Document ID: FERC-2005-0579-0001
Agency: ferc
Document Type: Notice
Title: Reports and guidance documents; availability, etc.: No-action letter process
Posted Date: 2005-11-29T05:00Z

[Federal Register: November 29, 2005 (Volume 70, Number 228)]
[Notices]               
[Page 71487-71489]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29no05-48]                         

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL06-4-000]

 
Informal Staff Advice on Regulatory Requirements; Interpretive 
Order Regarding No-Action Letter Process

Issued November 18, 2005.
    Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead 
Brownell, and Suedeen G. Kelly
    1. The Commission clarifies that section 388.104(a) of its 
regulations \1\ may be used to obtain informal staff advice regarding 
certain matters. Specifically, this regulation may be used to request 
and obtain staff ``no-action'' letters, effective immediately, with 
respect to whether staff will recommend that the Commission take no 
enforcement action with respect to specific proposed transactions, 
practices or situations that may raise issues under the Commission's 
regulations relating to the Standards of Conduct for Transmission 
Providers,\2\ Market Behavior Rules \3\ and, when a final rule is 
effective, the Commission's proposed Prohibition of Energy Market

[[Page 71488]]

Manipulation Rules.\4\ This ``no-action letter'' process will make 
available informal, advance advice by staff on transactions that 
otherwise could lead to enforcement action.\5\
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    \1\ 18 CFR 388.104(a) (2005).
    \2\ 18 CFR part 358 (2005).
    \3\ Order Amending Market-Based Rate Tariffs and Authorizations, 
105 FERC ] 61,218 (2003) at Appendix A, reh'g denied, 107 FERC ] 
61,175 (2004) (electric power); 18 CFR 284.288 and 284.403 (2005) 
(natural gas); appeal as to both electric power and natural gas 
Market Behavior Rules filed sub nom. Cinergy Marketing & Trading, 
L.P. v. FERC, Nos. 04-1168 et al. (DC Cir., appeal filed April 28, 
2004).
    \4\ Prohibition of Energy Market Manipulation, 113 FERC ] 61,067 
(2005).
    \5\ No public notice or comment on this order is necessary 
pursuant to section 4(b)(A) of the Administrative Procedure Act, 5 
U.S.C. 553(b)(A) (2000), which exempts from such notice or comment 
``interpretative rules, general statements of policy or rules of 
agency organization, procedure or practice.'' We herein establish 
procedures by which entities, if they choose to do so, may seek no-
action letters as a form of staff informal advice that does not bind 
the Commission. See James V. Hurson Associates, Inc. v. Glickman, 
229 F.3d 277, 280 (DC Cir. 2000) (The critical feature of agency 
actions that satisfy the section 553(b)(A) exception is that they do 
not themselves ``alter the rights or interests of parties,'' 
although they ``may alter the manner in which the parties present 
themselves or their viewpoints to the agency,'' quoting Batterton v. 
Marshall, 648 F.2d 694, 707 (DC Cir. 1980)).
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Background

