)(1)(M)) Manipulation lasted more than ten, but

less than fifty days = add 2 (§ 2B1.1(b)(2))

o Final violation level (adding the base and the adjustments) = 32,

which corresponds to $17,500,000 from the “Violation Level

Penalty Table” (§ 1C2.2(b))

 Step Three: Base Penalty

o Base penalty is the greater of: (a) the dollar amount from the

“Violation Level Penalty Table,” which in this case would be

$17,500,000 (see step two, above); (b) the pecuniary gain; or (c) the

pecuniary loss, which in this case was $75 million (§ 1C2.2)

o Because the pecuniary loss in this case ($75 million) was greater

than $17,500,000, the base penalty equals $75 million (§ 1C2.2)

 Step Four: Culpability Score

o Base culpability score = 5 (§ 1C2.3(a))

o There was senior management involvement and Organization A has

more than 200, but less than 1,000 employees = add 3 (§

1C2.3(b)(3))

o No prior history (§ 1C2.3(c))

o No violation of an order directed specifically at Organization A (§

1C2.3(d))

o No obstruction of justice (§ 1C2.3(e))

o No effective compliance program (§ 1C2.3(f))

o No self-report

o Organization A fully cooperated and avoided a trial-type hearing =

subtract 2 (§ 1C2.3(g))

tion A has

more than 200, but less than 1,000 employees = add 3 (§

1C2.3(b)(3))

o No prior history (§ 1C2.3(c))

o No violation of an order directed specifically at Organization A (§

1C2.3(d))

o No obstruction of justice (§ 1C2.3(e))

o No effective compliance program (§ 1C2.3(f))

o No self-report

o Organization A fully cooperated and avoided a trial-type hearing =

subtract 2 (§ 1C2.3(g))

Docket No. PL10-4-000

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o Organization A did not accept responsibility (§ 1C2.3(g))

o Total culpability score = 5+3-2 = 6

o A culpability score of 6 corresponds to minimum and maximum

multipliers of 1.20 and 2.40 (§ 1C2.4)

 Step Five: multiply base penalty amount by minimum and maximum

multipliers to determine penalty range (§ 1C2.5)

o Minimum penalty: $75,000,000 x 1.20 = $90,000,000

o Maximum penalty: $75,000,000 x 2.40 = $180,000,000

ii.

Example Two: Tariff Violation

54.

In our second example, Organization B, a 200-employee corporation that provides

electric transmission services, violated its Open Access Transmission Tariff (OATT) by

denying access to unrelated organizations without a valid reason and favoring its affiliate

instead. As a result, Organization B’s affiliate was able to make favorable sales in a

market in which it would have been unable to participate without Organization B’s

transmission. These favorable sales by Organization B’s affiliate totaled $1,700,000 in

that market. Organization’s B’s violation lasted for almost a full year. Organization B

self-reported these violations. Organization B’s senior management was not involved in

the violations, but Organization B committed the same type of violations less than two

years earlier. Organization B did not violate an order specifically directed at

Organization B, and it did not commit obstruction of justice. Organization B lacked an

effective compliance program at the time it committed its violations

ese violations. Organization B’s senior management was not involved in

the violations, but Organization B committed the same type of violations less than two

years earlier. Organization B did not violate an order specifically directed at

Organization B, and it did not commit obstruction of justice. Organization B lacked an

effective compliance program at the time it committed its violations. It fully cooperated

with Enforcement staff, settled the matter, and demonstrated an affirmative acceptance of

responsibility for its misconduct. To calculate a civil penalty for Organization B, we

would take the following steps:

 Step One: Base Violation Level

o Base violation for a tariff violation = 6 (§ 2B1.1(a))

 Step Two: Adjustments

o Applicable Adjustments:

 Organization B gained $1,700,000 = add 16 (§

2B1.1(b)(1)(I))

Docket No. PL10-4-000

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 OATT violations lasted more than 250 days = add 6 (§

2B1.1(b)(2))

o Final violation level (adding the base and the adjustments) = 28,

which corresponds to $6,300,000 from the “Violation Level Penalty

Table” (§ 1C2.2(b))

 Step Three: Base Penalty

o Base penalty is the greater of: (a) the dollar amount from the

“Violation Level Penalty Table,” which in this case would be

$6,300,000 (see step two, above); (b) the pecuniary gain, which in

this case was $1,700,000; or (c) the pecuniary loss (§ 1C2.2)

o Thus, the base penalty equals $6,300,000 (§ 1C2.2)

 Step Four: Culpability Score

o Base culpability score = 5 (§ 1C2.3(a))

o No senior management involvement

o Prior history less than 5 years after prior Commission adjudication =

add 2 (§ 1C2.3(c))

o No violation of an order directed specifically at Organization B (§

1C2.3(d))

o No obstruction of justice (§ 1C2.3(e))

o Organization B lacked an effective compliance program (§ 1C2.3(f))

o Organization B self-reported, fully cooperated, accepted

responsibility, and avoided a trial-type hearing = subtract 5 (§

1C2.3(g))

o Total culpability score = 5+2-5 = 2

o A culpability sco

1C2.3(c))

o No violation of an order directed specifically at Organization B (§

1C2.3(d))

o No obstruction of justice (§ 1C2.3(e))

o Organization B lacked an effective compliance program (§ 1C2.3(f))

o Organization B self-reported, fully cooperated, accepted

responsibility, and avoided a trial-type hearing = subtract 5 (§

1C2.3(g))

o Total culpability score = 5+2-5 = 2

o A culpability score of 2 corresponds to minimum and maximum

multipliers of 0.40 and 0.80 (§ 1C2.4)

 Step Five: multiply base penalty amount by minimum and maximum

multipliers to determine penalty range (§ 1C2.5)

Docket No. PL10-4-000

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o Minimum penalty: $6,300,000 x 0.40 = $2,520,000

o Maximum penalty: $6,300,000 x 0.80 = $5,040,000

iii.

Example Three: Capacity Release Violation

55.

Example three involves Organization C, a local distribution company that self-

reported shipper-must-have-title violations involving the transportation of natural gas on

three interstate pipelines during a two-year period. Organization C’s violations affected

the transparency of the applicable markets, but it did not earn any profits from its

transactions and did not cause any identifiable harm to other market participants.

Organization C’s senior management was not involved in the violations, and

Organization C did not have any history of violations before the Commission.

Organization C did not violate an order specifically directed at Organization C, and it did

not commit obstruction of justice. Organization C lacked an effective compliance

program at the time it committed its violations. It fully cooperated with Enforcement

staff, settled the matter, and demonstrated an affirmative acceptance of responsibility for

its misconduct

ons before the Commission.

Organization C did not violate an order specifically directed at Organization C, and it did

not commit obstruction of justice. Organization C lacked an effective compliance

program at the time it committed its violations. It fully cooperated with Enforcement

staff, settled the matter, and demonstrated an affirmative acceptance of responsibility for

its misconduct. To calculate a civil penalty for Organization C, we would take the

following steps:

 Step One: Base Violation Level

o Base violation level for capacity release violation = 6 (§ 2B1.1(a))

 Step Two: Adjustments

o Applicable Adjustments:

 Violations lasted more than 250 days = add 6 (§ 2B1.1(b)(2))

o Final violation level (adding the base and the adjustments) = 12, but

because the violations presented a serious threat to market

transparency, the violation level becomes 16. (§ 2B1.1(b)(3)). A 16

violation level corresponds to $175,000 from the “Violation Level

Penalty Table” (§ 1C2.2(b))

 Step Three: Base Penalty

o Base penalty is the greater of: (a) the dollar amount from the

“Violation Level Penalty Table,” which in this case would be

$175,000 (see step two, above); (b) the pecuniary gain, which in this

case was $0; or (c) the pecuniary loss, which in this case was $0 (§

1C2.2)

Docket No. PL10-4-000

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o Thus, the base penalty equals $175,000 (§ 1C2.2)

 Step Four: Culpability Score

o Base culpability score = 5 (§ 1C2.3(a))

o No senior management involvement

o No prior history (§ 1C2.3(c))

o No violation of an order directed specifically at Organization C (§

1C2.3(d))

o No obstruction of justice (§ 1C2.3(e))

o Organization C lacked an effective compliance program (§ 1C2.3(f))

o Organization C self-reported, fully cooperated, accepted

responsibility, and avoided a trial-type hearing = subtract 5 (§

1C2.3(g))

o Total culpability score = 5-5 = 0

o A culpability score of 0 corresponds to minimum and maximum

multipliers of 0.05 and 0.20 (§ 1C2.4)

 Step Five: multiply

tion of justice (§ 1C2.3(e))

o Organization C lacked an effective compliance program (§ 1C2.3(f))

o Organization C self-reported, fully cooperated, accepted

responsibility, and avoided a trial-type hearing = subtract 5 (§

1C2.3(g))

o Total culpability score = 5-5 = 0

o A culpability score of 0 corresponds to minimum and maximum

multipliers of 0.05 and 0.20 (§ 1C2.4)

 Step Five: multiply base penalty amount by minimum and maximum

multipliers to determine penalty range (§ 1C2.5)

o Minimum penalty: $175,000 x 0.05 = $8,750

o Maximum penalty: $175,000 x 0.20 = $35,000

iv.

