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FERC Institutes Public Notice of Violation Process for Enforcement Investigations

Energy Law Update

December 18, 2009

In the first significant policy action under new Enforcement Director Norman C. Bay, the Federal Energy Regulatory Commission ("FERC") recently introduced a notice procedure designed to increase the transparency and disclosure of FERC Enforcement investigations. Under this new procedure, FERC will now publicly release the identity, alleged conduct, and claimed violations underlying FERC's investigations through a "Notice of Violation", which will be issued after the institution of an enforcement investigation. The effect of the new policy is that FERC investigations will now be made public at an early stage after a preliminary determination to move forward has been made, but apparently before many substantive investigatory actions have been taken.

According to FERC, "[t]he process works this way: As the Office of Enforcement completes its fact-finding process, it may make a preliminary determination that the subject has violated one or more FERC requirements. If that occurs, the Office of Enforcement would send the subject a letter outlining the bases for the preliminary determination. After the subject has had an opportunity to respond to staff’s preliminary findings letter, the Director of the Office of Enforcement would be authorized to direct the Secretary of the Commission to issue a notice consisting of:

  • The identity of the entity or entities under investigation; 
  • The time and place of the alleged conduct; 
  • The rules, regulations, statutes or orders that staff alleges were violated; and
  • A concise description of the alleged wrongful conduct."

Previously, FERC investigations were non-public until either a settlement was reached or FERC issued an order to show cause after Enforcement Staff had concluded its investigatory efforts. Investigations in which Enforcement Staff did not find any support for a finding that the regulated entity had committed a violation were not made public. Under the new Notice of Violation policy, the identity of a regulated entity under investigation, including its alleged wrongful conduct, will be disclosed at a preliminary stage of the investigation. The immediate direct effect change of this will be increased publicity, which could affect regulated entities' public relations efforts, regulatory filings, investor relations, and, potentially, its defense strategy.

Indirectly, the Notice of Violation policy could also expose regulated entities to separate third party complaints under the Federal Power Act and Natural Gas Act. While FERC made clear that the Notice of Violation process does not alter its current policy, which precludes third parties from intervening in FERC investigations, by announcing investigations at a preliminary stage, the Notice of Violation process may create a basis for third parties to bring separate actions based on the same alleged conduct under Section 306 of the Federal Power Act or Section 13 of the Natural Gas Act, as FERC has found appropriate in the case of a pending complaint brought by Connecticut Attorney General Richard Blumenthal.  See Bracewell Client Alert  "FERC Endorses Private Right to Prosecute Market Manipulation Complaints Under Federal Power Act."

In addition, FERC issued a policy statement providing for the disclosure of exculpatory materials in enforcement investigations and proceedings. As explained by Mr. Bay, the policy statement will: formalize enforcement staff's existing process with respect to such materials; provide guidance to all affected parties, including administrative law judges, with regard to the Commission's position on the provision of exculpatory materials; promote open and fair enforcement investigations and proceedings; and, promote efficiency in investigations and proceedings.