In an attempt to show it means business regarding its enhanced authority to assess civil penalties under the Energy Policy Act of 2005 (EPAct 2005), on December 21, FERC issued a statement of administrative policy detailing the procedures it will use in assessing civil penalties, but emphasized the continuing importance of negotiated settlements, which are not subject to the procedures.  In EPAct 2005, Congress authorized FERC to impose penalties of up to $1 million per day per violation, for violations of the statutes that FERC administers —  Parts I and II of the Federal Power Act (FPA), the Natural Gas Act (NGA), and the Natural Gas Policy Act (NGPA) —  and the rules, regulations, and orders issued pursuant to those statutes.  The December 21 policy statement complements a prior Policy Statement on Enforcement, issued in October 2005, which discussed the factors FERC would take into account in responding to violations and determining appropriate remedies, and emphasized the need for companies to create an internal “culture of compliance” and self-report violations.  [See FERC Explains Its Policy on New Penalty Enforcement.] 

FERC Chair Joseph Kelliher emphasized that FERC generally prefers settlement to litigation, and predicted that the majority of penalty decisions will likely be made through negotiated settlements.  Consequently, it is not entirely clear how often the civil penalty procedures will be put to use.  To the extent they are put to use, FERC explained that it will first provide notice describing a violation and the proposed penalty.  The targeted person or company will have a chance to respond and explain why the penalty should not be assessed.  Following the target's response or explanation:

• For violations of Part I of the FPA, if a final compliance order has been violated, then FERC will conduct an administrative hearing before an administrative law judge (ALJ); if no final compliance order has been violated, then an entity may choose between the ALJ hearing and an immediate assessment of the proposed penalty.
• For violations of Part II of the FPA, the entity may choose between a hearing before an ALJ or an immediate penalty assessment. 
• For violations of the NGA, FERC will require either a paper hearing or a hearing before an ALJ, depending on the circumstances involved, and will issue an order after considering an entity's response.  
• Finally, for violations of the NGPA, FERC explained that the NGPA does not provide for an on-the-record administrative hearing; rather, FERC will assess the penalties after considering the facts.

Once FERC issues a final order assessing the appeal, if the entity does not voluntarily pay the penalty within 60 days, FERC can institute a collection action in the appropriate United States district court.  At this point, proposed penalties are subject to de novo review by the district courts.  Entities assessed penalties may appeal final Commission decisions by following the usual appeal procedures, i.e., by filing a petition for review within the appropriate time to a U.S. Court of Appeal.