The US Treasury will soon be $205,000 richer due to the payment of a civil penalty by American Transmission Company (ATC) related to violations of sections 203 and 205 of the Federal Power Act.  ATC’s compliance failure stems from 21 transactions for which it had failed to file for authorization under section 203 and 29 agreements that ATC failed to file under section 205.  Without diving into the details of the individual transactions or agreements, what is clear to this observer is that ATC stumbled over two oft-misunderstood (and in one case, seldom-used) sections of the Federal Power Act and how they apply to these situations.

To begin, Section 203(a)(1)(B) requires that a public utility must obtain FERC’s prior approval before it “merge or consolidate, directly or indirectly, such facilities or any part thereof with those of any other person, by any means whatsoever.”  (I know–exciting!)  This rarely-used subpart of section 203 has generally been known as the “acquisitions section” and it requires a public utility to obtain FERC approval before acquiring the jurisdictional facilities of another public utility.  At least one of ATC’s acquisitions had a price tag of slightly over $1,000, but that didn’t matter here as there is no value threshold for section 203(a)(1)(B).  Any transaction, no matter how small, can trigger it (as ATC discovered).  The lesson to be learned here is that section 203(a)(1)(B)’s “merge or consolidate” language doesn’t mean exactly just that; it means “acquire.”

ATC’s second misstep was caused by the failure to file 29 agreements under section 205.  The energy industry is closely familiar with section 205 but primarily with respect power sales and transmission services.  In ATC’s case, it failed to file Common Facility Agreements for the shared use of substations and agreements to share transmission poles by double circuiting.  (Yes, they fall under FERC’s jurisdiction.  Surprise!)  These agreements are anything but your typical everyday contracts that one would expect to trigger section 205, and unfortunately there has been little clarity, if any, from FERC over the past decades regarding how section 205 may apply on its margins.

The penalty’s $205,000 amount is surprising given the nature of the violations, and it is made even more so given that ATC self-reported its violations to FERC.  (Not exactly encouraging for those considering it.)  But, on the positive side, we can all thank FERC’s Office of Enforcement (at ATC’s expense) for reminding us about these lesser-known applications of federal law.