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December 18, 2009 |
FERC Enforcement Update On December 17, 2009, the Federal Energy Regulatory Commission ("Commission") issued two orders that institute measures providing additional insight into and safeguards regarding its enforcement process. In the first order, Enforcement of Statutes, Regulations and Orders, 129 FERC ¶ 61,247 (2009), the Commission announced that it will issue a Staff Preliminary Notice of Violations ("Notice") with respect to investigations being conducted by its Office of Enforcement ("OE"). The Commission will issue Notices after subjects of investigations have had the opportunity to respond to Staff's preliminary findings letter. The Notice will identify the subject of the investigation, the time and place of the alleged violation, and the rules, regulations, statutes or orders that Staff alleges were violated. The Notice also will contain a concise description of the alleged violation. The Notice will not confer a right on third parties to intervene or participate in the investigation. As the Chairman and several of the Commissioners remarked, the Notices will provide additional insight and transparency for the regulated community with respect to the types of conduct that are deemed to be violations. Presently, the subject matter of a non-public investigation remains completely secret until the Commission issues a settlement order or an order to show cause. Thus, other entities have no way to know that a particular activity may be considered a violation of the Commission's rules. Moreover, the Notice will definitively tell the public about the existence of an investigation and provide a description of the alleged violation. Presently, publicly-traded entities grapple with the timing for disclosing the existence of an investigation by OE in their reports filed with the SEC, because such enforcement investigations are non-public. The issuance of a Notice will now provide a definitive time at which to disclose the existence of a non-public investigation. The second order, Enforcement of Statutes, Regulations and Orders, 129 FERC ¶ 61,248 (2009), is a policy statement declaring that the Commission will disclose exculpatory evidence to the subjects of investigations by OE. The Commission claims that the policy statement eliminates uncertainty over its position on this issue, enhances fairness, and sets forth a procedural framework within which exculpatory disclosures will be made. Furthermore, the Commission's decision to disclose exculpatory evidence, although not required by law for administrative enforcement actions, is consistent with the practices of the CFTC and SEC, the two agencies the Commission has looked to for guidance in developing its enforcement process. During the course of an investigation, OE will scrutinize materials it receives from sources other than the investigative subject. Under the policy statement, OE will provide any such materials or information that are not known to be in the subject's possession to the subject. The Commission is not requiring OE to conduct any search for materials outside of those it receives during its investigation. Respondents in an enforcement proceeding set for hearing may also move the presiding administrative law judge for disclosure of materials or information the respondents have a reasonable basis to believe is exculpatory. To the extent that exculpatory material or information is subject to privilege, the administrative law judge will employ the present procedures certifying to the Commission that such information might be released, so as to allow the Commission to decide whether to release such information.
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