[Federal Register Volume 62, Number 64 (Thursday, April 3, 1997)]
[Rules and Regulations]
[Pages 15827-15830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8314]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 2

[Docket No. RM97-2-000; Order No. 594]


Statement of Compliance With Section 223 of the Small Business 
Regulatory Enforcement Fairness Act of 1996; Policy Statement

    Issued March 26, 1997.

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule; policy statement.

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[[Page 15828]]

SUMMARY: The Commission is issuing this Policy Statement in compliance 
with section 223 of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (SBREFA). Section 223 of SBREFA requires each agency 
regulating the activities of small entities to establish a policy to 
provide for the reduction, and under appropriate circumstances, for the 
waiver of civil penalties for violations of statutory or regulatory 
requirements by small entities.
    It is the policy of the Commission that to be considered for a 
reduction or waiver of a penalty, a small entity must not have a 
history of previous violations, and the violations at issue must not 
have been the product of willful or criminal conduct, or have caused 
loss of life or injury to persons, damage to property or the 
environment, or endangered persons, property or the environment. A 
small entity that complies with those standards is eligible for 
consideration for a waiver or reduction of a civil penalty. An eligible 
small entity will be granted a waiver if it can also demonstrate that 
it performed timely remedial efforts, made a good faith effort to 
comply with the law and did not obtain an economic benefit from the 
violations. If an eligible small entity cannot meet the criteria for 
waiver of a civil penalty, it may be eligible for consideration of a 
reduced penalty. Upon the request of a small entity, the Commission 
will consider the entity's ability to pay before assessing a civil 
penalty.
    The Commission reserves the right to waive or reduce civil 
penalties in circumstances other than those listed under this Policy if 
it is in the public interest to do so.

DATES: This rule is effective March 29, 1997.

FOR FURTHER INFORMATION CONTACT: Stuart Fischer, Office of General 
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, D.C. 20426, Telephone: (202) 208-1033.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of 
this document in the Federal Register, the Commission also provides all 
interested persons an opportunity to inspect or copy the contents of 
this document during normal business hours in the Public Reference Room 
at 888 First Street, N.E., Washington, D.C. 20426.
    The Commission Issuance Posting System (CIPS), an electronic 
bulletin board service, provides access to the texts of formal 
documents issued by the Commission. CIPS is available at no charge to 
the user and may be accessed using a personal computer with a modem by 
dialing 202-208-1397 if dialing locally or 1-800-856-3920 if dialing 
long distance. To access CIPS, set your communications software to 
19200, 14400, 12000, 9600, 7200, 4800, 2400, or 1200 bps, full duplex, 
no parity, 8 data bits and 1 stop bit. The full text of this order will 
be available on CIPS in ASCII and WordPerfect 5.1 format. CIPS user 
assistance is available at 202-208-2474.
    CIPS is also available on the Internet through the Fed World 
system. Telnet software is required. To access CIPS via the Internet, 
point your browser to the URL address: http://www.fedworld.gov and 
select the ``Go to the FedWorld Telnet Site'' button. When your Telnet 
software connects you, log on to the FedWorld system, scroll down and 
select FedWorld by typing: 1 and at the command line and type: /go 
FERC. FedWorld may also be accessed by Telnet at the address 
fedworld.gov.
    Finally, the complete text on diskette in WordPerfect format may be 
purchased from the Commission's copy contractor, La Dorn Systems 
Corporation. La Dorn Systems Corporation is also located in the Public 
Reference room at 888 First Street, N.E., Washington, D.C. 20426.

    Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A. 
Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa, 
Jr.

STATEMENT OF PENALTY REDUCTION/WAIVER POLICY TO COMPLY WITH SECTION 223 
OF THE SMALL BUSINESS REGULATORY ENFORCEMENT FAIRNESS ACT OF 1996

