• FERC Denies Requests for Rehearing on Preliminary Notice of Violations Issue
  • February 4, 2011
  • Law Firm: Troutman Sanders LLP - Atlanta Office
  • On January 24, 2011, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an order (“January 24 Order”) denying requests for rehearing of their December 17, 2009 order (“December 17 Order”) which authorized the Secretary of the Commission (“Secretary”) to issue a document entitled Staff’s Preliminary Notice of Violations.

    In the December 17 Order, the Commission authorized the Secretary to issue a Staff’s Preliminary Notice of Violations (“Notice”), at the direction of the Director of the Office of Enforcement (“OE”) (see December 18, 2009 edition of the WER).  The Notice would issue after a subject of an investigation by OE responded or had an opportunity to respond.  The Notice is intended to provide the identity of the entity being investigated and details of the alleged wrongful conduct.  Before the December 17 Order, the Commission would typically not disclose information about an investigation unless the Commission issued an order to show cause or approved a settlement.

    In requests for rehearing, petitioners expressed concern that disclosure of the subject of an investigation by the Secretary can harm the company: by lowering their stock price, by placing pressure on the Commission “not to disagree” with staff’s conclusions, and by “chilling” agency deliberations.  The petitioners also asked the Commission to open a comment period of 30 days or more.  However, FERC denied rehearing of its December 17 Order on procedural grounds and on the merits.  The Commission stated that the December 17 Order is an exception to the Administrative Procedure Act’s notice and comment requirements, as either: (1) an interpretative rule; (2) general statement of policy; or (3) rules of agency organization, procedure or practice.  The Commission stated that the December 17 Order and decision to authorize the Secretary to issue Notices is procedural, not substantive.

    The Commission dismissed the merits of the arguments by the petitioners on confidentiality, and stated that the public’s interest in transparency will be served.  Additionally, the Commission explained that disclosing identities prevents “unwarranted suspicion” from being brought upon others not under investigation.  The Commission clarified that the Notice will not be issued until: (1) staff has completed its fact-finding process; (2) staff has presented the subject of the investigation with its preliminary findings; (3) the subject has had the chance to respond in writing to the facts and arguments in staff’s preliminary findings; and (4) staff has had a full opportunity to review and analyze the subject’s response.  The Commission also clarified that a Notice will issue in every investigation where staff moves the matter to the Commission for settlement authority.  If staff terminates an investigation after a Notice has issued, the Secretary will also issue a public notice of the termination.  The subject of the investigation will be warned that a Notice is going to be issued.

    The Commission also clarified that the Notice procedure from the December 17 Order would only apply to investigations where a subject’s response to a staff’s preliminary findings letter was received after December 17, 2009, or where the time period had passed as of December 17, 2009.  There is an exception if necessary for “consistent notice in closely-related investigations.”  Finally, the Commission denied the request for an open comment period, but noted that it would monitor the Notice procedure and staff would report on the procedure in the Annual Report on Enforcement for fiscal year 2011.

    On January 28, 2011, Commissioner Marc Spitzer filed a dissent to the January 24 Order.  Commissioner Spitzer stated in his dissent that the requests for rehearing of the December 17 Order were compelling and that the December 17 Order does not comply with the Commission’s obligations under the Administrative Procedure Act (“APA”).  Commissioner Spitzer also noted that even if the December 17 Order complies with the APA, the majority fails to meaningfully address why the “Transparency objective is frustrated by masking the identity of the subject of an investigation while disclosing the relevant facts surrounding alleged violations.”