    2. In recent months, a number of industry participants have 
expressed concerns about the perceived ambiguity and vagueness of the 
Standards of Conduct and Market Behavior Rules and uncertainty about 
how they apply to the varied corporate structures, business operations 
and trading strategies of companies subject to the Commission's 
jurisdiction. There have been several suggestions that the Commission 
consider implementing a no-action letter process similar to those made 
available by the staffs of the Securities and Exchange Commission (SEC) 
and the Commodity Futures Trading Commission (CFTC) to provide, in 
advance, increased certainty on whether particular transactions, 
practices or situations would be subject to agency enforcement action.
    3. The potential risks of failure to comply with the Commission's 
regulatory requirements increased significantly on August 8, 2005, with 
the enactment of the Energy Policy Act of 2005 (EPAct 2005).\6\ EPAct 
2005 for the first time granted the Commission authority to assess 
civil penalties for violations of the Natural Gas Act (NGA) and rules, 
regulations, restrictions, conditions and orders thereunder, expanded 
the Commission's Federal Power Act (FPA) civil penalty authority to 
encompass violations of all provisions of FPA Part II and rules and 
orders thereunder, and established the maximum civil penalty the 
Commission could assess under the NGA, FPA Part II and the Natural Gas 
Policy Act of 1978 as $1 million per day per violation. EPAct 2005 also 
amended the NGA and FPA to make unlawful the use or employment of 
manipulative or deceptive devices or contrivances in connection with 
the purchase or sale of natural gas, electric energy, gas 
transportation or electric transmission subject to the Commission's 
jurisdiction in violation of regulations issued by the Commission. 
These statutory provisions grant the Commission new authority against 
manipulation in transactions in energy markets and enhance the 
Commission's ability to impose sanctions for violations. On October 20, 
2005, we proposed rules to implement the new EPAct 2005 anti-
manipulation authority.\7\
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    \6\ Energy Policy Act of 2005, Public Law No. 109-58, 119 Stat. 
594 (2005).
    \7\ Prohibition of Energy Market Manipulation, 113 FERC ] 61,067 
(2005).
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    4. While we intend to exercise our expanded enforcement authorities 
diligently in a firm but fair manner, we seek to temper the need to use 
those powers by increasing regulatory certainty and providing notice to 
the regulated community of the factors we will consider in responding 
to violations.\8\ More importantly, it is in the best interests of all 
segments of the energy industry that compliance with the statutes 
administered by the Commission and its orders and regulations should be 
emphasized. In announcing proposed rules to implement increased anti-
manipulation authority under the FPA and NGA, we noted our intention to 
seek comments on whether to revise or repeal existing Market Behavior 
Rule 2 \9\ because both it and the new anti-manipulation authority 
prohibit manipulative conduct.\10\ Concurrently with this order, we are 
instituting proceedings in Docket Nos. EL06-16-000 and RM06-5-000 on 
this topic. On October 20, 2005, we issued a Policy Statement on 
Enforcement that provides guidance on how we intend to implement our 
enhanced enforcement powers to provide ``firm but fair enforcement of 
our rules and regulations.'' \11\ In particular, we encouraged entities 
subject to our jurisdiction to take proactive steps to emphasize 
compliance.\12\ It is entirely consistent with this objective for us to 
permit entities to inquire of Commission staff in advance of 
transactions, practices or situations that may raise compliance issues.
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    \8\ Policy Statement on Enforcement, 113 FERC ] 61,068 (2005).
    \9\ Order Amending Market-Based Rate Tariffs and Authorizations, 
105 FERC ] 61,218 at 62,170 (Appendix A) (electric power); 18 CFR 
284.288(a) and 284.403(a) (natural gas).
    \10\ Prohibition of Energy Market Manipulation, 113 FERC ] 
61,067 at P 15.
    \11\ Policy Statement on Enforcement, 113 FERC ] 61,068 at P 1.
    \12\ Id. at PP 22-23.
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    5. The SEC and CFTC both provide no-action letter processes whereby 
they permit their staffs to review certain types of proposed matters 
and provide informal advice on whether the staff will recommend 
enforcement action if a matter under review is put into effect as 
proposed.\13\ Although this advice does not bind the agency, it is 
understood that agency staff who issue the no-action letters are 
themselves well-acquainted with the statutes, regulations, rules and 
orders the agency administers.\14\
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    \13\ See 17 CFR 202.1(d) (2005) (SEC) and 17 CFR 140.99 (2005) 
(CFTC).
    \14\ For example, the SEC's regulations state: ``The informal 
procedures of the [SEC] are largely concerned with the rendering of 
advice and assistance by the [SEC's] staff to members of the public 
dealing with the [SEC]. While opinions expressed by members of the 
staff do not constitute an official expression of the [SEC's] views, 
they represent the views of persons who are continuously working 
with the provisions of the statute involved.'' 17 CFR 201.1(d) 
(2005).
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Initial No-Action Letter Process and Procedures

    6. After reviewing requests for a no-action letter process and 
studying efforts of other governmental agencies to maximize compliance 
with complicated statutory and regulatory schemes, we have concluded 
that we also can increase regulatory certainty and fairness by 
permitting entities to seek no-action letters similar to those issued 
by the SEC and CFTC staffs. We believe that a no-action letter process 
can yield significant benefits to the entities subject to the statutes, 
regulations, rules and orders administered by the Commission, 
particularly by reducing such entities' risk of failing to comply with 
our rules and regulations.
    7. Our regulations already recognize the ability of our staff to 
provide informal advice on matters pertaining to regulatory 
requirements.\15\ Staff spends a significant amount of time in these 
informal activities, such as conducting pre-filing meetings with 
persons who wish to submit an application to us. These activities are 
valuable, and we fully intend that staff continue its present efforts 
to render informal, non-binding advice. However, we also

[[Page 71489]]