Example Four: Violation of Reliability Standards

56.

Example four involves Organization D, a transmission owner which violated

Reliability Standard FAC-003-1, Requirement 2, for failing to implement its annual plan

for vegetation management work to ensure the reliability of the system. Organization D’s

vegetation management plan required it to perform, or contract with a third party vendor

to perform, annual aerial patrols of all of its transmission lines. The plan also required it

to verify that its vendors promptly and satisfactorily completed the patrols. One of

Organization D’s vendors failed to perform an aerial patrol, as required, and Organization

D never verified whether the work had been completed. As a result, no patrol had been

performed over a 500 kV line, which ultimately came into contact with an overgrown

s transmission lines. The plan also required it

to verify that its vendors promptly and satisfactorily completed the patrols. One of

Organization D’s vendors failed to perform an aerial patrol, as required, and Organization

D never verified whether the work had been completed. As a result, no patrol had been

performed over a 500 kV line, which ultimately came into contact with an overgrown

Docket No. PL10-4-000

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tree. The contact caused a loss of load to 20,000 customers for seven hours during the

middle of a work day. No one was injured as a result of the loss of load. The value of

the loss of load was $15 million. Organization D’s senior management was not involved

in the violations, and Organization D did not have any history of Reliability Standard

violations before the Commission. Organization D did not violate an order specifically

directed at Organization D, and it did not commit obstruction of justice. Organization D

lacked an effective compliance program at the time it committed its violations. It did not

self-report its violation, was not fully cooperative with Enforcement staff, and did not

demonstrate an affirmative acceptance of responsibility for its violation. Organization D,

however, did settle the matter, thus avoiding the need for a trial-type hearing. To

calculate a civil penalty for Organization D, we would take the following steps:

 Step One: Base Violation Level

o Base violation level = 16 (§ 2A1.1(a))

 Step Two: Adjustments

o Applicable Adjustments:

 Organization D’s violations created a moderate risk of

extreme harm = add 14 (§ 2A1.1(b)(1)(G))

o Final violation level (adding the base and the adjustments) = 30,

which corresponds to $10,500,000 from the “Violation Level

Penalty Table” (§ 1C2.2(b))

 Step Three: Base Penalty

o Base penalty is the greater of: (a) the dollar amount from the

“Violation Level Penalty Table,” which in this case would be

$10,500,000 (see step two, above); (b) the pecuniary gain; or (c) the

pecuniary loss,

al violation level (adding the base and the adjustments) = 30,

which corresponds to $10,500,000 from the “Violation Level

Penalty Table” (§ 1C2.2(b))

 Step Three: Base Penalty

o Base penalty is the greater of: (a) the dollar amount from the

“Violation Level Penalty Table,” which in this case would be

$10,500,000 (see step two, above); (b) the pecuniary gain; or (c) the

pecuniary loss, which in this case was $15,000,000 (§ 1C2.2)

o Thus, the base penalty equals $15,000,000 (§ 1C2.2)

 Step Four: Culpability Score

o Base culpability score = 5 (§ 1C2.3(a))

o No senior management involvement

o No prior history (§ 1C2.3(c))

Docket No. PL10-4-000

- 30 -

o No violation of an order directed specifically at Organization D

(§ 1C2.3(d))

o No obstruction of justice (§ 1C2.3(e))

o Organization D lacked an effective compliance program (§ 1C2.3(f))

o Organization D did not self-report, fully cooperate, or accept

responsibility (§ 1C2.3(g))

o Organization D avoided a trial-type hearing = subtract 1

o Total culpability score = 5-1 = 4

o A culpability score of 4 corresponds to minimum and maximum

multipliers of 0.80 and 1.60 (§ 1C2.4)

 Step Five: multiply base penalty amount by minimum and maximum

multipliers to determine penalty range (§ 1C2.5)

o Minimum penalty: $15,000,000 x 0.80 = $12,000,000

o Maximum penalty: $15,000,000 x 1.60 = $24,000,000

General Principles of Applicability

ulpability score = 5-1 = 4

o A culpability score of 4 corresponds to minimum and maximum

multipliers of 0.80 and 1.60 (§ 1C2.4)

 Step Five: multiply base penalty amount by minimum and maximum

multipliers to determine penalty range (§ 1C2.5)

o Minimum penalty: $15,000,000 x 0.80 = $12,000,000

o Maximum penalty: $15,000,000 x 1.60 = $24,000,000

General Principles of Applicability

57.

The Penalty Guidelines do not affect the Commission’s practice of requiring

disgorgement of unjust profits.101 In cases of identifiable pecuniary gain that results from

a violation, the Commission will continue to enter disgorgement orders for the full

amount of the gain, plus interest.102 The disgorgement amount is also relevant to

determining the base penalty, which, as described above, is the greater of (1) the dollar

amount from the table in section 1C2.2(b) that corresponds to the applicable violation

101 See Revised Policy Statement at P 42 (“It is important to note that the

Commission has discretion to order disgorgement not in lieu of, but in addition to, civil

penalties . . . .”).

102 Penalty Guidelines § 1B1.1(a).

Docket No. PL10-4-000

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level; (2) the pecuniary gain to the organization from the violation; or (3) the pecuniary

loss from the violation caused by the organization.103

58.

The Penalty Guidelines will generally be applicable to Commission cases, but, as

we have stated, we reserve the discretion to depart from them where we deem

appropriate. We believe that retaining this level of flexibility is necessary to account for

unique circumstances not considered by the Penalty Guidelines.

59.

In addition, we will continue to determine civil penalties based on the individual

facts and circumstances for natural person violators.104 As a Commission, we have less

experience in determining penalties to be applied when the case involves an individual as

opposed to an organization

exibility is necessary to account for

unique circumstances not considered by the Penalty Guidelines.

59.

In addition, we will continue to determine civil penalties based on the individual

facts and circumstances for natural person violators.104 As a Commission, we have less

experience in determining penalties to be applied when the case involves an individual as

opposed to an organization. Moreover, since we have patterned the Penalty Guidelines

after the organizational Sentencing Guidelines, the structure is not designed to apply to

natural persons. As a result, the Commission will determine the appropriate penalty for

natural persons based on the facts and the circumstances of the violation but will look to

the Penalty Guidelines for guidance in setting the penalties. Thus, the Penalty Guidelines

apply to organizations which violate the statutes, rules, and tariffs overseen by the

Commission.105 As noted above, under the Penalty Guidelines, an “organization” is “any

entity other than a natural person.”106

60.

The Commission also has discretion to determine penalties in cases involving

multiple types of violations.107 For example, the Commission will set penalties for a case

involving both anti-competitive conduct and violations of the Reliability Standards.

61.

Moreover, the Penalty Guidelines contain certain caveats where the penalty range

will not be followed. First, where the minimum guideline penalty is greater than the

maximum penalty authorized by our $1 million per day, per violation statutory authority,

then the guideline penalty will be reduced to the maximum penalty authorized by

103 Id. § 1C2.2(a)(1)-(3) (emphasis added).

104 Id. § 1A1.1 (Commentary note 1).

105 Id. § 1A1.1.

106 Id. § 1A1.1 (Commentary note 1).

107 Id. § 1C2.1(b).

d. First, where the minimum guideline penalty is greater than the

maximum penalty authorized by our $1 million per day, per violation statutory authority,

then the guideline penalty will be reduced to the maximum penalty authorized by

103 Id. § 1C2.2(a)(1)-(3) (emphasis added).

104 Id. § 1A1.1 (Commentary note 1).

105 Id. § 1A1.1.

106 Id. § 1A1.1 (Commentary note 1).

107 Id. § 1C2.1(b).

Docket No. PL10-4-000

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statute.108 Second, we will reduce the penalty to the extent that it would impair the

organization’s ability to disgorge profits,109 and can reduce penalties where the

organization is not able to pay the minimum penalty.110

62.

The Penalty Guidelines apply to all future violations of any statute, rule, regulation,

restriction, condition, or order of the Commission. The Penalty Guidelines will apply to

any pending investigation where Enforcement staff and the organization have not yet

entered into settlement negotiations.

63.

The Commission’s prior policy statements on enforcement as well as its Policy

Statement on Compliance still provide useful guidance and will continue to inform our

enforcement program. The Penalty Guidelines supplement those previous documents,

but any perceived conflicts will be resolved in favor of the Penalty Guidelines.

64.

The North American Electric Reliability Corporation (NERC), acting as the

Electric Reliability Organization, and Regional Entities (RE) impose penalties for

violations of Commission-approved, mandatory Reliability Standards using penalty

guidelines that employ a Base Penalty Amount Table

previous documents,

but any perceived conflicts will be resolved in favor of the Penalty Guidelines.

64.

