Law360 Publishes Applebaum and Brecher Retrospective Article on FERC’s First Four Decades

Law360 has published the article “FERC At 40: How It Became An Enforcement Agency,” written by David Applebaum, a partner and co-chair of Akin Gump’s energy regulation, markets and enforcement practice, and Todd Brecher, counsel in the practice. The article looks at the past four decades since the Federal Energy Regulatory Commission was created to regulate the transmission and wholesale sale of electricity and natural gas, and the transportation of oil by pipeline, in interstate commerce.

Since the 2000-2001 Western energy crisis, Applebaum and Brecher write, FERC has transformed itself from an independent regulatory agency to “a robust enforcement agency.” The commission took several steps “within its existing authority to respond to the crisis from an enforcement perspective,” they say, but ultimately Congress deemed them insufficient and granted FERC significant enforcement authority through the Energy Policy Act of 2005 (EPAct 2005).

Once EPAct 2005 was enacted, Applebaum and Brecher note that FERC moved quickly to create a robust enforcement agency, including the following:

  • drafting and enacting the Anti-Manipulation Rule
  • hiring the appropriate number of staff with the right expertise
  • determining how to assess civil penalties
  • making policy decisions on how to give guidance about enforcement issues despite their non-public nature
  • determining whether and how to surveil FERC-regulated natural gas and electric markets
  • working with Regional Transmission Organization market monitors and other government agencies

The 2003 blackout in the Northeast was another factor behind EPAct 2005, “making electric reliability a subject of FERC regulation and enforcement,” according to Applebaum and Brecher. They write that the Office of Enforcement “has played a role in investigating grid disturbances and significant violations of the electric reliability standards.” Similarly, auditing market participants is also a key responsibility of Enforcement, as are tariff and regulatory violations.

Looking ahead, the authors foresee several issues for FERC to address in the coming years, including:

  • more guidance on the meaning of FERC’s Anti-Manipulation Rule
  • reconsidering key enforcement policies — including the size of civil penalties
  • greater willingness to ease the burden of investigation-related costs
  • the need to study the effect of enforcement actions on market behavior

Applebaum and Brecher conclude by observing that FERC was able to transform itself into a “robust enforcement agency” following the Western energy crisis and the enactment of EPAct 2005. They express confidence that it will continue with its mission, adding that FERC has an opportunity “to take action over the next several years to make sure that its efforts to deter conduct in violation of federal law do not overregulate or unnecessarily increase market participants’ costs.”

To read the full article, please click here.