Defending FERC Data Requests
The Federal Energy Regulatory Commission (“FERC”) is a federal entity that regulates energy companies for compliance with federal law. If your company has received a FERC data request, it is important to understand how to approach your answer and the next steps in the FERC’s investigation.
What Is A FERC Data Request?
A data request is a written request to supply information in connection with a FERC investigation. The request must specifically identify the information or data sought as well as a deadline by which the information or data is to be furnished. It is important to clarify that a FERC data request is not a subpoena, although it has the look and feel of a traditional federal subpoena. Instead, FERC data requests are merely a request to receive information for the FERC to investigate the business model of the company. The information provided pursuant to these requests are treated as non-public.
Overview of the Federal Energy Regulatory Commission
The Federal Energy Regulatory Commission (“FERC”) is an independent agency that regulates the interstate transmission of electricity, natural gas, and oil. The Energy Policy Act of 2005 (“EPAct 2005”) vested with the FERC additional responsibilities such as the authority to regulate the transmission and sale of electricity in interstate commerce; to review certain M&As by electricity companies; to regulate the transmission and sale of natural gas for resale; to investigate energy markets; and to enforce the FERC regulatory requirements via civil penalties, as some examples.
FERC’s Division of Investigations of the Office of Enforcement (“OE”) oversees energy markets, identifying and correcting market problems, investigating market manipulation, and assuring compliance. The agency’s investigations are generally undertaken by the OE and are conducted under Part 1b of the FERC’s regulations, 18 C.F.R. Part 1b.
The FERC Investigative Process
FERC can conduct investigations relating to any matter within its jurisdiction. As mentioned on its website, the FERC staff can begin an investigate upon the receipt of either internal information—received from the Division Analytics and Surveillance or other FERC offices—or external information—received from an enforcement hotline; a self-report; a complaint; or a referral from another governmental entity. When determining whether to open an investigation, the staff considers a host of factors such as the following:
- Nature and extent of the alleged harm;
- The seriousness of the alleged violation;
- Whether there have been any efforts to remedy the violation;
- Whether the violation was inadvertently or willfully committed;
- The violation’s pervasiveness—whether it was widespread or isolated;
- The possibility that the conduct would reoccur in the future;
- The importance of remedying the violation to advance the FERC’s policy objectives;
- The likelihood of gathering a factually sufficient case;
- The history of compliance of the wrongdoer; and
- The amount of staff resources available.
A FERC investigation begins as a fact gathering process. The FERC staff will typically seek data and document requests, interviews, depositions, interrogatories, or other traditional discovery methods. Data requests are often used to acquire information or data on the target company pertaining to the matter under investigation and is explained in greater detail in the next section.
Post-Data Request Issues: Cooperate and Settle versus Litigate the Issue?
After the initial investigative and fact-gathering stage is over, there are typically two options: (1) cooperate with the FERC and settle, or (2) refuse to cooperate and litigate the issue.
The cooperation route helps secure a favorable settlement with a lower penalty amount. This is important because civil penalties can be substantial such as a $1 million fine, disgorgement order, and injunction from doing business in the future. The FERC’s decision to pursue settlement and negotiate a lower settlement amount also depends on the severity of the violation. For instance, the FERC staff may approach an intentional/deliberate violation markedly different than one that involved only inadvertent or negligent conduct. The litigation route may entail more costs and time but occurs when the targeted company refuses to negotiate with the FERC staff. In these cases, the company will litigate the issue before the FERC or in federal court. An attorney experienced in FERC defense can help you decide which route would be best for your situation.
Once the data request stage of the investigation is completed, the first step after production is for the FERC to issue a preliminary findings letter. The preliminary findings letter explains the violations identified by the agency and the reasons why such conduct is considered a violation. The letter may also discuss a pathway to settlement. The tricky question is how to handle the next step: (1) follow the cooperation and settlement route, or (2) refuse to cooperate and litigate the issue.
1. Cooperate and Settle with the FERC
Settlement negotiations is the preferred resolution sought by the FERC. In the view of the FERC, settlement is faster, allows for disgorged funds to be returned sooner, and helps preserve staff resources for other matters. Settlement also helps the targeted company. The penalties are often lower, and the risk and exposure of a public proceedings are eliminated. If the FERC staff and the targeted company reach a settlement, the staff submits a Stipulation and Consent Agreement to the FERC for approval.
2. Refuse to Cooperate and Litigate the Issue
In some cases, the targeted company may refuse to accept liability. At this point, the FERC staff will issue an Order to Show Cause, which requires the targeted company to show that civil penalties are unwarranted. Some companies attempt settlement negotiations once more after the Order is issued; others prefer to take the litigation route. In these latter cases, the FERC or a federal district court issues the final order assessing the penalties to be imposed. The targeted company then has the right to petition the U.S. Courts of Appeals to review the order.
All FERC data requests should be carefully evaluated. Even though FERC data requests are non-enforceable, the refusal to follow it can nevertheless lead to complicated enforcement proceedings. For this reason, many individuals and companies follow the requests outlined in the data request. As explained by the federal defense attorneys at Oberheiden, P.C., FERC investigations are civil in nature. Although uncommon, the FERC’s criminal provisions have been greatly expanded by Congress. For instance, the maximum fines and maximum imprisonment time have been increased for cases that the FERC refers to the DOJ for criminal prosecution. Despite this power, the FERC strives to negotiate and settle via the civil route.
FERC monitors and investigates regulatory compliance within the energy industry. To accomplish this objective, FERC typically uses so-called data requests to initiate its fact-gathering process. Unlike a traditional subpoena (e.g. grand jury subpoena), FERC data requests can only be made enforceable through specific court approval. The target company must decide whether to settle with the FERC or litigate the issue. This determination depends on many factors and is different for every company. Retaining the services of legal counsel is the best defense for energy companies when approaching matters involving FERC data requests, settlement negotiations, and litigation proceedings.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.