Energy Legal Blog

Failing Commitment to Report Code of Conduct Infractions Lands Cleco $2 Million Penalty

On June 12 FERC again flexed its EPAct 2005 civil penalty authority muscle.  FERC's Office of Enforcement had alleged that Cleco violated its Code of Conduct and a 2003 settlement in which Cleco agreed to a stricter, more consolidated code of conduct requiring the independent operation of its unregulated affiliated power marketers and generation assets.  The June 12 Stipulation and Consent Agreement (Settlement) recapped specific allegations of Code violations from the summer of 2003 to winter 2005.  In addition, the Settlement accuses Cleco of failing to report those violations to the Office of Enforcement, even though Cleco did submit a self-report of possible violations after investigations had been initiated.  As a part of the Settlement, Cleco neither admitted nor denied that its conduct violated the 2003 settlement or its Code of Conduct.

Non-public, preliminary investigations of Cleco began in November 2005 when the Office of Enforcement reviewed the utility's October 2005 Quarterly Compliance Report as a requirement of the 2003 settlement with FERC.  The Office of Enforcement concluded that Cleco violated the independent functioning requirement in the Code of Conduct, which requires that, except in emergencies, employees involved in transmission must function independently of the power supply employees.  The Office of Enforcement concluded that: (1) operational employees impermissibly engaged in restructuring activities for Cleco's exempt wholesale generators; (2) employees conducted activities that were beyond the scope of permissible shared accounting support duties; (3) six Technical Services Department Planning Group employees performed generation outage planning, coordinating, and scheduling activities for affiliates; (4) certain employees were given access to non-public market information; (5) a non-public monthly risk report was circulated to affiliated companies' Chief Operating Officer(s); and (6) daily status reports were distributed to affiliates that contained non-public information. 

In addition to the $2 million penalty, Cleco is now subject to another compliance plan that requires semi-annual reports to the Office of Enforcement and a 12-month independent audit.  Both semi-annual report and the audit reports must identify all shared employees, report whether any provisions of the Code of Conduct were violated, and identify each instance where non-public information was shared with affiliates.  

Although Cleco self-reported some of the violations at a later date and has taken steps to prevent recurrence of similar violations, it was Cleco's violation of the earlier 2003 settlement agreement that peeved the regulator.  FERC Chair Kelliher admonished that the $2 million penalty would serve as "a reminder that the Commission will not tolerate such actions."  He went on to say that the Commission will "use [its] civil penalty authority to establish a culture of compliance."  The Commission acknowledged that Cleco's actions did not create undue discrimination, result in preference, or cause harm to third party competitors or customers.