The North American Electric Reliability Corporation (NERC), acting as the

Electric Reliability Organization, and Regional Entities (RE) impose penalties for

violations of Commission-approved, mandatory Reliability Standards using penalty

guidelines that employ a Base Penalty Amount Table. FPA section 215(e)(2) provides

that a penalty imposed by NERC or an RE may take effect no earlier than 31 days after

NERC files with the Commission a notice of penalty and the record of the proceeding.111

In the Notice of Penalty Policy Order, we established the general criteria the Commission

will use to determine whether it will review a particular notice of penalty.112 The

Commission stated that the more serious the violation described in the notice of penalty,

the more likely it would be subject to Commission review.113 To date, the Commission

has decided to further review only one of the 153 Notices NERC has filed. We are not

modifying the approach set forth in the Notice of Penalty Policy Order. In our previous

108 Id. § 1C3.1(b).

109 Id. § 1C3.2(a).

110 Id. § 1C3.2(b).

111 16 U.S.C. §284o(e)(2) (Supp V (2005)). See also 18 C.F.R. §39.7(e).

112 See Statement of Administrative Policy on Processing Notices of Penalty and

Order Revising Statement in Order No. 672, 123 FERC ¶ 61,046 (2008) at PP 10-11.

113 Id. P 11.

ying the approach set forth in the Notice of Penalty Policy Order. In our previous

108 Id. § 1C3.1(b).

109 Id. § 1C3.2(a).

110 Id. § 1C3.2(b).

111 16 U.S.C. §284o(e)(2) (Supp V (2005)). See also 18 C.F.R. §39.7(e).

112 See Statement of Administrative Policy on Processing Notices of Penalty and

Order Revising Statement in Order No. 672, 123 FERC ¶ 61,046 (2008) at PP 10-11.

113 Id. P 11.

Docket No. PL10-4-000

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determinations on notices of penalty, our prior Policy Statements on Enforcement and the

Policy Statement on Compliance were resources that informed our judgment whether to

review the notices of penalty. We intend to use the Penalty Guidelines in a similar

manner. That is, while we do not anticipate applying the Penalty Guidelines when we

look at most notices of penalty that we receive, for an out-of-ordinary notice of penalty

describing a serious violation we may consider the results of applying the Penalty

Guidelines—but these results would not be determinative of our decision to proceed with

a further review.

65.

The Commission’s principal objective in enforcement is to ensure compliance with

our rules, regulations and orders. That goal is best achieved if the orders we issue and the

regulations we adopt clearly inform the public as to what the Commission expects of

them and how the Commission will implement its rules and programs. To that end, we

expect that all orders imposing penalties shall describe the facts that support the penalty

amount.

Conclusion

66.

The Commission’s use of the Penalty Guidelines further improves our enforcement

program and our approach to making civil penalty determinations. Although the Penalty

Guidelines represent a change in the way we determine civil penalties, they incorporate

many of our prior considerations and further our enforcement program goals by serving

as a deterrent, encouraging compliance, and adding greater fairness, consistency, and

transparency.

By the Commission.

(S E A L)

Nathaniel J

pproach to making civil penalty determinations. Although the Penalty

Guidelines represent a change in the way we determine civil penalties, they incorporate

many of our prior considerations and further our enforcement program goals by serving

as a deterrent, encouraging compliance, and adding greater fairness, consistency, and

transparency.

By the Commission.

(S E A L)

Nathaniel J. Davis, Sr.,

Deputy Secretary.

Docket No. PL10-4-000

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FERC Penalty Guidelines

CHAPTER 1

PART A - GENERAL APPLICATION PRINCIPLES

§1A1.1.

Applicability of these Guidelines

This chapter applies to the penalties to be imposed on all organizations for violations of the statutes, rules,

regulations, restrictions, conditions or orders overseen by the Federal Energy Regulatory Commission.

The Commission reserves the right to depart from these Guidelines where it deems appropriate.

Commentary

Application Notes:

"Organization" means any entity other than a natural person. The Commission will determine

the appropriate penalty for natural persons based on the facts and circumstances of the violation

but will look to these Guidelines for guidance in setting those penalties.

The definitions in the United States Sentencing Guidelines are persuasive authority in

interpreting these Guidelines unless otherwise specified.

The following are definitions of terms used frequently in this chapter:

(a)

"High-level personnel of the organization" means individuals who have substantial

control over the organization or who have a substantial role in the making of policy

within the organization. The term includes: a director; an executive officer; an individual

in charge of a major business or functional unit of the organization, such as sales,

administration, or finance; and an individual with a substantial ownership interest.

"High-level personnel of a unit of the organization" is defined in the Commentary to

§1C2.3 (Culpability Score).

he making of policy

within the organization. The term includes: a director; an executive officer; an individual

in charge of a major business or functional unit of the organization, such as sales,

administration, or finance; and an individual with a substantial ownership interest.

"High-level personnel of a unit of the organization" is defined in the Commentary to

§1C2.3 (Culpability Score).

(b)

"Substantial authority personnel" means individuals who within the scope of their

authority exercise a substantial measure of discretion in acting on behalf of an

organization. The term includes high-level personnel of the organization, individuals who

exercise substantial supervisory authority (e.g., a plant manager, a sales manager), and

any other individuals who, although not a part of an organization’s management,

nevertheless exercise substantial discretion when acting within the scope of their

authority (e.g., an individual with authority in an organization to negotiate or set price

levels or an individual authorized to negotiate or approve significant contracts). Whether

an individual falls within this category must be determined on a case-by-case basis.

(c)

"Agent" means any individual, including a director, an officer, an employee, or an

independent contractor, authorized to act on behalf of the organization.

(d)

An individual "condoned" a violation if the individual knew of the violation and did not

take reasonable steps to prevent or terminate the violation.

(e)

"Prior adjudication" means any resolution, whether by trial or settlement , regardless

Docket No. PL10-4-000

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whether the settlement included an admission of the violation.

(f)

"Similar violations" means prior conduct that is similar in nature to the conduct

underlying the instant violation, without regard to whether or not such conduct violated

the same provision.

tion.

(e)

"Prior adjudication" means any resolution, whether by trial or settlement , regardless

Docket No. PL10-4-000

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whether the settlement included an admission of the violation.

(f)

"Similar violations" means prior conduct that is similar in nature to the conduct

underlying the instant violation, without regard to whether or not such conduct violated

the same provision.

(g)

"Pecuniary gain" is derived from 18 U.S.C. § 3571(d) and means the additional

before tax profit to the entity resulting from the relevant conduct of the violation. Gain

can result from either additional revenue or cost savings. For example, a violation

involving an unreported outage by an organization receiving capacity payments can

produce additional revenue. In such a case, the pecuniary gain is the additional revenue

received because the outage was not reported. A violation involving a failure to comply

with the reliability standards requiring vegetation management can produce pecuniary

gain resulting from cost savings. In such a case, the pecuniary gain is the amount saved

over time as a result of the failure to implement an appropriate vegetation management

program.

(h)

"Pecuniary loss" is equivalent to the term "loss" as used in Chapter Two (Violation

Conduct). In a case involving a violation of the Reliability Standards, the loss will be

enhanced to the extent necessary to reflect any loss that the organization should have

caused to prevent greater risk to the bulk power system. An example of such an

enhancement to pecuniary loss would be the value of firm load that a balancing authority

should have shed to resolve an emergency condition, but did not do so.

(i)

An individual was "willfully ignorant of the violation" if the individual did not investigate

the possible occurrence of violative conduct despite knowledge of circumstances that

would lead a reasonable person to investigate whether violative conduct had occurred.

e the value of firm load that a balancing authority

should have shed to resolve an emergency condition, but did not do so.

(i)

An individual was "willfully ignorant of the violation" if the individual did not investigate

the possible occurrence of violative conduct despite knowledge of circumstances that

would lead a reasonable person to investigate whether violative conduct had occurred.

(j)

“Violation” means a violation of any statute, rule, regulation, restriction, condition or

order overseen by the Commission. “Compliance with the law” means compliance with

a statute, rule, regulation, restriction, condition or order overseen by the Commission.

PART B - DISGORGING GAIN FROM VIOLATIONS AND EFFECTIVE COMPLIANCE AND

ETHICS PROGRAM

DISGORGING GAIN FROM VIOLATIONS

§1B1.1.

Disgorgement

(a)

In the case of pecuniary gain as a result of the violation, the Commission enters a

disgorgement order for the full amount of the gain plus interest.

EFFECTIVE COMPLIANCE AND ETHICS PROGRAM

§1B2.1.

Effective Compliance and Ethics Program

(a)

To have an effective compliance and ethics program, for purposes of

subsection (f) of §1C2.3 (Culpability Score), an organization shall—

Docket No. PL10-4-000

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(1)

exercise due diligence to prevent and detect violations; and

(2)

otherwise promote an organizational culture that encourages ethical

conduct and a commitment to compliance with the law.

Such compliance and ethics program shall be reasonably designed, implemented,

and enforced so that the program is generally effective in

preventing and detecting violations. The failure to prevent or detect the instant

violation does not necessarily mean that the program is not generally effective in

preventing and detecting violations.

conduct and a commitment to compliance with the law.

Such compliance and ethics program shall be reasonably designed, implemented,

and enforced so that the program is generally effective in

preventing and detecting violations. The failure to prevent or detect the instant

violation does not necessarily mean that the program is not generally effective in

preventing and detecting violations.