I. Introduction

    The Commission is issuing this Policy Statement in compliance with 
section 223 of the Small Business Regulatory Enforcement Fairness Act 
of 1996 (SBREFA).<SUP>1 Section 223 of SBREFA requires each agency 
regulating the activities of small entities to establish a policy to 
provide for the reduction, and under appropriate circumstances, for the 
waiver of civil penalties for violations of statutory or regulatory 
requirements by small entities.
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    \1\ Pub. L. 104-121, 110 Stat. 860, et seq., Section 201, et 
seq. (1996). Section 223 is part of Subtitle B of SBREFA, entitled 
``Regulatory Enforcement Reforms.'' Subtitle B is codified as a note 
to 5 U.S.C. Sec. 601 (1996), which is part of the Regulatory 
Flexibility Act. Because of this, we will use the session law 
citations in this policy statement.
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    It is the policy of the Commission that to be considered for a 
reduction or waiver of a penalty, a small entity must not have a 
history of previous violations, and the violations at issue must not 
have been the product of willful or criminal conduct, or have caused 
loss of life or injury to persons, damage to property or the 
environment, or endangered persons, property or the environment. A 
small entity that complies with those standards is eligible for 
consideration for a waiver or reduction of a civil penalty. An eligible 
small entity will be granted a waiver if it can demonstrate that it 
also performed timely remedial efforts, made a good faith effort to 
comply with the law and did not obtain an economic benefit from the 
violations. If an eligible small entity cannot meet the criteria for 
waiver of a civil penalty, it may be eligible for consideration of a 
reduced penalty. Upon the request of a small entity, the Commission 
will consider the entity's ability to pay before assessing a civil 
penalty.
    The Commission reserves the right to waive or reduce civil 
penalties in circumstances other than those listed under this Policy if 
it is in the public interest to do so.

II. Background

A. SBREFA

    President Clinton signed SBREFA into law on March 29, 1996. The 
stated purpose of SBREFA is, among other things, ``to create a more 
cooperative regulatory environment among agencies and small businesses 
that is less punitive and more solution oriented.'' <SUP>2
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    \2\ Pub. L. No. 104-121, 110 Stat. 858, Section 203(6) (1996).
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    Many of the provisions of SBREFA, such as congressional review of 
agency rulemaking, a right to judicial review under the Regulatory 
Flexibility Act (RFA), and amendments to the Equal Access to Justice 
Act became effective either on the date of enactment or within 90 days 
of that date. However, section 223 of SBREFA, entitled ``Rights of 
Small Entities In Enforcement Actions,'' takes effect by March 29, 
1997, one year after enactment.<SUP>3 Section 223(a) of SBREFA requires 
each agency regulating the activities of small entities to establish a 
policy or program

[[Page 15829]]

providing for the reduction and, under appropriate circumstances, the 
waiver of civil penalties for violations of statutory or regulatory 
requirements by small entities.<SUP>4 Penalty reduction/waiver policies 
or programs are ``subject to the requirements or limitations of other 
statutes.'' <SUP>5
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    \3\ Id., Section 223(a). In addition to the requirements of 
section 223, section 213(b) of SBREFA requires agencies regulating 
the activities of small entities to establish a program by March 29, 
1997, for responding to inquiries concerning information on, and 
advice about, compliance with statutory and regulatory requirements. 
Id., Section 213(b). The Commission has already established and 
publicized advice programs for small entities offered by its Office 
of Hydroelectric Licensing and Office of Pipeline Regulation, as 
well as the availability of assistance through the Enforcement Task 
Force Hotline. Additionally, Commission staff from the Office of 
General Counsel, the Office of Electric Power Regulation and the 
Office of Chief Accountant respond to compliance inquiries made by 
all entities, regardless of size. Thus, the Commission has complied 
with section 213(b).
    \4\ Id., Section 223(a).
    \5\ Id., Section 223(b).
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1. Definition of ``Small Entity''

