Adjudication Of FERC Enforcement Cases: 'See You In Court?'

1. INTRODUCTION: THE GROWING PAINS OF A NEW FERC ENFORCEMENT ERA

   Recent articles in this publication have reviewed the current FERC enforcement process and its roots in the Energy Policy Act 2005 (EPAct 2005).1 By way of brief background, as prior commentators have established, since almost its inception the Federal Power Commission and then its successor the FERC, have held "enforcement powers."2 However, in the wake of what came to be known as the "California Energy Crises" and the "August 2003 Blackout" in the Northeastern United States, Congress passed the EPAct 2005 that handed the FERC sweeping new powers—both substantive and remedial.3 EPAct 2005 amended Part II of the Federal Power Act (FPA), the Natural Gas Act (NGA), and the Natural Gas Policy Act (NGPA), and gave the Commission the authority to assess civil penalties of up to $1 million per day per violation, for violations of rules, regulations, and orders issued under these statutes.4

   The Commission and its Staff began to flex these new enforcement muscles almost immediately, most notably with the initiation of the Energy Transfer Partners, L.P., and Amaranth Advisors L.L.C. proceedings.5 In these and other early cases, the FERC attempted (and in some cases succeeded) to use its newly granted penalty authority as leverage to obtain sizeable settlements for allegations of market manipulation as well as a large suite of settlements over the natural gas "shipper-must-have-title" rules.6 But, some of these cases were adjudicated. What followed was almost a decade of developments in cases and policy pronouncements that sometimes addressed perceived inadequacies or flaws in the enforcement process.7 The Commission instituted rules and policies that responded to some criticisms about the transparency and fairness of the process.8 But strong criticisms remain, particularly in the areas of discovery and disclosure of material, staff access to the Commission during an investigation, and the length and cost of the investigatory and adjudicative processes. Many of these criticisms were featured in the Scherman et al article, which asserts that there was a "wide spread perception" that the process has become "lop-sided and unfair."9 Some of the criticism and answers played themselves out recently on the very public stage of the hearing over the confirmation of now Chairman of the FERC, Norman C. Bay. Senators peppered the nominee with questions about the enforcement process. Bay staunchly defended the current process as being within the bounds of agency authority and established government processes, in some cases asserting that the Commission affords subjects of investigations more process than many other agencies do.10 Notably, he was confirmed by the Senate despite these questions being raised. Then, in a direct response to the Scherman et al article, FERC staff penned an article in this journal rebutting some of the criticisms and claiming that "proposed reforms are unnecessary."11 More recently, draft legislation addressing some FERC investigatory process matters floated in Congressional committees, but as of this writing do not seem poised for passage.12

   We submit that each side in this debate is making some valid points and yet each side is exaggerating or minimizing the problems, respectively. More importantly, the specifics upon which these commentators focus are just symptoms of a larger condition; while the REAL problem is not really being addressed. We submit that the REAL problem is having the Commission, rather than a federal court, adjudicate these cases that do not settle before the "Order to Show Cause" (OSC) stage (described further infra, section II, A).

2. THE CURRENT ADJUDICATIVE PATHS

   As we discuss below, what happens in the investigative process largely matters because of what follows: the settlement or adjudication of a case. Prior commentators have well-summarized, and largely focused on, the details of the FERC enforcement investigative process.13 What have garnered less attention are the varying adjudicative processes. To really understand what may or may not be broken in the current investigative system, we must begin at the end: adjudication.

   As currently practiced by the Commission, FERC civil penalty enforcement "adjudication" or "litigation" paths—what happens when cases do not settle—are different under the FPA, the NGPA, and NGA.14 The FPA outlines two different possible processes by which the Commission can "assess" penalties for Part II violations. The NGPA provides for a de novo review process in federal court. The NGA contains no provisions specifying the process for meting out penalties under that statute. In short, the various statutory schemes are a hodgepodge. In 2006, the FERC issued a policy statement addressing the processes the Commission will use when assessing civil penalties under all its governing statutes.15 That policy statement added some gloss to the statutes. And since then, the Commission has, by pronouncement or practice, shaped these courses a bit more (and courts in litigated or reviewed cases may do so as well, though these cases are just starting to wend their way through the courts, even ten years out from EPAct 2005). In light of those sources, we attempt to summarize below the processes as currently practiced.

   1. The Order to Show Cause

      As currently practiced, the common jumping off point for...