(b)

Due diligence and the promotion of an organizational culture that encourages

ethical conduct and a commitment to compliance with the law within the

meaning of subsection (a) minimally require the following:

(1)

The organization shall establish standards and procedures to prevent and

detect violations.

(2)

(A)

The organization’s governing authority shall be knowledgeable

about the content and operation of the compliance and ethics

program and shall exercise reasonable oversight with respect to

the implementation and effectiveness of the compliance and

ethics program.

(B)

High-level personnel of the organization shall ensure that the

organization has an effective compliance and ethics program, as

described in this guideline. Specific individual(s) within high-level

personnel shall be assigned overall responsibility for the

compliance and ethics program.

(C)

Specific individual(s) within the organization shall be delegated

day-to-day operational responsibility for the compliance and

ethics program. Individual(s) with operational responsibility

shall report periodically to high-level personnel and, as

appropriate, to the governing authority, or an appropriate

subgroup of the governing authority, on the effectiveness of the

compliance and ethics program. To carry out such operational

responsibility, such individual(s) shall be given adequate

resources, appropriate authority, and direct access to the

governing authority or an appropriate subgroup of the governing

authority.

sonnel and, as

appropriate, to the governing authority, or an appropriate

subgroup of the governing authority, on the effectiveness of the

compliance and ethics program. To carry out such operational

responsibility, such individual(s) shall be given adequate

resources, appropriate authority, and direct access to the

governing authority or an appropriate subgroup of the governing

authority.

(3)

The organization shall use reasonable efforts not to include within the

substantial authority personnel of the organization any individual whom the

organization knew, or should have known through the exercise of due

diligence, has engaged in violations or other conduct inconsistent

with an effective compliance and ethics program.

(4)

(A)

The organization shall take reasonable steps to communicate

Docket No. PL10-4-000

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periodically and in a practical manner its standards and

procedures, and other aspects of the compliance and ethics

program, to the individuals referred to in subdivision (B) by

conducting effective training programs and otherwise

disseminating information appropriate to such individuals’

respective roles and responsibilities.

(B)

The individuals referred to in subdivision (A) are the members

of the governing authority, high-level personnel, substantial

authority personnel, the organization’s employees, and, as

appropriate, the organization’s agents.

(5)

The organization shall take reasonable steps—

(A)

to ensure that the organization’s compliance and ethics program

is followed, including monitoring and auditing to detect violations;

(B)

to evaluate periodically the effectiveness of the organization’s

compliance and ethics program; and

(C)

to have and publicize a system, which may include mechanisms

that allow for anonymity or confidentiality, whereby the

organization’s employees and agents may report or seek

guidance regarding potential or actual violations without

fear of retaliation.

ng to detect violations;

(B)

to evaluate periodically the effectiveness of the organization’s

compliance and ethics program; and

(C)

to have and publicize a system, which may include mechanisms

that allow for anonymity or confidentiality, whereby the

organization’s employees and agents may report or seek

guidance regarding potential or actual violations without

fear of retaliation.

(6)

The organization’s compliance and ethics program shall be promoted and

enforced consistently throughout the organization through (A)

appropriate incentives to perform in accordance with the compliance and

ethics program; and (B) appropriate disciplinary measures for engaging

in violations and for failing to take reasonable steps to prevent or

detect violations.

(7)

After a violation has been detected, the organization shall take

reasonable steps to respond appropriately to the violation and to

prevent further similar violations, including making any necessary

modifications to the organization’s compliance and ethics program.

(c)

In implementing subsection (b), the organization shall periodically assess the risk

of violations and shall take appropriate steps to design, implement, or

modify each requirement set forth in subsection (b) to reduce the risk of violations

identified through this process.

Commentary

Application Notes:

Definitions.—For purposes of this guideline:

ce and ethics program.

(c)

In implementing subsection (b), the organization shall periodically assess the risk

of violations and shall take appropriate steps to design, implement, or

modify each requirement set forth in subsection (b) to reduce the risk of violations

identified through this process.

Commentary

Application Notes:

Definitions.—For purposes of this guideline:

Docket No. PL10-4-000

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"Compliance and ethics program" means a program designed to prevent and detect violations.

"Governing authority" means the (A) the Board of Directors; or (B) if the organization does

not have a Board of Directors, the highest-level governing body of the organization. "High-level

personnel of the organization" and "substantial authority personnel" have the meaning given those terms

in the Commentary to §1A1.1 (Application Instructions-Organizations).

"Standards and procedures" means standards of behavior and internal controls that are

reasonably capable of reducing the likelihood of violations.

Factors to Consider in Meeting Requirements of this Guideline.—

(A)

In General.—Each of the requirements set forth in this guideline shall be met by

an organization; however, in determining what specific actions are necessary to meet

those requirements, factors that should be considered include: (i) applicable industry

practice; (ii) the size of the organization; and (iii) similar violations.

(B)

Applicable Industry Practice.—An organization’s

failure to incorporate and follow applicable industry practice weighs against a finding of

an effective compliance and ethics program.

(C)

The Size of the Organization.—

those requirements, factors that should be considered include: (i) applicable industry

practice; (ii) the size of the organization; and (iii) similar violations.

(B)

Applicable Industry Practice.—An organization’s

failure to incorporate and follow applicable industry practice weighs against a finding of

an effective compliance and ethics program.

(C)

The Size of the Organization.—

(i)

In General.—The formality and scope of actions that an organization

shall take to meet the requirements of this guideline, including the

necessary features of the organization’s standards and procedures,

depend on the size of the organization.

(ii)

Large Organizations.—A large organization generally shall devote more formal

operations and greater resources in meeting the requirements of this guideline

than shall a small organization.

(iii)

Small Organizations.—In meeting the requirements of this guideline, small

organizations shall demonstrate the same degree of commitment to ethical

conduct and compliance with the law as large organizations. However, a small

organization may meet the requirements of this guideline with less formality and

fewer resources than would be expected of large organizations. In appropriate

circumstances, reliance on existing resources and simple systems can

demonstrate a degree of commitment that, for a large organization, would only

be demonstrated through more formally planned and implemented systems

s. However, a small

organization may meet the requirements of this guideline with less formality and

fewer resources than would be expected of large organizations. In appropriate

circumstances, reliance on existing resources and simple systems can

demonstrate a degree of commitment that, for a large organization, would only

be demonstrated through more formally planned and implemented systems.

Examples of the informality and use of fewer resources with which a

small organization may meet the requirements of this guideline include

the following: (I) the governing authority’s discharge of its responsibility for

oversight of the compliance and ethics program by directly managing the

organization’s compliance and ethics efforts; (II) training employees through

informal staff meetings, and monitoring through regular "walk-arounds" or

continuous observation while managing the organization; (III) using available

personnel, rather than employing separate staff, to carry out the compliance and

Docket No. PL10-4-000

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ethics program; and (IV) modeling its own compliance and ethics program on

existing, effective compliance and ethics programs and best practices of other

similar organizations.

(D)

Recurrence of Similar Violations.—Recurrence of similar violations creates doubt

regarding whether the organization took reasonable steps to meet the requirements of

this guideline. For purposes of this subdivision, "similar violations" has the meaning

given that term in the Commentary to §1A1.1 (Application Instructions - Organizations).

Application of Subsection (b)(2).—High-level personnel and substantial authority personnel of

the organization shall be knowledgeable about the content and operation of the compliance and

ethics program, shall perform their assigned duties consistent with the exercise of due diligence,

and shall promote an organizational culture that encourages ethical conduct and a commitment

to compliance with the law

n of Subsection (b)(2).—High-level personnel and substantial authority personnel of

the organization shall be knowledgeable about the content and operation of the compliance and

ethics program, shall perform their assigned duties consistent with the exercise of due diligence,

and shall promote an organizational culture that encourages ethical conduct and a commitment

to compliance with the law.

If the specific individual(s) assigned overall responsibility for the compliance and ethics

program does not have day-to-day operational responsibility for the program, then the

individual(s) with day-to-day operational responsibility for the program typically should, no less

than annually, give the organization’s governing authority or an appropriate subgroup thereof

information on the implementation and effectiveness of the compliance and ethics program.

Application of Subsection (b)(3).—

(A)

Consistency with Other Law.—Nothing in subsection (b)(3) is intended to require

conduct inconsistent with any Federal, State, or local law, including any law governing

employment or hiring practices.

(B)

Implementation.—In implementing subsection (b)(3), the organization shall hire and

promote individuals so as to ensure that all individuals within the high-level personnel

and substantial authority personnel of the organization will perform their assigned duties

in a manner consistent with the exercise of due diligence and the promotion of an

organizational culture that encourages ethical conduct and a commitment to compliance

with the law under subsection (a)

hall hire and

promote individuals so as to ensure that all individuals within the high-level personnel

and substantial authority personnel of the organization will perform their assigned duties

in a manner consistent with the exercise of due diligence and the promotion of an

organizational culture that encourages ethical conduct and a commitment to compliance

with the law under subsection (a). With respect to the hiring or promotion of such

individuals, an organization shall consider the relatedness of the individual’s violations

(including other conduct inconsistent with an effective compliance and ethics program)

to the specific responsibilities the individual is anticipated to be assigned and other

factors such as: (i) the recency of the individual’s violations; and (ii) whether the

individual has engaged in other such violations.

