In a unanimous opinion issued on August 22nd, the U.S. Court of Appeals for the District of Columbia (D.C. Circuit) vacated an order issued by the Federal Energy Regulatory Commission (FERC) upholding the assessment of a monetary penalty against the Southwestern Power Administration (SWPA), a federal Power Marketing Administration (PMA) under the jurisdiction of the Department of Energy (DOE).  In reviewing Section 215 which instituted the current electric reliability paradigm, the D.C. Circuit found that in the Energy Policy Act of 2005 Congress had not unequivocally waived the Federal Government’s sovereign immunity to allow for the assessment of monetary penalties.

The case arose out of a penalty assessed by NERC for violations of reliability provisions by SWPA.  With the acceptance of the Notice of Penalty by FERC, SWPA along with the Department of Energy and the Department of the Interior objected to assessment of the monetary penalty asserting that although the Federal Agencies were subject to the reliability standards, Congress did not intend for the Federal Agencies to be liable for monetary penalties.  Several groups of PMA customers also contested the penalty expressing concerns with the potential pass through of the costs associated with the penalties.  In upholding the assessment of the penalty, FERC disagreed with the Federal Agencies, asserting that Section 215 is imbued with the sufficient authority to assess a monetary penalty against the Federal Agencies.

Before the D.C. Circuit, FERC asserted that Section 215(e)(1) should be read in concert with Section 215(b)(1) to illustrate a waiver of the Federal Government’s sovereign immunity.  Citing precedent setting forth the canons of construction to determine whether the Federal Government’s sovereign immunity had been waived, the D.C. Circuit explained that the expression of a waiver must be unequivocal.  Further, as explained in the opinion, if there is a plausible explanation that illustrates why sovereign immunity was not waived, a reviewing Court must presume that Congress did not intend to waive an agency’s sovereign immunity.  With ambiguity in Section 215 on the question of whether Congress intended for the Federal Government to pay monetary fines, the D.C. Circuit concluded that Section 215 does not authorize the assessment of monetary penalties against SWPA.

While this ruling applied to the assessment of a monetary penalty against SWPA, it may be read as to prohibit the assessment of monetary penalties against the other PMAs or the Federal agencies with responsibilities under NERC reliability standards.  It remains clear, however, that the Federal agencies will still remain subject to the reliability standards as the opinion only addressed the question of whether monetary penalties could be assessed.

Click to access opinion.