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Industry Gets Peek into FERC Enforcement Process, More Rights

May 19, 2008
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FERC last Thursday issued a package of reforms that offer regulated companies a window into the agency's enforcement process, as well as provide potentially targeted companies with more rights in the enforcement process.

The package of four orders includes a revised and expanded policy statement that provides greater transparency into the Federal Energy Regulatory Commission's (FERC) enforcement process; an interpretive order that expands the areas in which the agency will allow no-action letters; a notice of proposed rulemaking (NOPR) that clarifies off-the-record contacts and separation of functions during enforcement investigations; and a final rule that outlines the rights of companies when FERC's enforcement staff seeks an order to show cause.

The final rule requires the enforcement staff of FERC, in all but extraordinary circumstances, to notify regulated companies when it intends to seek an order to show cause for violations of agency regulations and/or market abuses. A targeted company would have 30 days to respond to agency allegations, and the reply would be presented to the Commission along with enforcement staff's request for an order to show cause, both of which would be nonpublic documents, according to FERC [RM08-10].

The rule is a major change in the enforcement process for targeted companies. Prior to this some companies were barely notified of pending charges, let alone given the right to respond early in the proceeding.

With a revised policy statement, FERC also is giving regulated companies greater insight into the agency's enforcement practices. The measure, which revises an original policy statement issued in October 2005, provides guidance on the various factors that FERC considers in its enforcement decisions, including the considerations that enforcement staff take into account when deciding whether to open an investigation and, once opened, whether to close it without further action or to recommend sanctions. It also lays out the factors that are weighed in determining whether a penalty is warranted [PL08-3].

To make the process even more transparent, the Commission has directed its enforcement staff to release annual statistical reports summarizing enforcement activities concerning both investigations and audits for the preceding year, to be issued at the close of each fiscal year.

The interpretive order expands the scope of issues for which FERC will permit requests for non-action letters -- the process by which regulated companies can seek a determination on whether staff would recommend enforcement action if particular transactions, practices or situations are pursued. The process now will include everything within the area of energy markets' jurisdiction, except for issues relating to the licensing of hydroelectric projects, certification of natural gas pipelines, operation of liquefied natural gas terminals and enforcement of mandatory reliability standards [PL08-2].

The order also calls for the Commission to set up an Internet-based compliance "help desk" to respond to industry questions. This would be in addition to existing methods for obtaining staff guidance -- petitions for a declaratory order, general counsel opinion letters, accounting interpretations, the enforcement hotline and other informal communication with FERC staff.

In the NOPR "the Commission proposes to allow the subject of an investigation to communicate with the Commission in writing until a proceeding governed by Part 385 is initiated or a civil action is initiated. After such time, both the subject of the relevant proceeding and decisional employees from the Office of Enforcement [involved in the show cause order] will be barred from communicating with the Commission either in writing or orally. We also propose to categorically bar interventions in enforcement proceedings," said Commissioner Marc Spitzer. Comments on the NOPR are due at FERC within 60 days of the notice's publication in the Federal Register.

The Commission is taking this action to "avoid appearance issues created by private meetings with individual commissioners during the course of an investigation," said Chairman Joseph Kelliher.

In addition,"we propose changes to rules governing separation of litigation [prosecution] staff to clarify that separation occurs upon issuance of a show cause order, instead of only when and if the Commission order[s] a trial-type hearing. The net effect is a broader separation of litigation staff at an earlier stage than at most other agencies," he said.

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