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Shining a Light on Fraud in the Energy Industry

Posted  October 1, 2021

This week brought not one but two newly announced False Claims Act (FCA) settlements with companies in the energy sector: (1) Oklahoma-based energy company Devon Energy Coporation settled claims it underpaid royalties for natural resources, and (2) National Grid, a utility company in New York settled claims it falsified reports to a local power authority to cover up mismanagement and wasted State electricity. The two settlements illustrate federal and state authorities’ commitment to hold the energy industry accountable for integrity in its business with the government. The combined $12 million in recoveries also demonstrates the power of the FCA, and the whistleblowers who bring FCA claims, to combat all manner of corporate fraud.

Underpayments on Leases to Explore and Extract Natural Resources Can Violate the FCA:  The Devon Energy Settlement

First up, Oklahoma-based Devon Energy Corporation will pay more than $6 million to settle claims it underpaid royalties on federal natural gas leases in Wyoming and New Mexico. Companies are required to pay the government royalties on the value of gas produced from public land they lease from the federal government for production of natural resources such as natural gas.

In a press release announcing the settlement, Acting Assistant Attorney General Brian M. Boynton of the Justice Department’s Civil Division said, “The United States allows companies to remove gas from federal lands, which belong to all of us, in exchange for the payment of appropriate royalties. This settlement demonstrates that the government will hold accountable those who take improper advantage of public resources.”

False Statements in Connection with Government Energy Service Contracts Can Violate the FCA:  The National Grid Settlement

Likewise announced this week, electrical utility company National Grid reached a $6 million settlement with the State of New York over claims it violated contracts with the State when it made false reports to the Long Island Power Authority about the amount of electricity used but not billed throughout Long Island. According to the NY Attorney General press release, “…National Grid mismanaged the State’s electricity and then made false reports to LIPA to cover up its conduct. LIPA was harmed, as were all National Grid customers who diligently paid their electric bills.”

The settlement funds will be put to noble use. The proceeds will go toward a new program to assist local low-income residents to replace fossil-fuel powered home heating systems with clean, lower-cost alternatives. Additionally, a whistleblower who initiated the case under the NY FCA will receive 23.5% of the proceeds, or $1.41 million.

Fraud in the Energy Industry

These settlements showcase the breadth of the government’s business with the energy industry and the potential for misconduct. Energy companies can violate the federal FCA and analogous state FCAs in numerous ways. Some of the recurring schemes include the following:

  • As in the Devon Energy case, underpaying the government royalties in connection with leases to explore and extract natural resources sources like gas, petroleum, and coal, or otherwise underreporting or failing to report removal of those natural energy sources from government lands.
  • Like National Grid, making false statements in connection with government contracts for the sale, management, and service of energy.
  • Overcharging the government on contracts for the sale, management, and service of energy.
  • Misrepresenting information in connection with energy research grants or misusing grant funds.
  • Falsely representing compliance with material environmental regulations or contract requirements or making false statements to avoid environmental fines.

Report Misconduct in the Energy Sector

Whistleblowers who are aware of similar schemes may qualify for an award under the federal FCA as well as numerous state and local FCA analogs. And whistleblowers who are aware of other types of misconduct by energy companies may likewise qualify for an award under one of the many whistleblower reward laws and programs, such as the Internal Revenue Service’s program to reward whistleblowers who report tax scams, or the Securities and Exchange Commission’s program to reward whistleblowers who report violations of the federal securities laws. If you think you might know of fraud or misconduct in the energy industry, contact our experienced team of whistleblower lawyers.

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Tagged in: Contract Non-Compliance, Environmental Fraud, FCA Federal, FCA State, Government Procurement Fraud,