While both policies will result in significant changes to FERC’s investigation procedures, neither policy was subject to public notice or comment.

On December 17, 2009, the Federal Energy Regulatory Commission (FERC) announced two significant changes to its enforcement procedures. One policy significantly accelerates the time when FERC publically announces the identity of companies and individuals under investigation. The second policy pledges to provide companies with exculpatory material in investigations and enforcement proceedings. While both policies will result in significant changes to FERC’s investigation procedures, neither policy was subject to public notice or comment.

Staff’s Preliminary Notice of Violations

FERC announced that it will authorize the Secretary of the Commission to issue a “Staff’s Preliminary Notice of Violations” (Notice) once FERC Enforcement Staff determines a company has violated a rule, regulation, order or statute of the Commission. Under the new policy, the Director of Enforcement will ask the Secretary to issue the Notice following the fact-finding phase of a non-public investigation, once Staff has notified the respondent of the alleged violation and has given it an opportunity to respond. The Notice would contain the following information:

  • The identity of the entity or entities that are the subject of the investigation
  • The time and the place of the alleged conduct
  • The rules, regulations, statutes or orders that Staff alleges were violated
  • A concise description of the alleged wrongful conduct

FERC regulation 1b.9 requires Staff to keep confidential information concerning non-public investigations, including the identity of the respondent and the very existence of the investigation. However, this new policy accelerates the announcement by FERC of non-public investigations. Notably, the Notice would come before any Commission determination on the substance of Staff’s allegations (i.e., an order approving a settlement or an Order to Show Cause).

According to FERC, the earlier public disclosure of investigations “balances the need to protect the subject’s confidentiality in the early stages of an investigation with the public interest of promoting additional transparency during investigations.” Further, FERC cautioned that the Notice would not confer a right on third parties to intervene in the investigation or any other right with regard to the investigation.

Disclosure of Exculpatory Materials

FERC announced on December 17, 2009, that it will formalize its Enforcement Staff’s “longstanding” practice of furnishing exculpatory evidence to companies and individuals under investigation or in enforcement proceedings.

Under this policy, FERC Enforcement Staff will “scrutinize materials it receives from sources other than the investigative subject(s) for material that would be required to be disclosed,” which includes exculpatory material relating to guilt or punishment known to Staff but unknown to the company or individual. Staff would then provide these materials to the subject of the investigation or enforcement proceeding. FERC noted that a subject is not entitled to disclosure of Enforcement Staff’s strategies, legal theories or evaluations of evidence.

FERC recognized that Enforcement Staff may obtain some exculpatory materials from other companies under investigation, and that such material may be subject to certain privileges or immunities. FERC cited FERC rule 1b.9, which provides that all materials obtained by staff during an investigation must be kept confidential by Staff, and may only be disclosed pursuant to Commission order. Thus, to the extent that exculpatory material includes information that is subject to confidentially requirements of section 1b.9, Enforcement Staff must first obtain Commission authorization before disclosing it to the subject of the investigation. Notably, FERC’s policy on disclosure of exculpatory material is silent with respect to the treatment of material provided subject to exemptions under the Freedom of Information Act.

According to FERC, this policy is consistent with the practice of several other federal enforcement agencies, such as the U.S. Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission.