GAO-02-888R FERC Penalty Adjustments

United States General Accounting Office

Washington, DC 20548

July 15, 2002

The Honorable Patrick H. Wood III

Chairman

Federal Energy Regulatory Commission

Subject: Federal Energy Regulatory Commission’s Compliance With Requirement

to Adjust Civil Monetary Penalties for Inflation

Dear Mr. Wood:

Earlier this year, we initiated a governmentwide review of the implementation of the

Federal Civil Penalties Inflation Adjustment Act of 1990, as amended (“Inflation

Adjustment Act”).1 The Inflation Adjustment Act required each federal agency to

issue a regulation adjusting its covered maximum civil monetary penalties for

inflation by October 23, 1996, and to make necessary adjustments at least once every

4 years thereafter. During our review, the Federal Energy Regulatory Commission’s

(FERC) Office of the General Counsel indicated that four of the agency’s civil

penalties are covered by the act but the agency had not adjusted them for inflation.

This report is intended to bring this matter to your attention and to recommend

corrective action.

FERC Identified Four Civil Penalties That Are

Covered by the Inflation Adjustment Act

Section 3 of the Inflation Adjustment Act defines a covered civil penalty as any

“penalty, fine, or other sanction that ... is for a specific monetary amount as provided

by Federal law” or “has a maximum amount provided for by Federal law,” and “is

assessed or enforced by an agency pursuant to Federal law” and “is assessed or

enforced pursuant to an administrative proceeding or a civil action in the Federal

courts.” FERC’s Office of the General Counsel provided us with a list of civil

penalties that it considered covered by the Inflation Adjustment Act. Table 1 lists

those penalties as well as their maximum penalty amounts, assessment methods, and

the dates that the penalties were last set or adjusted.

 1

The Inflation Adjustment Act is codified at 28 U.S.C. 2461 note. The 1990 act was amended in 1996 by

the Debt Collection Improvement Act, which added the requirement for agencies to adjust their civil

penalties by regulation (Pub. Law 104-134, Sec. 31001, 110 Stat. 1321-373).
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Table 1: FERC Civil Penalties Covered by the Inflation Adjustment Act

U.S.C.

citation Description of violation

Maximum

penalty/forfeiture

amount

Assessment

method

Date

penalty

was last

set or

adjusted

15 U.S.C.

3414

(b)(6)(A)(i)

Knowing violation of any

provision of any rule or

order under the Natural

Gas Policy Act.

$5,000 Per violation 1978

16 U.S.C.

825n(a)

Willful failure to comply

with any order, rule, or

regulation by the

Commission or failure to

submit any required

document or information or

to appear in response to a

Commission subpoena in

relation to the Federal

Power Act.

$1,000 (in

addition to any

other penalty)

Per violation 1935

16 U.S.C.

823b(c)

Failure to comply with any

rule, regulation, condition

of a license, permit, or

exemption under

subchapter 12 of the

Federal Power Act

(Regulation of the

Development of Water

Power and Resources).

$10,000 Per day 1986

16 U.S.C.

825o-1(b)

Violation of sections 824(j)

(wheeling authority),

824(k) (orders requiring

interconnection or

wheeling), or 825(m)

(sales by exempt

wholesale generators) of

the Federal Power Act.

$10,000 Per day 1992

Source: FERC’s Office of the General Counsel.

FERC’s Office of the General Counsel told us that the agency has several other

statutory penalties that appear not to be covered by the Inflation Adjustment Act

(e.g., criminal penalties, civil penalties that are assessed by the President, and

penalties that are recoverable only in civil suit brought by a U.S. Attorney).

FERC Has Not Adjusted Its Covered Civil Penalties for Inflation

Under the Inflation Adjustment Act, FERC (like other covered federal agencies) was

required to publish a regulation by October 23, 1996, adjusting its maximum civil

penalties for inflation. The amount of the adjustment was to be based on changes in

the Consumer Price Index (CPI) between June of the calendar year in which the

penalty was last set or adjusted and June of the year prior to the adjustment (i.e.,
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June 1995 for adjustments made in October 1996). However, the statute limited the

first adjustments of the agencies’ penalties to 10 percent of the penalty amounts.

Because the CPI had increased by more than 10 percent since three of the four civil

penalties in table 1 were last set or adjusted, FERC should have published a

regulation in the Federal Register by October 23, 1996, increasing each of these three

covered penalties by 10 percent. One of the penalties was last set or adjusted in 1992

(16 U.S.C. 825o-1(b)). The CPI increased nearly 9 percent between June 1992 and

June 1995. Therefore, FERC could have increased this penalty as well.

The Inflation Adjustment Act also required FERC to examine its civil penalties by

October 23, 2000, and, if necessary, make a second round of inflation adjustments.

The calendar year 2000 adjustments were to be based on changes in the CPI between

June of the year in which the penalties were last adjusted (which should have been

done in 1996) and June of the year prior to the adjustment (1999). Because the CPI

increased by about 6 percent during that period, FERC could have increased its

penalty amounts again.

However, our review of the Federal Register for calendar years 1996 through 2001 did

not reveal any FERC regulations that increased the agency’s civil penalties for

inflation. FERC’s Deputy General Counsel confirmed that FERC had not published

any penalty adjustment regulations pursuant to the Inflation Adjustment Act, but was

not aware why the agency had not done so.

Recommendation for Executive Action

We recommend that the Chairman of FERC initiate a regulatory action to adjust for

inflation all of the agency’s civil penalties that are covered by the Inflation

Adjustment Act.

Agency Comments and Our Evaluation

On June 28, 2002, we provided a draft of this report to the Chairman of FERC for his

review and comment. On July 8, 2002, the Chairman responded by letter indicating

that he was directing his staff to prepare a draft regulation that would adjust the

agency’s civil penalties by 10 percent—the maximum allowed by the statute for a

first-time adjustment. He also noted that the draft regulation would provide for

periodic adjustments thereafter as required by law.

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We are sending copies of this report to the appropriate congressional committees,

and it will be available on GAO’s homepage at http://www.gao.gov. If you or your

staff have any questions on the matters discussed in this letter, you may contact

Curtis Copeland or me at (202) 512-6806.

Sincerely yours,

Victor S. Rezendes

Managing Director

Strategic Issues

(450131)