    Section 221(1) of SBREFA defines the term ``small entity'' as 
having the same meaning as in section 601 of the RFA.<SUP>6 Section 601 
of the RFA, in turn, defines ``small entity'' as ``small business,'' 
``small organization'' and ``small governmental jurisdiction.'' <SUP>7
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    \6\ Id., Section 221(1).
    \7\ 5 U.S.C. Section 601 (1994).
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    Under Section 601(3) of the RFA, a ``small business'' has the same 
meaning as ``small business concern'' under section 632(a) of the Small 
Business Act,<SUP>8 unless an agency, after consultation with the 
Office of Advocacy of the Small Business Administration (SBA) and after 
opportunity for notice and comment, establishes its own 
definition.<SUP>9
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    \8\ 15 U.S.C. Section 632(a)(1) (1994).
    \9\ 5 U.S.C. Section 601(3) (1994).
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    Section 632(a)(1) of the Small Business Act defines a ``small 
business concern'' as an enterprise ``which is independently owned and 
operated and which is not dominant in its field of operation.'' <SUP>10 
The SBA has applied the definition of small business to a number of 
specific industries based on the sizes of the enterprises and their 
affiliations.<SUP>11 The SBA defines a ``Natural Gas Transmission 
Company,'' which includes an interstate natural gas pipeline, as a 
small business if it has less than $5,000,000 in revenues.<SUP>12 The 
SBA considers an electric utility, including a hydroelectric project, a 
small business if it produces up to four million megawatt hours per 
year.<SUP>13
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    \10\ 15 U.S.C. Section 632(a) (1994).
    \11\ 13 CFR 121.101-201.
    \12\ 13 CFR 121.201.
    \13\ Id.
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    When the SBA determines whether an enterprise is a small business, 
it counts the enterprise's affiliations. Family enterprises or 
enterprises in which the same individual or individuals have a 
controlling interest are aggregated together for this purpose.<SUP>14 
If the aggregate total of the affiliated enterprises exceeds the size 
requirement for small businesses, none of the affiliated enterprises is 
considered a small business.
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    \14\ Id., Section 121.103.
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    The RFA defines ``small organization'' as a not-for-profit 
enterprise which is independently owned and operated and not dominant 
in its field.<SUP>15 The RFA defines a ``small governmental 
jurisdiction'' as a governmental entity with a population of less than 
50,000.<SUP>16
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    \15\ 5 U.S.C. Section 601(4) (1994).
    \16\ 5 U.S.C. Section 601(5) (1994).
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2. Conditions and Exclusions

    SBREFA does not mandate the content of a penalty reduction/waiver 
policy. Subject to the requirements or limitations of other statutes, 
section 223(b) of SBREFA suggests, but does not require, several 
conditions or exclusions that may be included in such a policy. These 
are: Requiring correction of the violation within a reasonable period 
of time; limiting the applicability of the reduction/waiver policy to 
violations discovered through participation in a compliance assistance 
or audit program operated or supported by the agency or a state; 
excluding small entities that have been subject to multiple enforcement 
actions by the agency; excluding violations involving willful or 
criminal conduct; excluding violations that pose serious health, safety 
or environmental threats; and requiring a good faith effort to comply 
with the law.<SUP>17 In addition to the suggested conditions and 
exclusions, section 223(a) of SBREFA states that ``under appropriate 
circumstances'' an agency may consider ability to pay in determining 
penalty assessments on small entities.<SUP>18
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    \17\ Pub. L. 104-121, 110 Stat. 862, Section 223(b) (1)-(6) 
(1996).
    \18\ Id., Section 223(a) (1996).
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B. The Commission's Civil Penalty Authority

    The Commission has the authority to assess civil penalties under 
section 31(c) of the Federal Power Act (FPA),<SUP>19 section 316A of 
the FPA,<SUP>20 and section 504(b)(6) of the Natural Gas Policy Act of 
1978 (NGPA).<SUP>21 The Natural Gas Act does not provide for civil 
penalties.
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    \19\ 16 U.S.C. Section 823b(c)(1994).
    \20\ 16 U.S.C. Section 825o-1 (1994).
    \21\ 15 U.S.C. Section 3414(b)(6) (1994).
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1. The FPA
    Section 31(c) of the FPA provides for penalties up to $10,000 per 
violation per day and requires that:

    In determining the amount of a proposed penalty, the Commission 
shall take into consideration the nature and seriousness of the 
violation, failure or refusal and the efforts of the licensee to 
remedy the violation, failure, or refusal in a timely manner.<SUP>22