Application of Subsection (b)(6).—Adequate discipline of individuals responsible for a violation

is a necessary component of enforcement; however, the form of discipline that will be appropriate

will be case specific.

Application of Subsection (c).—To meet the requirements of subsection (c), an organization shall:

(A)

Assess periodically the risk that violations will occur, including assessing the

following:

(i)

The nature and seriousness of such violations.

Docket No. PL10-4-000

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(ii)

The likelihood that certain violations may occur because of the nature of the

organization’s business. If, because of the nature of an organization’s business,

there is a substantial risk that certain types of violations may occur, the

organization shall take reasonable steps to prevent and detect that type of

violation. For example, an organization that, due to the nature of its business,

has employees whose compensation is dependent on the final settlement price of

a certain product shall establish standards and procedures designed to prevent

market manipulation of that final settlement price.

violations may occur, the

organization shall take reasonable steps to prevent and detect that type of

violation. For example, an organization that, due to the nature of its business,

has employees whose compensation is dependent on the final settlement price of

a certain product shall establish standards and procedures designed to prevent

market manipulation of that final settlement price.

(iii)

The prior history of the organization. The prior history of an organization may

indicate types of violations that it shall take actions to prevent and detect.

(B)

Prioritize periodically, as appropriate, the actions taken pursuant to any requirement set

forth in subsection (b), in order to focus on preventing and detecting the violations

identified under subdivision (A) of this note as most serious, and most likely, to occur.

(C)

Modify, as appropriate, the actions taken pursuant to any requirement set forth in

subsection (b) to reduce the risk of violations identified under subdivision (A) of this note

as most serious, and most likely, to occur.

PART C – CIVIL PENALTIES

GENERAL

§1C1.1

This Part governs the determination and implementation of civil penalties.

DETERMINING THE PENALTY

§1C2.1.

Violation Level

(a)

Use the applicable Chapter Two guideline to determine the base violation level

and apply, in the order listed, any appropriate adjustments contained in that guideline.

(b)

Where there are multiple violations falling under different Chapter Two guidelines, e.g., a

case involving both anticompetitive conduct and reliability violations, the Commission

will determine the appropriate penalty on a case-by-case basis.

§1C2.2.

Base Penalty

ine the base violation level

and apply, in the order listed, any appropriate adjustments contained in that guideline.

(b)

Where there are multiple violations falling under different Chapter Two guidelines, e.g., a

case involving both anticompetitive conduct and reliability violations, the Commission

will determine the appropriate penalty on a case-by-case basis.

§1C2.2.

Base Penalty

(a)

The base penalty is the greatest of:

(1)

the amount from the table in subsection (b) below corresponding to the

violation level determined under §1C2.1 (Violation Level); or

(2)

the pecuniary gain to the organization from the violation; or

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(3)

the pecuniary loss from the violation caused by the organization.

(b)

Violation Level Penalty Table

Violation Level

Amount

6 or less

$5,000

$7,500

$10,000

$15,000

$20,000

$30,000

$40,000

$60,000

$85,000

$125,000

$175,000

$250,000

$350,000

$500,000

$650,000

$910,000

$1,200,000

$1,600,000

$2,100,000

$2,800,000

$3,700,000

$4,800,000

$6,300,000

$8,100,000

$10,500,000

$13,500,000

$17,500,000

$22,000,000

$28,500,000

$36,000,000

$45,500,000

$57,500,000

38 or more

$72,500,000

§1C2.3.

Culpability Score

(a)

Start with 5 points and apply subsections (b) through (g) below.

(b)

Involvement in or Tolerance of Violations

If more than one applies, use the greatest:

(1)

If --

Docket No. PL10-4-000

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(A)

the organization had 5,000 or more employees and

$36,000,000

$45,500,000

$57,500,000

38 or more

$72,500,000

§1C2.3.

Culpability Score

(a)

Start with 5 points and apply subsections (b) through (g) below.

(b)

Involvement in or Tolerance of Violations

If more than one applies, use the greatest:

(1)

If --

Docket No. PL10-4-000

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(A)

the organization had 5,000 or more employees and

(i)

an individual within high-level personnel of the

organization participated in, condoned, or was willfully

ignorant of the violation; or

(ii)

tolerance of the violation by substantial authority

personnel was pervasive throughout the organization; or

(B)

the unit of the organization within which the violation was

committed had 5,000 or more employees and

(i)

an individual within high-level personnel of the unit

participated in, condoned, or was willfully ignorant of

the violation; or

(ii)

tolerance of the violation by substantial authority

personnel was pervasive throughout such unit,

add 5 points; or

(2)

If --

(A)

the organization had 1,000 or more employees and

(i)

an individual within high-level personnel of the

organization participated in, condoned, or was willfully

ignorant of the violation; or

(ii)

tolerance of the violation by substantial authority

personnel was pervasive throughout the organization; or

(B)

the unit of the organization within which the violation was

committed had 1,000 or more employees and

(i)

an individual within high-level personnel of the unit

participated in, condoned, or was willfully ignorant of

the violation; or

(ii)

tolerance of the violation by substantial authority

personnel was pervasive throughout such unit,

add 4 points; or

(3)

If --

(A)

the organization had 200 or more employees and

Docket No. PL10-4-000

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000 or more employees and

(i)

an individual within high-level personnel of the unit

participated in, condoned, or was willfully ignorant of

the violation; or

(ii)

tolerance of the violation by substantial authority

personnel was pervasive throughout such unit,

add 4 points; or

(3)

If --

(A)

the organization had 200 or more employees and

Docket No. PL10-4-000

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(i)

an individual within high-level personnel of the

organization participated in, condoned, or was willfully

ignorant of the violation; or

(ii)

tolerance of the violation by substantial authority

personnel was pervasive throughout the organization; or

(B)

the unit of the organization within which the violation was

committed had 200 or more employees and

(i)

an individual within high-level personnel of the unit

participated in, condoned, or was willfully ignorant of

the violation; or

(ii)

tolerance of the violation by substantial authority

personnel was pervasive throughout such unit,

add 3 points; or

(4)

If the organization had 50 or more employees and an individual within

substantial authority personnel participated in, condoned, or was willfully

ignorant of the violation, add 2 points; or

(5)

If the organization had 10 or more employees and an individual within

substantial authority personnel participated in, condoned, or was

willfully ignorant of the violation, add 1 point.

(c)

Prior History

If more than one applies, use the greater:

(1)

If the organization committed

any part of the instant violation less than 10 years after a prior Commission adjudication

of any violation or less than 10 years after an adjudication of similar misconduct by any

other enforcement agency, add 1 point; or

(2)

If the organization committed

any part of the instant violation less than 5 years after a prior Commission adjudication of

any violation or less than 5 years after an adjudication of similar misconduct by any other

enforcement agency, add 2 points.

tion

of any violation or less than 10 years after an adjudication of similar misconduct by any

other enforcement agency, add 1 point; or

(2)

If the organization committed

any part of the instant violation less than 5 years after a prior Commission adjudication of

any violation or less than 5 years after an adjudication of similar misconduct by any other

enforcement agency, add 2 points.

(d)

Violation of an Order

If the commission of the instant violation violated a judicial or Commission order or

injunction directed at the specific organization by the Commission or other Federal and

state enforcement agencies that adjudicate similar types of matters as the Commission,

add 2 points.

(e)

Obstruction of Justice

Docket No. PL10-4-000

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If the organization willfully obstructed or impeded, attempted to obstruct or

impede, or aided, abetted, or encouraged obstruction of justice during the

investigation or resolution of the instant violation, or, with knowledge thereof,

failed to take reasonable steps to prevent such obstruction or

impedance or attempted obstruction or impedance, add 3 points.

(f)

Effective Compliance and Ethics Program

(1)

If the violation occurred even though the organization had in place at the

time of the violation an effective compliance and ethics program, as

provided in §1B2.1 (Effective Compliance and Ethics Program), subtract

3 points.

(2)

Subsection (f)(1) does not apply if, after becoming aware of a violation,

the organization unreasonably delayed reporting the violation to

appropriate governmental authorities.

occurred even though the organization had in place at the

time of the violation an effective compliance and ethics program, as

provided in §1B2.1 (Effective Compliance and Ethics Program), subtract

3 points.

(2)

Subsection (f)(1) does not apply if, after becoming aware of a violation,

the organization unreasonably delayed reporting the violation to

appropriate governmental authorities.

(3)

(A)

Except as provided in subdivision (B), subsection (f)(1) does not

apply if an individual within high-level personnel of the

organization, a person within high-level personnel of the unit of

the organization within which the violation was committed where

the unit had 200 or more employees, or an individual described

in §1B2.1(b)(2)(B) or (C), participated in, condoned, or was

willfully ignorant of the violation.

(B)

There is a rebuttable presumption, for purposes of subsection

(f)(1), that the organization did not have an effective compliance

and ethics program if an individual—

(i)

within high-level personnel of a small organization; or

(ii)

within substantial authority personnel, but not within

high-level personnel, of any organization,

participated in, condoned, or was willfully ignorant of, the

violation.

