The Ferc Enforcement Process

Synopsis: It has been nearly a decade since Congress passed the Energy Policy Act of 2005 (EPAct 2005), which established new authorities and tools for the Federal Energy Regulatory Commission (FERC) to police energy market manipulation. Over the ensuing years, FERC has issued policies and procedures to implement that new authority, developed a robust Office of Enforcement, and standardized its enforcement process to ensure fairness and transparency for all investigative subjects.A few practitioners who have represented investigative subjects have, in an article recently published in this Journal, proposed changes to FERC's enforcement process and its market manipulation authority. Particularly in agencies like FERC, which are charged with investigating complex markets, constructive suggestions for improvement are welcome. But this review shows why the proposed reforms are unnecessary. The context for this discussion includes the history behind EPAct 2005 to understand Congress' direction to the Commission on both process and market manipulation matters, a complete review of the steps in our process, and an analysis of FERC's process compared to its counterpart at other independent agencies.The Commission's goal is to carry out a fair, effective enforcement program. This comprehensive review of FERC's recent history and process will show how the Enforcement program is designed and implemented to fulfill those goals of fairness and effectiveness.In the wake of the Western Energy Crisis and the 2003 Northeast Blackout, Congress gave the Federal Energy Regulatory Commission (FERC) significant new authority to police the energy markets and enforce mandatory reliability standards. Congress also enhanced penalty authorities to ensure that adequate sanctions can be levied for unlawful conduct. FERC has implemented this new authority by, among other things, strengthening its Office of Enforcement, developing enhanced procedures to govern enforcement investigations, and increasing its capability to monitor market behavior and grid operations. Those efforts are succeeding-the Commission has uncovered numerous manipulative schemes in the past few years, returned ill-gotten funds to consumers and market participants harmed by unlawful conduct, assessed appropriate penalties to deter such conduct, and improved compliance throughout the industry.Some FERC practitioners who have represented investigative subjects, however, have challenged the Commission's enforcement efforts and proposed significant changes. The Commission has shown consistently since 2005 that it is open to considering improvements to its enforcement processes. However, the recently-proposed changes are unnecessary in light of Enforcement staff's actual practice, would be inconsistent with practices at other regulatory agencies, and if implemented, would undermine the Commission's continuing effort to protect consumers.One such set of changes was proposed in an article (the Article) published by the Energy Law Journal earlier this year. This response offers some context for the Commission's current approach to enforcement and responds to the most substantial criticisms and proposed changes in the Article. As attorneys in the Commission's Office of Enforcement, we know the Office welcomes feedback and believes that the Commission should always consider constructive suggestions for reform. But many of the particular changes suggested by the Article are misguided, and the analyses offered in support of them rely on fundamental mischaracterizations of the investigation process in general and the specific policies and practices of the Commission and other regulatory agencies. This response begins by providing background regarding FERC's enforcement mission and its investigative process. Using that background, it then identifies two fundamental errors in the Article and shows how those errors undermine the Article's criticisms and proposals for reshaping FERC's enforcement program. …