believe that it is appropriate to allow entities to use the existing 
regulation as a means to obtain advance notice on whether staff will 
recommend enforcement action against a particular transaction, practice 
or situation. Therefore, we are implementing a no-action letter 
process, initially on a limited basis, as set forth below.
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    \15\ The first two sentences of section 388.104(a) of our 
regulations state, ``The Commission staff provides informal advice 
and assistance to the general public and to prospective applicants 
for licenses, certificates and other Commission authorizations. 
Opinions expressed by the staff do not represent the official views 
of the Commission, but are designed to aid the public and facilitate 
the accomplishment of the Commission's functions.'' These statements 
are functionally equivalent to the parallel sentences of the SEC's 
regulation recognizing its staff's ability to issue no-action 
letters.
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    8. We will initially limit no-action inquiries to questions 
relating to whether particular transactions, practices, situations or 
other matters would violate the Standards of Conduct, the Market 
Behavior Rules, or, when issued, the final Prohibition of Energy Market 
Manipulation Rules. Based on concerns raised by industry participants, 
we recognize that these rules may present interpretive challenges and 
substantial exposure to potential enforcement actions. As we gain 
experience with the no-action letter process concerning these rules, in 
the future we may change the matters that may be the subject of 
requests for no-action letters. At some future time, we may need to 
adopt formal regulations governing the no-action letter process and 
possibly establish a filing fee for no-action letters. Initially, 
however, no fee will be charged.
    9. The experience of the SEC and CFTC shows that it is important 
that no-action letters be issued by staff who are familiar with the 
regulations on which the no-action letter process is focused. Requests 
for no-action letters should initially be submitted on a non-public 
basis to the General Counsel. The regulated community should understand 
that staff experts in a number of Commission offices will be consulted 
as appropriate in responding to no-action letter requests, and that 
responses to such requests should be treated as a consensus view of the 
Commission staff.
    10. An entity that seeks a no-action letter must describe in 
writing the proposed transaction, practice, situation or other matter 
in complete detail, including identifying to the extent possible each 
of the corporate entities, counterparties or other persons that would 
be involved, the purpose of the matter, the requester's role in the 
proposed matter and the regulatory issues that the matter poses. 
Although requesters may seek guidance on both existing practices and 
anticipated future practices or transactions, the General Counsel or 
designee will not respond to no-action letter requests that raise 
purely hypothetical inquiries. Instead, our no-action letter process is 
intended to assist regulated entities in seeking guidance on the real 
world application of our regulations and orders. To accomplish this 
objective, requesters must provide sufficient detail for staff 
adequately to address the factual and legal issues presented in the 
request. We also note that the General Counsel or designee will not 
respond to a request for a no-action letter that relates to the merits 
of an on-the-record proceeding currently before the Commission.
    11. In addition, a no-action letter request must be accompanied by 
a statement that, to the best of the requester's personal information, 
knowledge and belief, the request is accurate and complete and does not 
contain any untrue statement of a material fact, that there is no 
omission of a material fact in the request, and that the request does 
not raise any issue that relates to the merits of an on-the-record 
proceeding currently before the Commission.
    12. The issuance of a response to a no-action letter request is 
entirely within the discretion of the General Counsel or designee. If 
the information submitted with the no-action letter request is not 
sufficient, staff may request additional information or inform the 
requester that it will not respond to the request and give a reason. 
The timing of a response to a no-action letter request is also within 
the discretion of the General Counsel or designee.
    13. In response to a request for a no-action letter, the General 
Counsel or designee may state that staff: (1) Will not recommend 
enforcement action if the matter is implemented as described in the 
request and in any additional information provided; (2) will not 
recommend enforcement action if the matter is implemented as so 
described only under conditions stated in the response, or as modified 
in the response; or (3) may recommend enforcement action if the matter 
is implemented as so described.
    14. Until the date on which the General Counsel or designee issues 
a response to a request for a no-action letter, the Commission and its 
staff will treat the request and any other documents relating to it as 
non-public. However, the Commission believes that public disclosure of 
requests for no-action letters and responses is important to notify 
interested entities of staff's views with respect to regulatory matters 
at issue. Therefore, if the General Counsel or designee responds to a 
request for a no-action letter, we ordinarily intend to make public the 
request and the response at the time of the response. We note that this 
practice is consistent with that of the SEC and CFTC, both of which 
generally make public no-action letter requests and the agency staff's 
response after the response is issued.
    15. We understand that in some circumstances a proposed matter that 
is the subject of a request for a no-action letter may be confidential 
or proprietary, at least until the matter is implemented or until 
sufficient time has passed for the requester to determine, after 
receiving a response, whether to implement the matter. Thus, in unusual 
cases a requester may seek non-public treatment of its request for a 
no-action letter and a staff response, at least to the extent that the 
request and response describe the proposed matter or matters that are 
under review, for a specified period of time not in excess of 120 days 
from the date of any response.
    16. If our staff agrees with the period of non-public treatment the 
requester seeks, the Commission will not make the request and the 
response public until the expiration of the time period sought by the 
requester. If staff disagrees with the non-public period sought by the 
requester, it will so notify the requester, who may then withdraw the 
request within 30 days of the date of the staff notice. In that case, 
the General Counsel or designee will not respond to the request, and 
the Commission and staff will treat the request and the staff notice as 
non-public. If the request is not withdrawn after the requester 
receives a staff notice, the Commission will make public on the date of 
issuance of the response the request, any additional information 
provided by the requester and the response.\16\
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    \16\ These processes are consistent with procedures used by the 
SEC and the CFTC in their no-action letter programs to address 
concerns about the treatment of assertedly confidential or 
proprietary information in requests for no-action letters. See 17 
CFR 144.98(b) (2005) (CFTC) and 17 CFR 200.81(b) (2005) (SEC).
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    17. As with other informal advice provided by our staff, responses 
by the General Counsel or designee to requests for no-action letters 
will not bind the Commission and will not operate as agency action that 
would be subject to rehearing or judicial review. Any person who seeks 
a binding Commission determination concerning a proposed transaction, 
practice, situation or other matter may file a petition for a 
declaratory order pursuant to section 385.207 of our regulations.\17\
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    \17\ 18 CFR 385.207 (2005).

    By the Commission.
Magalie R. Salas,
Secretary.
[FR Doc. 05-23406 Filed 11-28-05; 8:45 am]

BILLING CODE 6717-01-P