Academic journal article Energy Law Journal

The New Ferc Enforcement: Due Process Issues in the Post-Epact 2005 Enforcement Cases

Academic journal article Energy Law Journal

The New Ferc Enforcement: Due Process Issues in the Post-Epact 2005 Enforcement Cases

Article excerpt

Synopsis:

The Energy Policy Act of 2005 radically increased the potential penalties for alleged violations of the statutes administered by the Federal Energy Regulatory Commission and prompted a sea-change in the agency's enforcement techniques and procedures. This increased exposure to the regulated community was not, however, accompanied by a corresponding attention to due process concerns as FERC vigorously exercised its newly expanded authority. Indeed, many of these due process issues, including the most serious ones, were not readily identifiable until the Commission was compelled to litigate its allegations in trial-type hearings by enforcement targets who chose to fight, rather than submit to the agency's charges. This article summarizes the lessons learned from the first litigated FERC enforcement cases in the post-EPAct 2005 era-Energy Transfer Partners, Oasis Pipeline, Amaranth, and Hunter. It is intended to provide guidance to practitioners and regulated entities who may run afoul of the FERC enforcement process as well as to recommend appropriate policies the FERC should implement in future proceedings, some of which were formally adopted by the agency as this article went to press.

I. INTRODUCTION

For thirty years, the Federal Energy Regulatory Commission (FERC or Commission) enforcement process has been part of ensuring that the Nation's energy markets continue to function properly. Stronger enforcement powers have been granted to the FERC as recent concerns of market manipulation, fraud and abuse, and speculation have increased. Whether the recent volatility in commodities prices are the result of nefarious activities or the normal workings of supply and demand, a well-functioning enforcement process with the ability to assess penalties has become part of the process that has emerged to ensure the continued vibrancy and effectiveness of the Nation's energy markets. However, just as the ability to impose substantial - and substantiated - penalties is important, it is equally important that the protections of due process continue to ensure that the Commission exercises its enforcement powers impartially and even-handedly.

The Commission has concluded, or shortly will conclude, the first two enforcement cases set for hearing under its enhanced penalty authority granted by the Energy Policy Act of 2005 (EPAct 2005). By examining those first enforcement cases, we will provide an overview of what is going right and wrong with the FERCs enforcement process and suggest issues that entities subject to the Commission's jurisdiction and practitioners should consider for the future. We begin with a brief history of the evolution of the Commission's enforcement process, including the changes wrought by EPAct 2005 and an introduction to the first enforcement cases set for hearing after EPAct 2005. We will then describe a series of due process protections that were implicated in those first cases, including the right to de novo judicial review under the Natural Gas Act (NGA), whether Brady v. Maryland should be applied to Commission enforcement actions, the role of the federal rules of evidence in the FERC enforcement proceedings, ex parte communications and the separation of functions among Commission staff, and the Commission's Rule lb.19 Wells Process. We conclude by identifying issues for future consideration, including suggestions for the improvement of the Commission's enforcement process.

II. ENFORCEMENT OF MARKETS

A. A Brief History of FERC Enforcement

The FERC was created by § 401 of the Department of Energy Organization Act of 1977.1 On September 30, 1977 the Federal Power Commission (FPC) ceased to exist, and the DOE Act transferred virtually all of the FPCs regulatory powers and responsibilities under the Federal Power Act (FPA)2 and the NGA3 to the newly -formed FERC.4 Shortly thereafter, in December 1977, the Commission announced the creation of the Office of Enforcement to assist in implementing the FERCs regulatory goals. …

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