On August 22, 2014, the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) vacated an order by FERC which had upheld the North American Electric Reliability Corporation’s (“NERC”) assessment of reliability based penalties on the Southwestern Power Administration (“SWPA”), an entity within the United States Department of Energy (“DOE”).  The D.C. Circuit explained that in order to authorize a monetary penalty against the federal government, the statute must unequivocally subject the government to monetary liability, something that the provisions of the Federal Power Act (“FPA”) which address enforcement of reliability do not do.

Specifically at issue:

  •  Section 215(b)(1) of the FPA, entitled “Jurisdiction and applicability” generally outlines FERC’s reliability jurisdiction over any user or owner or operator of the bulk-power system, which expressly includes entities described in FPA section 201(f).  Section 201(f) in turn includes the United States and any subdivisions thereof.
  • Section 215(e), entitled “Enforcement” provides FERC’s designated Electric Reliability Organization, NERC, with the authority to assess penalties for reliability violations, including monetary penalties, on any “user or owner or operator of the bulk-power system.”  Additionally, under this section FERC may order compliance with a standard or impose a penalty upon a finding of a violation.  The term “user or owner or operator of the bulk-power system” is not specifically defined in the FPA.
  • Section 316A, entitled “Enforcement of certain provisions” generally authorizes FERC to assess civil penalties against “any person” who violates any provision of subpart II of the FPA, or any provision of any rule or order promulgated under it.  “Any person” is defined by section 3 of the FPA, entitled Definitions, as meaning an individual or a corporation.

NERC had issued a Notice of Penalty against SWPA for violating Reliability Standards for Critical Infrastructure Protection in July 2011.  In response, SWPA and DOE filed an application for review with FERC, arguing that NERC lacked the statutory authority under the FPA to assess monetary penalties against a federal agency (see September 12, 2011 edition of the WER).  SWPA and the DOE argued that the plain language of section 316A “expressly limits” application of civil penalties to “persons,” a term that excludes the federal government.

FERC upheld the penalty, arguing that sections 215(b) and 215(e) work in tandem to establish the unambiguous waiver of sovereign immunity for the imposition of monetary penalties.  (See July 20, 2012 edition of the WER).  FERC explained that the inclusion of the United States among the “users, owners, and operators” it has authority over in section 215(b) was the group being described as “any user or owner or operator of the bulk-power system” under section 215(e).

Despite acknowledging that there was logic to FERC’s interpretation, the D.C. Circuit ultimately disagreed, explaining:

Section 215(b)(1) generally subjects federal government entities to the Commission’s jurisdiction to enforce compliance.  But to authorize a monetary award against the federal government, the statute must do more than generally bring the government within the Commission’s enforcement jurisdiction—it must unequivocally subject the government to monetary liability.  Neither section 215(b) nor section 215(e), nor the two considered in combination, speaks with requisite clarity to waive the federal government’s sovereign immunity from monetary penalties.  We therefore vacate the Commission’s order.

To view the order, click here.