    \22\ 16 U.S.C. 823b(c)(1994).
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    The factors the Commission considers in assessing civil penalties 
are: Whether the person had actual knowledge of the violation or 
constructive knowledge deemed to be possessed by a reasonable 
individual acting under similar circumstances; whether the person has a 
history of previous violations; whether the violation caused loss of 
life or injury to persons; whether economic benefits were derived 
because of the violation; whether the violation caused damage to 
property or the environment; whether the violation endangered persons, 
property or the environment; whether there were timely, untimely or no 
remedial efforts; and whether there are any other pertinent 
considerations.<SUP>23 The section 385.1505 factors are similar to the 
conditions and exclusions suggested under section 223(b) of SBREFA.
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    \23\ 18 CFR 385.1505.
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    Under the ``other pertinent considerations'' factor, the Commission 
has considered the size of a project, the gross revenues earned and 
whether the entity relied on advice given by Commission staff. While 
the Commission is not required under the FPA to consider an entity's 
ability to pay, the Commission has considered that factor when the 
respondent raised the issue.<SUP>24
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    \24\ See, e. g., Clifton Power Corp. v. FERC, 88 F.3d 1258, 1267 
(D.C. Cir. 1996); Bluestone Energy Design, Inc. v. FERC, 74 F.3d 
1288, 1295 (D.C. Cir. 1996).
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    The Commission also has civil penalty authority under section 316A 
of the FPA,<SUP>25 to remedy violations of sections 211, 212, 213 and 
214 of that statute. Sections 211 and 212 of the FPA concern wheeling 
electric power. Section 213 contains reporting requirements involving 
requests for wholesale transmission services. Section 214 deals with 
sales by exempt wholesale generators.
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    \25\ 16 U.S.C. 825o-1 (1994).
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2. The NGPA
    Section 3414(b)(6) of the NGPA provides for civil penalties up to 
$5,000 per violation per day and does not identify specific required 
factors to consider when assessing penalties, other than requiring that 
the violation is ``knowing.'' <SUP>26 However, the Commission has 
informally considered factors similar to those in section 385.1505 when 
analyzing NGPA civil penalty matters.
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    \26\ 15 U.S.C. 3414(b)(6)(A) (1994). The NGPA defines 
``knowing'' as actual knowledge or constructive knowledge deemed to 
be possessed by a reasonable individual who acts under similar 
circumstances. 15 U.S.C. 3414(b)(6)(B) (1994).

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[[Page 15830]]

III. Discussion

A. Eligibility for Penalty Reduction or Waiver

    The Commission is adopting many of the exclusions suggested by 
section 223(b) of SBREFA. Specifically, to be considered for a 
reduction or waiver of a penalty, a small entity must not have a 
history of previous violations, and the violations at issue must not 
have been the product of willful or criminal conduct, or have caused 
loss of life or injury to persons, damage to property or the 
environment, or endangered persons, property or the environment. 
<SUP>27 While SBREFA suggests limiting penalty reduction or waiver 
policies to violations discovered through a small entity's 
participation in a compliance assistance or audit program, <SUP>28 we 
will not make this a prerequisite because it would be too limiting. 
Requiring participation in a compliance assistance program could 
exclude first time violators who did not recognize their need for 
compliance assistance. Although seeking compliance assistance may be an 
indication of good faith for purposes of a penalty waiver or reduction, 
it will not be used as a bar to eligibility for this Waiver/Reduction 
Policy.
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    \27\ See, Pub. L. 104-121, 110 Stat. 862, Section 223(b)(3)-(5) 
(1996).
    \28\ Id., Section 223(b)(2).
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B. Criteria for Waiver or Reduction of a Civil Penalty

