On May 15, the Federal Energy Regulatory Commission (FERC or Commission) issued a package of orders addressing its enforcement authority under the Federal Power Act, Natural Gas Act, and Natural Gas Policy Act. In particular, FERC (1) approved a revised policy statement on enforcement matters; (2) issued an interpretive order expanding the topics that can be addressed under its "no-action letter" process and reviewing other mechanisms under which an entity can seek guidance from FERC staff; (3) issued a notice of proposed rulemaking that would revise the rules on ex parte communications, separation of functions, and intervention in an investigation; and (4) issued a final rule amending its regulations to expand and clarify the rights of an entity subject to investigation in the event FERC staff recommends that the Commission issue an order to show cause as a result of the investigation.

These orders respond to issues raised at a November 2007 conference on enforcement, during which representatives of the industry and practitioners expressed concerns about the application of the Commission's enforcement authority and the transparency of enforcement activities.

Revised Policy Statement On Enforcement

The Commission issued a revised Policy Statement on Enforcement, superseding the enforcement policy statement adopted in 2005 shortly after the expansion of FERC's civil penalty authority in the Energy Policy Act of 2005. The revisions describe the processes underlying both audits and investigations, and outline the considerations that FERC staff employs in deciding whether to open or close an investigation, as well as factors the Commission considers in determining a remedy. The revised policy statement makes several clarifications regarding the Commission's enforcement procedures, including the following:

  • In deciding whether to assess civil penalties, and the amount of such penalties, FERC will consider five categories of factors. The two most important categories are seriousness of the offense and the strength of the company's commitment to compliance. In addition, FERC will consider whether the company self-reported the violation, demonstrated exemplary cooperation, and relied on prior FERC staff guidance. With respect to these considerations, the revised policy statement reiterates the underlying factors discussed in the 2005 policy statement and identifies additional ones, including suggestions for ensuring an effective internal compliance program. These suggestions include:

    • preparing an inventory of current compliance risks and practices;

    • creating an independent compliance officer who reports to the CEO and the Board;

    • providing sufficient funding for the administration of compliance programs;

    • promoting compliance by identifying measurable performance targets;

    • tying regulatory compliance to personnel assessments and compensation;

    • providing for disciplinary consequences for infractions of Commission requirements;

    • providing frequent mandatory training programs;

    • implementing an internal hotline; and

    • implementing a comprehensive compliance audit program.

  • Once FERC staff initiates a non-public investigation, the commissioners and their assistants will not receive any oral communications concerning the investigation from any person subject to the investigation.

  • A person subject to a non-public investigation may make written submissions to the Commission at any time during the course of the investigation, unless and until FERC issues an order to show cause initiating an enforcement proceeding, at which time other procedures and the rules on off-the-record communications apply.

  • If the Commission issues an order to show cause, designated Enforcement staff who participated in that proceeding becomes non-decisional under the Commission's separation of functions regulations and may no longer advise the Commission on that matter.

Interpretative Order On Obtaining Guidance

In response to calls for additional mechanisms for obtaining staff guidance regarding potential compliance issues outside the context of enforcement proceedings, the Commission issued an interpretative order expanding the no-action letter process and implementing a new Compliance Help Desk.

The subject matter that may be addressed by FERC staff through the no-action letter process was greatly expanded to include any issue within the Commission's jurisdiction, except for matters related to the licensing of hydroelectric projects, certification of natural gas pipelines, operation of LNG terminals, and electric reliability standards. The Commission modified the no-action letter process to prohibit the withdrawal of non-confidential no-action letter requests.

The Commission also is creating a Compliance Help Desk on the Commission's website. Through the Compliance Help Desk, persons or companies that are or may be subject to the Commission's jurisdiction, or that otherwise are affected by jurisdictional activities, will be able to submit compliance-related questions that will be forwarded internally to the appropriate staff member for a response.

In addition, the order directs staff to hold periodic workshops with the regulated community to discuss areas of concern regarding compliance, including the components of an effective compliance program. Through these workshops, the regulated community can help staff identify areas in which additional clarity is needed, and staff can provide advice regarding compliance pending further action by the Commission.

Notice Of Proposed Rulemaking On Procedures For Non-Public Investigations

The Commission issued a notice of proposed rulemaking on revisions to its regulations relating to off-the-record communications, separation of functions, and interventions. These revisions would apply to proceedings arising out of investigations under Part 1b of the Commission's regulations.

Under the proposed regulations, contacts between FERC investigative staff or persons outside the Commission, on the one hand, and commissioners and decisional staff, on the other, would continue to be permissible during a non-public investigation under Part 1b of the regulations. Once the Commission initiates enforcement proceedings through an order to show cause or the initiation of a civil action, investigative staff and outside parties would no longer be able to contact commissioners or decisional staff off the record. From that point forward, specified employees within the Office of Enforcement would be designated as decisional for purposes of the relevant proceeding, while all other Office of Enforcement employees would be non-decisional and would no longer be able to advise the Commission on that matter.

The Commission also is proposing to revise its regulations to clarify that intervention is not permitted as a matter of right in public enforcement proceedings arising from Part 1b investigations. This would leave the Commission with the discretion to permit intervention in appropriate circumstances, such as where a third party seeks to determine the impact of the resolution of the proceeding on its own interests. Intervention is not permitted during the non-public phase of a Part 1b investigation.

Comments on the proposed regulations are due 60 days after they are published in the Federal Register.

Final Rule On Submissions To The Commission

The Commission issued a final rule that allows regulated entities to submit arguments to the Commission in the event the investigative staff recommends the issuance of a show cause order as a result of an investigation. Currently, 18 C.F.R. § 1b.19 provides for notification only when the investigative staff recommends that the Commission initiate a civil action against a person subject to investigation. The final rule amends § 1b.19 to require that, except in extraordinary circumstances, entities subject to investigation be notified in advance that staff intends to recommend the issuance of show cause order or the initiation of a civil action. After notification, the entity will have 30 days to submit a non-public response, which will be presented to the Commission at the same time as staff's recommendation.

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