On March 11, 2014, the Federal Energy Regulatory Commission (“Commission”) issued an order approving a Stipulation and Consent Agreement between the Office of Enforcement (“Enforcement”) and International Transmission Company d/b/a ITCTransmission (“ITCTransmission”), Michigan Electric Transmission Company, LLC (“METC”), ITC Midwest LLC (“ITC Midwest”), and ITC Great Plains, LLC (“ITC Great Plains”) (collectively, the “ITC Companies”) (“Stipulation”). The Stipulation resolves an investigation by Enforcement regarding the ITC Companies’ multiple failures to file jurisdictional agreements under section 205 of the Federal Power Act (“FPA”) and to obtain prior Commission approval for the acquisition of jurisdictional assets under section 203 of the FPA. In the Stipulation, the ITC Companies agreed to pay a civil penalty of $750,000 and submit to at least one year of compliance monitoring, with another year of monitoring at Enforcement’s discretion. This penalty is in addition to $29,909.61 in time value of money refunds the ITC Companies paid to customers in connection with the late filed agreements.
In its investigation, Enforcement determined that the ITC Companies engaged in 20 unauthorized transactions between 2005 and 2011, which included transactions valued from $0 to approximately $6.7 million. The ITC Companies untimely filed and requested authorization for each of these 20 asset transfers in 2011. Enforcement additionally determined that between 2003 and 2011, ITCTransmission, METC, and ITC Midwest inherited from predecessors-in-interest or executed and failed to timely file 174 documents under section 205 of the FPA. Of these 174 agreements and documents, 86 were jurisdictional agreements that ITC’s predecessors-in-interest had not filed with the Commission prior to assigning them to an ITC Company. Of the remaining late-filed documents, 32 were jurisdictional agreements the ITC Companies entered into, 44 were notices of succession to predecessor agreements on file with the Commission, and 12 were notices of termination of jurisdictional agreements. ITCTransmission, METC, and ITC Midwest submitted 171 of these 174 documents, and the Commission accepted 165 of the previously unfiled documents.
Enforcement determined that the ITC Companies’ violations were not willful but were a direct result of their failure to maintain a compliance program capable of identifying and ensuring compliance with their obligations under sections 203 and 205 of the FPA, including providing for adequate regulatory due diligence in reviewing agreements inherited from predecessors in interest.
In approving the Stipulation and the $750,000 penalty, the Commission concluded that the Stipulation was a fair and equitable resolution and in the public interest because it reflects the nature and seriousness of the ITC Companies’ conduct. The Commission noted that this case did not involve limited instances of missed filings, which are frequently self-reported to Enforcement and often closed with no action depending on the particular facts and circumstances of the case. Rather, the ITC Companies’ failure to make nearly 200 filings — including failure to seek authorization of 20 jurisdictional transactions — reflects a systemic neglect of statutory responsibilities and a serious shortfall in compliance efforts. The Commission found that the civil penalty was warranted and is consistent with the Revised Policy Statement on Penalty Guidelines. The Commission further urged that market participants include in their compliance programs processes that will enable them to fulfill their FPA sections 203 and 205 obligations.
This case is significant in three respects. First, it demonstrates that Enforcement takes seriously failures to file jurisdictional agreements and seek approvals for transfers of assets on a timely basis. Second, it indicates that the Commission expects market participants to have compliance programs that include processes for insuring the timely filing of jurisdictional agreements, including those that relate to asset transfers and transmission and interconnection services. Third, it signifies that the Commission is willing to impose civil penalties beyond the traditional remedy of time value of money refunds for repeated failures to timely file agreements as required under sections 203 and 205 of the FPA.
Notably, Commissioner Moeller dissented. In a nutshell, Commissioner Moeller objected to the imposition of a civil penalty as inconsistent with the Commission’s 1993 policy that established the remedy for untimely filings as the time value of money. He criticized the majority’s reliance on the fact that the ITC Company’s failure was not limited but rather consisted of over 200 late filings. He further noted that the 1993 policy encouraged companies to examine their old records and improved transparency in the industry, but that, in this case, the Commission was imposing a penalty that is equal to twenty-five times on the dollar as compared to its existing policy on untimely filings – a punishment that did not fit the crime.
Despite a strong dissent, based on the majority decision in this case, market participants should be cognizant that the Commission may seek civil penalties above and beyond the time value of money refunds traditionally imposed for late filings. Therefore, they should timely file and report in their Electric Quarterly Reports all jurisdictional agreements and documents and have specific compliance processes in place to ensure the timely filing and reporting of all documents necessary to meet their FPA section 203 and 205 obligations.