    If it meets all of the eligibility criteria for this Waiver/
Reduction Policy, a small entity will be granted a waiver of a civil 
penalty if it can also demonstrate that it performed timely remedial 
efforts, made a good faith effort to comply with the law and did not 
derive an economic benefit from the violations. The requirements for 
timely remedial efforts and good faith are conditions suggested for 
penalty waiver or reduction under sections 223(b)(1) and (6) of SBREFA. 
These conditions are similar to factors that the Commission already 
considers under its regulations when determining civil penalties. 
<SUP>29
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    \29\ See, e.g., 18 CFR 385.1505(b)(8)-(10). The Commission 
considers good faith when determining the types of remedial efforts 
made by the violator and whether the violator had actual or 
constructive knowledge of the violation. See, e. g., 18 CFR 
385.1505(b) (1), (2) and (8)-(10).
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    While the requirement that the small entity not be allowed to 
retain economic benefits from the violations is not a condition or 
exclusion identified in SBREFA, the Commission believes that this 
factor must be considered when determining whether to waive or reduce 
civil penalties. The final penalty amount should capture any economic 
benefits derived from violations. Otherwise small entities could be 
encouraged to violate statutory and regulatory requirements for profit. 
Violators should not be able to retain economic benefits that are 
unavailable to small entities that comply with statutory and regulatory 
requirements.
    If an eligible small entity meets some, but not all, of the 
criteria for a waiver of a civil penalty, it may still be eligible for 
a penalty reduced from that which would otherwise be appropriate. The 
appropriateness of a penalty and the level of reduction will be decided 
on a case-by-case basis by considering the same criteria used for 
determining a waiver.
    In determining whether to reduce a civil penalty, the Commission 
will also consider, upon request, the small entity's ability to pay. In 
considering ability to pay, the Commission is following the suggestion 
in section 223(a) of SBREFA. If a small entity wants the Commission to 
consider its ability to pay a civil penalty, the entity must provide 
written documentation demonstrating its financial condition. Acceptable 
documentation includes, but is not limited to: Federal income tax 
returns, state income tax returns, income statements, balance sheets, 
statements of change in financial position, bank statements for loans 
and checking accounts. The Commission reserves the right to request 
more than one type of verifying data on financial condition. In 
analyzing ability to pay, the Commission will consider the small 
entity's cost of compliance with statutory and regulatory requirements.
    The Commission reserves the right to waive or reduce civil 
penalties in circumstances other than those listed under this Policy if 
it is in the public interest to do so.

IV. Administrative Effective Date and Congressional Notification

    Under the terms of 5 U.S.C. 553(d)(2), this Policy Statement is 
effective on March 29, 1997. The Commission has determined, with the 
concurrence of the Administrator of the Office of Information and 
Regulatory Affairs of the Office of Management and Budget, that this 
Policy Statement is not a major rule within the meaning of section 251 
of Subtitle E of SBREFA.<SUP>30 The Commission is submitting this 
Policy Statement to both Houses of Congress and to the Comptroller 
General.
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    \30\ 5 U.S.C. 804(2) (1996).
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List of Subjects in 18 CFR Part 2

    Administrative practice and procedure, Electric power, Natural gas, 
Pipelines, Reporting and recordkeeping requirements.

    By the Commission.
Lois D. Cashell,
Secretary.

    In consideration of the foregoing, the Commission amends Part 2, 
Chapter I, Title 18 of the Code of Federal Regulations as set forth 
below.

PART 2--GENERAL POLICY AND INTERPRETATIONS

    1. The authority citation for Part 2 is revised to read as follows:

    Authority: 5 U.S.C. 601; 15 U.S.C. 717-717w, 3301-3432; 16 
U.S.C. 792-825y, 2601-2645; 42 U.S.C. 4321-4361, 7101-7352.

    2. Part 2 is amended by adding an undesignated center heading and 
Sec. 2.500, to read as follows:

Statement of Penalty Reduction/Waiver Policy to Comply With the Small 
Business Regulatory Enforcement Fairness Act of 1996


Sec. 2.500  Penalty reduction/waiver policy for small entities.

    (a) It is the policy of the Commission that any small entity is 
eligible to be considered for a reduction or waiver of a civil penalty 
if it has no history of previous violations, and the violations at 
issue are not the product of willful or criminal conduct, have not 
caused loss of life or injury to persons, damage to property or the 
environment or endangered persons, property or the environment. An 
eligible small entity will be granted a waiver if it can also 
demonstrate that it performed timely remedial efforts, made a good 
faith effort to comply with the law and did not obtain an economic 
benefit from the violations. An eligible small entity that cannot meet 
the criteria for waiver of a civil penalty may be eligible for 
consideration of a reduced penalty. Upon the request of a small entity, 
the Commission will consider the entity's ability to pay before 
assessing a civil penalty.
    (b) Notwithstanding paragraph (a) of this section, the Commission 
reserves the right to waive or reduce civil penalties in appropriate 
individual circumstances where it determines that a waiver or reduction 
is warranted by the public interest.

[FR Doc. 97-8314 Filed 4-2-97; 8:45 am]
BILLING CODE 6714-01-P