(g)

Self-Reporting, Cooperation, and Acceptance of Responsibility

If more than one applies, use the greatest:

(1)

If the organization (A) prior to an imminent threat of disclosure or government

investigation; and (B) within a reasonably prompt time after becoming aware of the

violation, reported the violation to the Commission, exhibited full cooperation in the

investigation, and resolved the matter without need for a trial-type hearing, subtract 4

points. If the organization also clearly demonstrated recognition and affirmative

acceptance of responsibility for its violation, subtract an additional 1 point.

Docket No. PL10-4-000

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becoming aware of the

violation, reported the violation to the Commission, exhibited full cooperation in the

investigation, and resolved the matter without need for a trial-type hearing, subtract 4

points. If the organization also clearly demonstrated recognition and affirmative

acceptance of responsibility for its violation, subtract an additional 1 point.

Docket No. PL10-4-000

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(2)

If the organization exhibited full cooperation in the investigation and resolved the matter

without need for a trial-type hearing, subtract 2 points. If the organization also clearly

demonstrated recognition and affirmative acceptance of responsibility for its violation,

subtract an additional 1 point.

(3)

If the organization resolved the matter without need for a trial-type hearing, subtract 1

point. If the organization also clearly demonstrated recognition and affirmative

acceptance of responsibility for its violation, subtract an additional 1 point.

Commentary

Application Notes:

Definitions.—For purposes of this guideline, "condoned," "prior adjudication,"

"similar violations," "substantial authority personnel," and "willfully ignorant of the violation"

have the meaning given those terms in the Commentary to §1A1.1(Applicability of these

Guidelines).

"Small Organization", for purposes of subsection (f)(3), means an organization that, at the time

of the instant violation, had fewer than 200 employees.

For purposes of subsection (b), "unit of the organization" means any reasonably distinct

operational component of the organization. For example, a large organization may have

several large units such as divisions or subsidiaries, as well as many smaller units such as

specialized manufacturing, marketing, or accounting operations within these larger units. For

purposes of this definition, all of these types of units are encompassed within the term "unit of the

organization."

operational component of the organization. For example, a large organization may have

several large units such as divisions or subsidiaries, as well as many smaller units such as

specialized manufacturing, marketing, or accounting operations within these larger units. For

purposes of this definition, all of these types of units are encompassed within the term "unit of the

organization."

"High-level personnel of the organization" is defined in the Commentary to §1A1.1

(Application Instructions - Organizations). With respect to a unit with 200 or more employees,

"high-level personnel of a unit of the organization" means agents within the unit who set the

policy for or control that unit. For example, if the managing agent of a unit with 200 employees

participated in a violation, three points would be added under subsection (b)(3); if that

organization had 1,000 employees and the managing agent of the unit with 200 employees were

also within high-level personnel of the organization in its entirety, four points (rather than three)

would be added under subsection (b)(2).

Pervasiveness under subsection (b) will be case specific and depend on the number, and degree

of responsibility, of individuals within substantial authority personnel who participated in,

condoned, or were willfully ignorant of the violation. Fewer individuals need to be involved for a

finding of pervasiveness if those individuals exercised a relatively high degree of authority.

Pervasiveness can occur either within an organization as a whole or within a unit of an

organization. For example, if a violation were committed in an organization with 1,000

employees but the tolerance of the violation was pervasive only within a unit of the organization

with 200 employees (and no high-level personnel of the organization participated in, condoned,

or was willfully ignorant of the violation), three points would be added under subsection (b)(3)

within a unit of an

organization. For example, if a violation were committed in an organization with 1,000

employees but the tolerance of the violation was pervasive only within a unit of the organization

with 200 employees (and no high-level personnel of the organization participated in, condoned,

or was willfully ignorant of the violation), three points would be added under subsection (b)(3).

If, in the same organization, tolerance of the violation was pervasive throughout the organization

as a whole, or an individual within high-level personnel of the organization participated in the

violation, four points (rather than three) would be added under subsection (b)(2).

Docket No. PL10-4-000

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Under subsection (c), in determining the prior history of an organization with separately

managed lines of business, only the prior conduct or record of the separately managed line of

business involved in the instant violation is to be used. A "separately managed line of business"

is a subpart of a for-profit organization that has its own management, has a high degree of

autonomy from higher managerial authority, and maintains its own separate books of account.

Corporate subsidiaries and divisions frequently are separately managed lines of business.

Under subsection (c), in determining the prior history of an organization, the conduct of

the underlying economic entity will be considered without regard to its legal structure or

ownership. For example, if two companies merged and became separate divisions and separately

managed lines of business within the merged company, each division would retain the prior

history of its predecessor company. If a company reorganized and became a new legal entity, the

new company would retain the prior history of the predecessor company

idered without regard to its legal structure or

ownership. For example, if two companies merged and became separate divisions and separately

managed lines of business within the merged company, each division would retain the prior

history of its predecessor company. If a company reorganized and became a new legal entity, the

new company would retain the prior history of the predecessor company. In contrast, if one

company purchased the physical assets but not the ongoing business of another company, the

prior history of the company selling the physical assets would not be transferred to the company

purchasing the assets. However, if an organization is acquired by another organization in

response to solicitations by appropriate federal government officials, the prior history of the

acquired organization will not be attributed to the acquiring organization.

Under subsection (c)(1), the adjudication(s) must have occurred within the specified period (ten

or five years) of the instant violation.

Adjust the culpability score for the factors listed in subsection (e) whether or not the violation

guideline incorporates that factor, or that factor is inherent in the violation.

Subsection (f)(2) contemplates that the organization will be allowed a reasonable period of time

to conduct an internal investigation. In addition, no reporting is required by subsection (f)(2) if

the organization reasonably concluded, based on the information then available, that no violation

had been committed.

10.

To qualify for a reduction under subsection (g)(1) or (g)(2), cooperation must be both timely and

thorough. To be timely, the cooperation must begin essentially at the same time as the

organization is notified by the Commission or Commission staff of an investigation. To be

thorough, the cooperation should include the disclosure of all pertinent information known by the

organization

10.

To qualify for a reduction under subsection (g)(1) or (g)(2), cooperation must be both timely and

thorough. To be timely, the cooperation must begin essentially at the same time as the

organization is notified by the Commission or Commission staff of an investigation. To be

thorough, the cooperation should include the disclosure of all pertinent information known by the

organization. A prime test of whether the organization has disclosed all pertinent information is

whether the information is sufficient for the Commission to identify the nature and extent of the

violation and the individual(s) responsible for the violation. However, the cooperation to be

measured is the cooperation of the organization itself, not the cooperation of individuals within

the organization. If, because of the lack of cooperation of particular individual(s), neither the

organization nor the Commission are able to identify the culpable individual(s) within the

organization despite the organization’s efforts to cooperate fully, the organization may still be

given credit for full cooperation. The Commission will not require organizations to waive

attorney-client privilege or work-product protections in order to qualify for a reduction under

these subsections.

11.

The Commission has not always required organizations to admit responsibility in settlement

agreements. This Guideline is designed to provide a reduction in the culpability score to

organizations willing to resolve cases without the need for a trial-type hearing that is comparable

to the reduction in the Sentencing Guidelines for acceptance of responsibility with an additional

ctions.

11.

The Commission has not always required organizations to admit responsibility in settlement

agreements. This Guideline is designed to provide a reduction in the culpability score to

organizations willing to resolve cases without the need for a trial-type hearing that is comparable

to the reduction in the Sentencing Guidelines for acceptance of responsibility with an additional

Docket No. PL10-4-000

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incentive for companies willing to affirmatively recognize their violations.

Background: The increased culpability scores under subsection (b) are based on three interrelated

principles. First, an organization is more culpable when individuals who manage the organization or who

have substantial discretion in acting for the organization participate in, condone, or are willfully

ignorant of violations. Second, as organizations become larger and their managements become more

professional, participation in, condonation of, or willful ignorance of violations by such management is

increasingly a breach of trust or abuse of position. Third, as organizations increase in size, the risk of

violations beyond that reflected in the instant violation also increases whenever management’s tolerance

of that violation is pervasive. Because of the continuum of sizes of organizations and professionalization

of management, subsection (b) gradually increases the culpability score based upon the size of the

organization and the level and extent of the substantial authority personnel involvement.

§1C2.4.

Minimum and Maximum Multipliers

Using the culpability score from §1C2.3 (Culpability Score) and applying any applicable

special instruction for penalties in Chapter Two, determine the applicable minimum and

maximum penalty multipliers from the table below

ty score based upon the size of the

organization and the level and extent of the substantial authority personnel involvement.

§1C2.4.

Minimum and Maximum Multipliers

Using the culpability score from §1C2.3 (Culpability Score) and applying any applicable

special instruction for penalties in Chapter Two, determine the applicable minimum and

maximum penalty multipliers from the table below.

Culpability

Minimum

Maximum

Score

Multiplier

10 or more

2.00

4.00

1.80

3.60

1.60

3.20

1.40

2.80

1.20

2.40

1.00

2.00

0.80

1.60

0.60

1.20

0.40

0.80

0.20

0.40

0 or less

0.05

0.20.

