On January 24 2011(1) the Federal Energy Regulatory Commission (FERC) issued an order affirming and clarifying its December 17 2009 order(2) which authorised the FERC secretary to issue publicly the Preliminary Notice of Violations on direction from the FERC director of the Office of Enforcement. The 2011 order largely rejected due process and other challenges to FERC's policy, although it did issue some points of clarification of note to industry participants.

In the 2009 order FERC sought to increase the transparency of its non-public investigation process by authorising the secretary to give public notice of the investigation at an earlier point than in prior practice. Specifically, the 2009 policy permitted the secretary to:

  • identify any entity or entities subject to the investigation;
  • describe the time and place of the alleged conduct;
  • cite the rules, regulations, statutes or orders that FERC alleges were violated; and
  • concisely describe the alleged wrongful conduct.

This policy marked a change in FERC practice: in prior investigations under Rule 1.b., the first public notice occurred when FERC either approved a settlement or issued an order to show cause that commenced a formal public hearing into the matter.

The 2011 order affirmed the 2009 policy on both procedural grounds and on the merits. With respect to procedural issues, FERC maintained that, among other things, the order was an exercise of agency discretion not subject to review and was also a procedural rule not subject to Administrative Procedure Act notice and comment requirements.(3)

In justifying the public's interest in greater transparency, FERC supported the role that third parties might play in the investigation and ultimate resolution of the alleged violation, observing that the earlier public notification procedure "provides a vehicle" for third parties to provide staff with additional relevant information, as well as to raise any concerns to staff before the investigation is resolved in a binding settlement.(4) FERC also rationalised that notifying potentially affected entities about the allegations could provide a basis for including disgorgement in the ultimate litigation or settlement of the investigation, hence potentially "reduc[ing] the likelihood of third party litigation".(5)

Although it did not amend its policy, FERC did offer additional guidance that was lacking in the relatively brief 2009 order. With respect to the timing of notices of violation, FERC clarified that the secretary will not issue such notices until the following has occurred:

  • FERC has completed its fact-finding process;
  • FERC has presented the target with its preliminary findings;
  • The target has had the chance to respond in writing to the facts and allegations in the preliminary findings; and
  • FERC has had a full opportunity to review and analyse the target's response.(6)

Furthermore, if the target's response brings to light new facts or arguments, FERC would continue its investigation in order to consider that information and would not seek to issue a notice before those new facts or arguments were resolved.(7) Similarly, FERC clarified that staff will give the target of an investigation advance notification that a notice will be issued.(8)

FERC made it clear that in general, the agency anticipates that a notice of violation will be issued in every investigation in which staff, after considering the target's response to the preliminary findings letter, decides to forward the matter to FERC for resolution.(9) However, FERC recognised that further communications and discovery between staff and the target may be required once the target responds in writing and hence a notice maybe delayed:

"The Notice will not issue unless and until Enforcement staff has satisfied itself that, in its view, a violation of a Commission requirement has occurred and it is prepared to seek settlement authority from the Commission."(10)

FERC stated that the decision to issue such a notice is subject to the "discretion of the Director of the Office of Enforcement", not the commission, and that notices will be issued "upon authorization by the Director of the Office of Enforcement".(11) Notwithstanding these guidelines, FERC explained that the director of the Office of Enforcement will notify FERC before issuing the notice, and that FERC itself retains the discretion to make exceptions to the public notification procedure in any given case "if it deems it appropriate to do so".(12)

FERC left open the door for future changes to the notice policy, stating that "we will continue to monitor the Notice procedure and are open to considering it again after staff has acquired some experience in its application".(13) It also expected to report on its experience in its 2011 Report on Enforcement.(14)

The revised public notification policy presents challenges for regulated entities seeking to resolve FERC investigations. Among other things, the accelerated date for public notification increases the prospect of reputational harm and related financial affects such as declines in stock price, lowering of credit ratings and damage to ongoing business relationships, even if FERC ultimately resolves the matter in the target's favour. Although FERC explained that "[t]he Notice does not state that the Commission has already determined that a violation has been committed, only that staff at that point believes a violation to have been committed",(15) the media, shareholders and the public may not be well versed in FERC investigative process and procedures, and may erroneously assume that the alleged violation has already been determined. The advanced public notice policy also may increase the pressure on targeted entities to resolve investigations before the release of the notice and in some cases targets may decide to accept less favourable settlement terms in order to have a resolution in place by the time of the public notice.

For further information on this topic please contact Jeff Sherman at Fulbright & Jaworski LLP by telephone (+1 212 318 3000), fax (+1 212 318 3400) or email ([email protected]).


(1) Enforcement of Statutes, Regulations and Orders, Order on Requests for Rehearing and Clarification, 134 FERC ¶ 61,054 (2011).

(2) Enforcement of Statutes, Regulations, and Orders, Order Authorizing Secretary to Issue Staff's Preliminary Notice of Violations, 129 FERC ¶ 61,247 (2009).

(3) See 2011 order at pp11-13.

(4) Id at p15. FERC explained it would treat any such third-party submissions as non-public in accordance with Section 1b.9 of its regulations, much like any other non-public information obtained during an investigation (id at p25). FERC reiterated that the notice does not confer a right on third parties to intervene in the investigation, as is consistent with current FERC policy (see id).

(5) Id.

(6) Id at p17.

(7) Id at p17 n 39.

(8) Id at p24.

(9) Id at p23.

(10) Id at p27.

(11) Id at p28.

(12) Id at p12 and n 32.

(13) Id at p22.

(14) Id.

(15) Id at p19