For the past several years, FERC has been investigating several energy industry participants under several theories of market manipulation, discussed previously here. Gradually, these cases have moved from administrative proceedings to U.S. district courts, which have resulted in a small handful of written opinions, none of which have fully settled the substantive questions of what qualifies as market manipulation under the Federal Power Act or what level of deference a district court is to afford a FERC civil penalty assessment upon the statutorily provided de novo review.
The recent opinion issued in FERC v. Silkman, Civ. No. 13-13054-DPW, and the related matter, FERC v. Lincoln Paper and Tissue, LLC, Civ. No. 13-13056-DPW (together “Lincoln Paper”), where FERC accused the defendants of violating the anti-manipulation rule, has not resolved these open questions either – despite FERC’s arguments to the contrary.
In Lincoln Paper, FERC found that Lincoln Paper, with Silkman’s assistance, had fraudulently set the baseline value of Lincoln Paper’s consumption to increase the credits it would receive for participating in New England’s Day-Ahead Load Response Program (“DALRP”), which essentially paid consumers for their commitment to reduce their power consumption relative to a predetermined baseline level during peak demand times. Rather than proceed to a hearing before an administrative law judge, both Lincoln Paper and Silkman elected to receive an immediate penalty assessment, as provided for under the Federal Power Act § 31(d). FERC issued an Order Assessing Civil Penalties, and both defendants refused to pay, which prompted FERC to sue in U.S. district court to enforce its civil penalty assessment.
Silkman and Lincoln Paper moved to dismiss, putting forward several arguments, including: that the enforcement of FERC’s penalty was barred by the five-year statute of limitations provided by 28 U.S.C. § 2462; that FERC did not have jurisdiction over programs such as the DALRP; that FERC failed to provide fair and adequate notice that the defendant’s alleged conduct was unlawful, such that the Anti-Market Manipulation rule is void for vagueness; and that Mr. Silkman is not an “entity” under the Federal Power Act. FERC countered that the defendants had waived certain of these arguments as they failed to raise them during the administrative proceeding.
The court rejected the defendants’ arguments, ruling for FERC on all substantive matters based on the liberal pleading standards that require the court to credit the allegations of the plaintiff. The court held that an argument not raised during the administrative proceedings could theoretically be waived but that the defendants had not done so. However, the court ruled that the five-year statute of limitations had not begun to run against FERC until it filed the suit to enforce its civil penalty. The court held that FERC did have jurisdiction over the DALRP program, that the defendants were on fair notice of the conduct it deemed unlawful, and that the term “entity” has already been interpreted by other courts to include a natural person such as Mr. Silkman.
In reaching these rulings, the court commented that “the court’s de novo review may gain some procedural richness in the context of an action seeking enforcement of an administrative order,” such as “the evaluation of evidence that was not a part of the agency administrative record.” The court went on to comment that the potential for added procedural richness does not alter the “fundamental nature” of the role of the district court to “ ‘review’ agency action,” and also does not alter the basic rule that a theoretical argument not raised at the appropriate time could be waived. In addition, in the course of determining when the statute of limitations period began to run against FERC, the court held that the proceeding before FERC that resulted in a civil penalty assessment was an “adjudication” for the specific purpose of the running of the limitations period. It remains to be seen whether this holding transfers to other contexts, such as the determination of the level of additional “procedural richness” that may be provided in the course of a court’s de novo review of the civil penalty assessment. Notably, the standard of review of the agency proceeding to be applied by the district court has been briefed in the several FERC enforcement cases currently pending in district courts around the country. These questions have not been definitively ruled upon by any court, and the Lincoln Paper decision also avoids a direct ruling on this central question.
FERC has indicated, through its subsequent actions, that it believes, or hopes, the Lincoln Paperdecision supports its position in these cases that the district court’s role is limited to a mere affirmation of its civil penalty assessment. On the day immediately following the publication of the Lincoln Paperopinion, FERC filed the court’s order as supplemental authority in the four other civil penalty enforcement actions pending around the country, explaining that the opinion addressed several issues, including the nature of the agency proceedings before FERC. Some defendants responded, arguing that the court’s holdings do not extend beyond the distinguishable facts of that particular case. Also, it should be noted that the Lincoln Paper court transferred the case to the U.S. District Court for the District of Maine for further proceedings, raising more questions than answers as to the ultimate determination of these issues.