§1C2.5.

Guideline Penalty Range – Organizations

(a)

The minimum of the guideline penalty range is determined by multiplying the

base penalty determined under §1C2.2 (Base Penalty) by the applicable

minimum multiplier determined under §1C2.3 (Minimum and Maximum

Multipliers).

(b)

The maximum of the guideline penalty range is determined by multiplying the

base penalty determined under §1C2.2 (Base Penalty) by the applicable

maximum multiplier determined under §1C2.3 (Minimum and Maximum

Multipliers).

IMPLEMENTING THE PENALTY

§1C3.1.

Imposing a Penalty

Docket No. PL10-4-000

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(a)

Except to the extent restricted by the maximum penalty authorized by statute or

any minimum penalty required by statute, the penalty range will be that

determined under §1C2.5 (Guideline Penalty Range - Organizations).

(b)

Where the minimum guideline penalty is greater than the maximum penalty

authorized by statute, the maximum penalty authorized by statute will be the

guideline penalty.

§1C3.2.

Reduction of Penalty Based on Inability to Pay

(a)

The Commission will reduce the penalty below that otherwise required to the

extent that imposition of such penalty would impair its ability to disgorge profits.

re the minimum guideline penalty is greater than the maximum penalty

authorized by statute, the maximum penalty authorized by statute will be the

guideline penalty.

§1C3.2.

Reduction of Penalty Based on Inability to Pay

(a)

The Commission will reduce the penalty below that otherwise required to the

extent that imposition of such penalty would impair its ability to disgorge profits.

(b)

The Commission may impose a penalty below that otherwise required if the

Commission finds that the organization is not able and, even with the use of a

reasonable installment schedule, is not likely to become able to pay the minimum

required by §1C2.5 (Guideline Penalty Range-Organizations) and §1B1.1

(Disgorgement).

Provided, that the reduction under this subsection will not be more than

necessary to avoid substantially jeopardizing the continued viability of the

organization.

Commentary

Application Notes:

For purposes of this section, an organization is not able to pay the minimum penalty if, even with

an installment schedule, the payment of that penalty would substantially jeopardize the continued

existence of the organization.

Docket No. PL10-4-000

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CHAPTER 2: VIOLATION CONDUCT

Guideline for Violations of Commission-Approved Reliability Standards

§2A1.1

(a)

Base Violation Level: 16

(b)

Specific Violation Characteristics

(1)

Risk of Loss. Apply the greatest of the following:

(A)

If the violation created a low risk of minor harm, no increase.

(B)

If the violation created either a moderate risk of minor harm OR a low risk of substantial

harm, add 3.

(C)

If the violation created either a high risk of minor harm OR a moderate risk of substantial

harm, add 5.

(D)

If the violation created either a high risk of substantial harm OR a low risk of major

harm, add 7.

(E)

If the violation created a moderate risk of major harm, add 9.

(F)

If the violation created a high risk of major harm OR a low risk of extreme harm, add 12

harm, add 3.

(C)

If the violation created either a high risk of minor harm OR a moderate risk of substantial

harm, add 5.

(D)

If the violation created either a high risk of substantial harm OR a low risk of major

harm, add 7.

(E)

If the violation created a moderate risk of major harm, add 9.

(F)

If the violation created a high risk of major harm OR a low risk of extreme harm, add 12.

(G)

If the violation created a moderate risk of extreme harm, add 14.

(H)

If the violation created a high risk of extreme harm, add 16.

Commentary

The following chart reflects the enhancements for risk of harm described in this Guideline:

Minor harm

Substantial Harm

Major Harm

Extreme Harm

Low Risk

+12

Moderate Risk

+14

High Risk

+12

+16

Illustrative Examples:

(1)

Risk of harm.

(A)

Low risk of minor harm

Example: A Transmission Owner fails to produce evidence of maintenance and testing

for 37 days after requested by its Regional Entity, i.e., 7 days after the 30-day deadline

for production, creating a risk that no documentation exists to show the entity’s

adherence to its maintenance and testing program for protection systems.

(B.1)

Moderate risk of minor harm

Example: A medium-sized utility registered as a Balancing Authority has a documented

Docket No. PL10-4-000

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and adequate training program, but the training plan does not address all the knowledge

and competencies required for reliable system operations and the entity has provided

90% of its operators with sufficient training time, creating a risk that a small percentage

of operators have not received sufficient time for training to maintain all competencies

needed for reliable system operations

0 -

and adequate training program, but the training plan does not address all the knowledge

and competencies required for reliable system operations and the entity has provided

90% of its operators with sufficient training time, creating a risk that a small percentage

of operators have not received sufficient time for training to maintain all competencies

needed for reliable system operations.

(B.2)

Low risk of substantial harm

Example: A Generator Operator fails to, without any intentional time delay, notify its

Balancing Authority and Transmission Operator of equipment failure that would limit the

output of its 300 MW generator, which may make it difficult for the Generator Operator’s

Balancing Authority to replace the power in a time period of high demand or low supply

availability.

(C.1)

High risk of minor harm

Example: A small utility registered as a Transmission Owner is three months behind on

testing and maintaining 1% of its relays, all on its 115 kV radial transmission lines,

meaning the entity faces a high risk of losing a small amount of radial load through an

inability to isolate a fault in response to a contingency.

(C.2)

Moderate risk of substantial harm

Example: Over a weekend when the system is lightly loaded, operating personnel for a

small utility registered as a Transmission Operator fail to use three-part communication

of directives, which leads to the wrong breaker being opened. Because there was

sufficient capacity on a looped line, there was moderate risk that a substantial, otherwise

unnecessary loss of load could occur because the breaker opened

a weekend when the system is lightly loaded, operating personnel for a

small utility registered as a Transmission Operator fail to use three-part communication

of directives, which leads to the wrong breaker being opened. Because there was

sufficient capacity on a looped line, there was moderate risk that a substantial, otherwise

unnecessary loss of load could occur because the breaker opened.

(D.1)

High risk of substantial harm

Example: A medium to large utility registered as a Transmission Operator fails to have

on duty NERC-certified operators for 50 hours per month for the last 2 years, placing the

utility at an elevated risk of an operator error during any emergency while the non-

certified operator is on duty that could lead to a substantial, otherwise unnecessary loss

of load.

(D.2)

Low risk of major harm

Example: A Reliability Coordinator’s modeling tool does not include several recent

changes to the transmission system. Should an emergency occur, the Reliability

Coordinator would lack situational awareness of its Reliability Coordinator Area and, as

a result, issue improper directives that exacerbate the emergency.

(E)

Moderate risk of major harm

Example: A medium to large utility registered as a Balancing Authority has an event

occur on its system and fails to take actions necessary to return its area control error

(ACE) to zero for more than 15 minutes, and while it has the necessary amount of

iability Coordinator Area and, as

a result, issue improper directives that exacerbate the emergency.

(E)

Moderate risk of major harm

Example: A medium to large utility registered as a Balancing Authority has an event

occur on its system and fails to take actions necessary to return its area control error

(ACE) to zero for more than 15 minutes, and while it has the necessary amount of

Docket No. PL10-4-000

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reserves through a reserve sharing group, the full amount of reserves cannot be delivered

to the BA due to transmission constraints resulting from the event. This violation

threatens unnecessary losses of load within the Balancing Authority and in neighboring

Balancing Authorities should another contingency occur.

(F.1)

High risk of major harm

Example: A large Transmission Owner has a transmission vegetation management

program that requires foot, vehicle and aerial patrols annually along rights-of-way for

transmission lines having a capacity of 138 kV and above. The Transmission Owner

decides to save $2 million by deferring the annual aerial patrols for two years. During

that time period, a tree located within the right-of-way of a 500 kV line grew sufficiently

to contact the line. An aerial patrol timely would have identified the tree as a potential

threat of a vegetation contact or flashover that would cause an outage of the line. Such

an outage likely would result in major harm through significant, unnecessary losses of

load, as well as severe transmission constraints between neighboring Transmission

Operators and Balancing Authorities.

(F.2)

Low risk of extreme harm

Example: A utility registered as a Balancing Authority does not have any required

procedures for the recognition of and for making its operating personnel aware of

sabotage events on its facilities and multi-site sabotage affecting larger portions of the

Interconnection, and its operating personnel have received no training on recognizing

sabotage events

(F.2)

Low risk of extreme harm

Example: A utility registered as a Balancing Authority does not have any required

procedures for the recognition of and for making its operating personnel aware of

sabotage events on its facilities and multi-site sabotage affecting larger portions of the

Interconnection, and its operating personnel have received no training on recognizing

sabotage events. Because of the Balancing Authority’s configuration and facilities, its

lack of these procedures and training make it more likely that a large-scale sabotage

attempt focused on the Balancing Authority’s facilities would be successful, causing

widespread, unnecessary losses of load on the systems of the Balancing Authority and its

neighboring Balancing Authorities.

(G)

Moderate risk of extreme harm

Example: A medium-sized utility that serves native load and is registered as a Balancing

Authority and Transmission Operator does not have sufficient manually-operated load

shedding capability to shed load within fifteen minutes in the amount of the Balancing

Authority’s most severe single contingency. The failure to shed sufficient load as a last

resort in an emergency could cause the utility to lean on the Interconnection for too long

and, were an Adjacent Balancing Authority to have a contingency, it could lead to

widespread blackouts in either or both Balancing Authority Areas.

(H)

High risk of extreme harm

This situation could occur as a result of multiple violations (vegetation contact,

frequency oscillations, poor operator training and situational awareness, etc.) that are

similar to the causes of the 2003 Northeast blackout.

Application Notes:

y to have a contingency, it could lead to

widespread blackouts in either or both Balancing Authority Areas.

(H)

High risk of extreme harm

This situation could occur as a result of multiple violations (vegetation contact,

frequency oscillations, poor operator training and situational awareness, etc.) that are

similar to the causes of the 2003 Northeast blackout.

Application Notes:

Docket No. PL10-4-000

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1. The Guideline increases the violation level as the expected harm from the reliability violation

increases. As a result, the violation level goes up as both the risk of harm and the severity of the

potential harm increases. Many cases may involve multiple risks of multiple levels of harm. For

instance, a case might involve a moderate risk of major harm and a high risk of substantial harm.

The Guideline takes the greater of the two violation levels. In this case, the increase to the base

violation level would be 9.

2. In this context, “low risk” is not meant to include cases where there was virtually no risk of

harm. It is meant to apply to cases where there was a significant, albeit small, chance of the

relevant level of harm.

3. The risk of the relevant harm is to be determined based on all of the facts and circumstances

surrounding the violation(s). As an initial starting point, the violation risk factors will be

considered in determining the relevant risk. However, the VRF might understate or overstate the

actual risk resulting from the violation. For instance, a violation or combination of violations of

Low VRF standards might, under certain circumstances, pose a high risk of harm. Alternatively,

a violation of a standard with a High VRF might present little or no real risk of harm. Under

such circumstances, the actual risk from the violation should be used to determine the offense

level. The fact that little or no loss of load occurred is not, by itself, evidence that the violation

involved a low or moderate risk.

er certain circumstances, pose a high risk of harm. Alternatively,

a violation of a standard with a High VRF might present little or no real risk of harm. Under

such circumstances, the actual risk from the violation should be used to determine the offense

level. The fact that little or no loss of load occurred is not, by itself, evidence that the violation

involved a low or moderate risk.

Docket No. PL10-4-000

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Guideline for Fraud, Anti-Competitive Conduct and

Other Rule, Tariff and Order Violations

§2B1.1

(a)

Base Violation Level: 6

(b)

Specific Violation Characteristics

(1)

If the loss exceeded $5,000, increase the violation level as follows:

Loss (Apply the Greatest)

Increase in Level

(A)

$5,000 or less

no increase

(B)

More than $5,000

add 2

(C)

More than $10,000

add 4

(D)

More than $30,000

add 6

(E)

More than $70,000

add 8

(F)

More than $120,000

add 10

(G)

More than $200,000

add 12

(H)

More than $400,000

add 14

(I)

More than $1,000,000

add 16

(J)

More than $2,500,000

add 18

(K)

More than $7,000,000

add 20

(L)

More than $20,000,000

add 22

(M)

More than $50,000,000

add 24

(N)

More than $100,000,000

add 26

(O)

More than $200,000,000

add 28

(P)

More than $400,000,000

add 30

(2)

If more than one of the following enhancements applies, use only the greatest

than $1,000,000

add 16

(J)

More than $2,500,000

add 18

(K)

More than $7,000,000

add 20

(L)

More than $20,000,000

add 22

(M)

More than $50,000,000

add 24

(N)

More than $100,000,000

add 26

(O)

More than $200,000,000

add 28

(P)

More than $400,000,000

add 30

(2)

If more than one of the following enhancements applies, use only the greatest.

If the violation--

(A)

involved more than 70,000 MMBtus of natural gas or more than 10,000 MWh of

electricity, or equivalent volumes of natural gas related or electricity related transactions,

increase by 2 levels

(B)

involved more than 140,000 MMBtus of natural gas or more than 20,000 MWh

of electricity, or equivalent volumes of natural gas related or electricity related

transactions, increase by 4 levels

(C)

involved more than 700,000 MMBtus of natural gas or more than 100,000 MWh of

electricity, or equivalent volumes of natural gas related or electricity related transactions,

increase by 6 levels

If the violation--

(D)

continued for more than 10 days, increase by 2 levels

Docket No. PL10-4-000

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(E)

continued for more than 50 days, increase by 4 levels

(F)

continued for more than 250 days, increase by 6 levels

(3)

If the violation involved conduct that presented a serious threat to market transparency and the

total violation level is less than level 16, increase to level 16.

Commentary

Application Notes:

1. This Guideline is based on United States Sentencing Guidelines Section 2B1.1 and terms used in

this Guideline are intended to have the same meaning as they do in Section 2B1.1. Section (b)(2)

provides various enhancements for the scope and extent of the violation. If more than one of the

enhancements is applicable, only the greatest enhancement should be used.

2. Loss Under Subsection (b)(1).—This application note applies to the determination of loss

under subsection (b)(1)

used in

this Guideline are intended to have the same meaning as they do in Section 2B1.1. Section (b)(2)

provides various enhancements for the scope and extent of the violation. If more than one of the

enhancements is applicable, only the greatest enhancement should be used.

2. Loss Under Subsection (b)(1).—This application note applies to the determination of loss

under subsection (b)(1).

(A)

General Rule.—Subject to the exclusions in subdivision (D), loss is the greater of actual

loss or intended loss.

(i)

Actual Loss.—"Actual loss" means the reasonably foreseeable pecuniary harm

that resulted from the violation.

(ii)

Intended Loss.—"Intended loss" (I) means the pecuniary harm that was intended

to result from the violation; and (II) includes intended pecuniary harm that

would have been impossible or unlikely to occur.

(iii)

Pecuniary Harm.—"Pecuniary harm" means harm that is monetary or that

otherwise is readily measurable in money. Accordingly, pecuniary harm does

not include emotional distress, harm to reputation, or other non-economic harm.

(iv)

Reasonably Foreseeable Pecuniary Harm.—For purposes of this guideline,

"reasonably foreseeable pecuniary harm" means pecuniary harm that the entity

knew or, under the circumstances, reasonably should have known, was a

potential result of the violation.

(B)

Gain.—The Commission will use the gain that resulted from the violation as an

alternative measure of loss only if there is a loss but it reasonably cannot be determined.

(C)

Estimation of Loss.—The Commission need only make a reasonable estimate of the loss.

(D)

Exclusions from Loss.—Loss does not include the following:

have known, was a

potential result of the violation.

(B)

Gain.—The Commission will use the gain that resulted from the violation as an

alternative measure of loss only if there is a loss but it reasonably cannot be determined.

(C)

Estimation of Loss.—The Commission need only make a reasonable estimate of the loss.

(D)

Exclusions from Loss.—Loss does not include the following:

(i)

Interest of any kind, finance charges, late fees, penalties, amounts based on an

agreed-upon return or rate of return, or other similar costs.

(ii)

Costs to the government of, and costs incurred by victims primarily to aid the

government in, the prosecution and investigation of a violation.

Docket No. PL10-4-000

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(E)

Credits Against Loss.—Loss will be reduced by the following:

(i)

The money returned, and the fair market value of the property returned and the

services rendered, by the entity or other persons acting jointly with the entity, to

the victim before the violation was detected. The time of detection of the violation

is the earlier of (I) the time the violation was discovered by a victim or the

Commission; or (II) the time the entity knew or reasonably should have known

that the violation was detected or about to be detected by a victim or the

Commission.

(ii)

In a case involving collateral pledged or otherwise provided by the entity, the

amount the victim has recovered at the time of penalty from disposition of the

collateral, or if the collateral has not been disposed of by that time, the fair

market value of the collateral at the time of penalty.

Docket No. PL10-4-000

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Guideline for Misrepresentation and False Statements

To the Commission or Commission Staff

§2C1.1

(a)

Base Violation Level: 18

ntity, the

amount the victim has recovered at the time of penalty from disposition of the

collateral, or if the collateral has not been disposed of by that time, the fair

market value of the collateral at the time of penalty.

Docket No. PL10-4-000

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Guideline for Misrepresentation and False Statements

To the Commission or Commission Staff

§2C1.1

(a)

Base Violation Level: 18

(b)

Specific Violation Characteristics

(1)

If the violation resulted in substantial interference with the administration

of justice, increase by 3 levels.

(2)

If the violation (A) involved the destruction, alteration, or fabrication of a

substantial number of records, documents, or tangible objects; (B)

involved the selection of any essential or especially probative record,

document, or tangible object, to destroy or alter; or (C) was otherwise

extensive in scope, planning, or preparation, increase by 2 levels.

Commentary

Application Notes:

This Guideline is based on United States Sentencing Guidelines Section 2J1.2 and terms used in

this Guideline are intended to have the same meaning as they do in Section 2J1.2.

Definitions.—For purposes of this guideline:

"Records, documents, or tangible objects" includes (A) records, d

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