FERC changes enforcement process, ends preliminary notices

Ending a decade-long practice of issuing Notices of Alleged Violations in early stages of enforcement investigations, this week the Federal Energy Regulatory rescinded its 2009 Order Authorizing Secretary to Issue Staff’s Preliminary Notice of Violations.

Historically, the Commission generally did not issue any public notice of its investigations or targets until an investigation was either resolved through settlement or escalated through a Commission order to show cause. In 2009, the Commission adopted a policy of issuing Notices of Alleged Violations at a relatively early stage in its process for investigating possible violations of federal energy law. Under that policy, Commission enforcement staff would issue a public notice after giving an investigative subject an opportunity to respond to staff's preliminary findings, but before staff finalized its conclusions or the Commission issued an order. At the time, the Commission said this policy balanced investigative subjects' confidentiality against the benefits of enhanced transparency, but some commenters criticized the policy for its publication of alleged violations before a full investigation had been completed.

In 2011, the Commission upheld its policy in an order on requests for rehearing and clarification of its 2009 order. At the same time, the Commission committed to monitoring and evaluating the effectiveness of the policy. Shortly thereafter, the Commission issued its first Notices of Alleged Violations. Over the years, Commission staff continued to issue notices of alleged violation.

But in an order issued on May 16, 2019, the Commission rescinded this policy based on a finding that "the balance has shifted." Specifically, the Commission found that "the potential adverse consequences that NAVs pose for investigative subjects are no longer justified in light of the limited transparency NAVs have generated and the more effective, alternative means of adding transparency that the Commission has developed since the NAV Order."

At the same time, the Commission said that the transparency benefits it had hoped the policy would bring have been limited. Meanwhile, the Commission has gained access to other sources of information that support its investigations, and now uses "these data sets and sophisticated algorithmic screens to detect potential manipulation, anticompetitive behavior, and other anomalous activities in the energy markets we oversee."

Weighing the limited benefits against the risk of reputational harm to subjects, the Commission found that the "potential negative impacts on investigative subjects are no longer warranted in light of the limited transparency NAVs have generated and the alternative methods of adding transparency the Commission has developed since adopting the policy."

The Commission therefore rescinded its 2009 policy as "no longer warranted." This decision removes the Commission secretary's authorization to issue staff preliminary notices of violation.

The move bears resemblance to recent Commission practice of not publicly identifying utilities alleged to have violated reliability standards, despite calls for public disclosure and transparency.