With the expected appointment of four new FERC Commissioners, commentators have mused on new priorities for the agency, including in the FERC Office of Enforcement. Some commentators question whether Enforcement’s powers should be curtailed. Others have resurrected calls for more transparency and fairness during investigations. Here are three more modest proposals for improving the investigative and compliance process, with the goal of lessening the burden that the process imposes on regulated companies without impairing the ability of Enforcement to ensure obedience to FERC rules and tariffs:
Limit the scope of investigations to the topic that triggered the investigation
Among the frustrations that companies frequently voice is the tendency of Enforcement to use its investigatory powers to examine compliance issues far removed from the subject that triggered the investigation. At times Enforcement resembles a doctor who, upon seeing a patient complaining of a sore throat, will treat the problem but also insist on doing a full physical and colonoscopy. For example, a FERC investigation might start with a referral from a market monitor about potential economic withholding of generation output, yet Enforcement might veer off into a scrutiny of the market participant’s compliance with interlocking director rules. Enforcement also often is adamant about examining the compliance program of the company under investigation even before it has concluded that the company violated any orders or tariffs.
Granted, Enforcement should be able during the course of an investigation to pursue leads suggesting other wrongdoing by the company under investigation. It is quite another thing, however, for Enforcement to use its extensive investigatory powers to go hunting for evidence of collateral wrongdoing. Absent an indication of other violations, Enforcement should examine only the issues that spawned the investigation.
Shorten the length of investigations
One of the consequences of Enforcement actively digging for evidence of other violations is that it prolongs already tortuous investigations. Investigations often drag out for three, four, or even five years. The causes of the delay can usually be laid at Enforcement’s feet. A common sequence: Enforcement will serve a set of extensive data requests, receive the data, let six months pass, and then issue another set of data requests. Even wrapping up investigations can take up to a year, as proposed settlement terms get reviewed by multiple management layers at the agency.
Allowing investigations to linger this long benefits neither the company under investigation nor FERC. Memories fade, key personnel leave both the company and FERC, and any intended guidance to industry from the resolution of the investigation becomes stale. Determining who should receive any remedial payments the company is ordered to make also becomes more complicated with age, as customers and/or market participants change. All of these problems can be avoided by putting an investigation on an internal clock and setting milestones and deadlines for Enforcement personnel to follow.
Revitalize the no-action letter process
Many regulated companies would welcome the opportunity to avoid the cost and burden of defending an investigation by being able to secure advice from FERC on whether their contemplated conduct is permitted or prohibited. Several years ago, FERC decided to emulate the SEC and CFTC by creating a process for securing written guidance, known as a no-action letter. A no-action letter, signed by Enforcement and the Office of General Counsel, agrees that the proposed transaction or conduct would not trigger an enforcement action. Although the letter is not binding on the Commission, it nevertheless represents the consensus view of Enforcement and OGC.
In earlier years, companies frequently sought guidance through the no-action letter process. More recently, however, the process has fallen into disuse. Only two companies have sought no-action letters since 2013. Not only were both requests denied, but Enforcement and OGC also took over six months to rule on them.
This delay flies in the face of the admonition in a Commission order that agency personnel respond to a no-action letter request in no more than 60 days. Even worse, the denials gave the requesting companies no tangible guidance on what conduct would be acceptable in the eyes of Enforcement and OGC. Tellingly, no company has submitted a request to FERC for a no-action letter since the two denials. By contrast, the SEC and CFTC continue to receive, and quickly act on, scores of no-action requests every year.
FERC should not allow the no-action procedure to wither on the vine. It can and should reinvigorate the no-action letter process by announcing a commitment to: (1) give companies tangible guidance in response to specific fact situations; (2) do so within the 60 days promised in the Commission’s earlier order; and (3) hold its employees accountable when they fail to meet those promises.