Potential Fines and Penalties for Energy Transfer Partners

Implications: A clear understanding of this area of the law has become critical  because the risks from noncompliance can subject an entire entity, including upper management, to significant fines ($1 million per day/ per violation), criminal penalties and disgorgement of undue profits.  Many energy entities need to update and in some case create substantive compliance programs to the new powers granted FERC in the Energy Policy Act of 2005.  FERC has recently begun to assess the first round of fines and penalties on entities that it determines are not demonstrating a "culture of compliance." 

Analysis: The Energy Policy Act of 2005 ("EPAct"), requires that market participants which purchase/sell electricity and/or natural gas, via market centers are required to be in compliance with all relevant energy statutes and FERC regulations and orders. The intent of this law is to prohibit entities such as ETP from using any "manipulative or deceptive device or contrivance" in connection with the sale or purchase of electricity or natural gas and to prohibit the "reporting of false information" to a Federal agency. The risks from noncompliance can subject an entire entity, including upper management, to fines ($1 million per day/ per violation), criminal penalties and disgorgement of undue profits. As a result of EPAct, FERC has recently begun to assess fines on entities that it determines are not demonstrating a "culture of compliance." Many energy entities are in need of a well-prepared compliance program to avoid the significant fines and penalities that may potentially occur.  FERC has stated the ETP should be fined in excess of $100 million in penalties and disgorgement.  In all liklihood the final result should be significantly lower.  However, because of the lack of precedent on this level of FERC assessed fines and penalties, energy entities will probably error on the side of caution when it comes to compliance.