Energy > AG Speaking Energy > Akin Gump Lawyers Publish Law Journal Article Advocating that FERC Rescind a Controversial Enforcement Policy
01 May '17

In December 2009, the Federal Energy Regulatory Commission (FERC) introduced a new policy providing for early public disclosure of its enforcement investigations—including the identities of investigation subjects—by authorizing the Director of the Office of Enforcement (“Enforcement”) to issue a Staff Notice of Alleged Violations (NAV). Under the NAV policy, the NAV would issue once “the subject of the investigation has had the opportunity to respond to staff’s preliminary findings,” but prior to the staff finalizing its findings and conclusions and FERC itself issuing an order addressing the matter. The NAV policy was controversial, since it upset a long-established policy that FERC investigations—especially the identities of investigation subjects—were kept nonpublic, unless and until FERC either issued an order approving a settlement between Enforcement and the investigation subject or initiated an enforcement action. In either case, prior to the NAV policy, it was only through a FERC order that the subject matter of an investigation—or the identity of the subject—would be made public.

FERC recognized that the NAV policy came at a significant cost to investigation subjects, since “[o]ne cost of accelerated public disclosure is that the entity under investigation is placed in the public eye, with possible adverse consequences to its reputation.” However, FERC found that the NAV policy was justified by the benefits of public transparency—mainly the ability of third-party market participants to bring relevant information to staff’s attention in response to the NAV and the NAV’s educational value to third-party market participants about the nature of violations under investigation. When implementing the NAV policy, FERC said it would “continue to monitor the [NAV] procedure and [was] open to considering it again after staff has acquired some experience in its application.” FERC also directed Enforcement staff to publicly report on its experience with the NAV policy to FERC a year later, when it issues its Annual Report on Enforcement.

In an article just published by the George Washington University Law School’s Journal of Energy and Environmental Law, Akin Gump lawyers David A. Applebaum, Todd L. Brecher and Jeffery S. Dennis—all of whom had experience implementing the NAV policy when they worked at FERC—argue that the NAV policy has not worked and that it is time for FERC to revisit and rescind it. The authors recognize that FERC instituted the NAV policy as a part of its laudable efforts to bring transparency to the enforcement program. However, it is now possible to reach some conclusions about the policy’s effectiveness, and, the authors conclude, the policy has not produced the benefits that FERC intended. This alone is cause for FERC to revisit and rescind the NAV policy, they argue, since there is no justification for continuing a policy that admittedly causes harm when its anticipated countervailing benefits have not materialized. However, the authors explain that there are additional reasons for rescinding the NAV policy. One is that advancements in FERC’s enforcement tools and sophistication since 2009 have diminished the need for the NAV to assist Enforcement staff in conducting investigations. Another is that the “possible adverse consequences to [an investigation subject’s] reputation” are even more significant and damaging than they were in 2009, because FERC’s enforcement activities garner a greater amount of public attention and increasingly target individuals rather than only companies. Finally, although a key premise of the NAV policy was that NAVs would issue only after staff’s investigation concluded, the authors contend that this premise is not always true and that staff may continue to investigate and refine its conclusions after a NAV issues. This means that the NAV may not accurately reflect who will ultimately be named and what violations will ultimately be pursued—a reality that further detracts from the NAV’s intended transparency benefits.