FERC Subpoenas, Investigations, and Defense Strategies
The Federal Energy Regulatory Commission (FERC) is responsible for overseeing our nation’s energy infrastructure. It vigorously enforces companies’ compliance obligations, and FERC investigations can lead to substantial penalties.
The Federal Energy Regulatory Commission (FERC) has taken on an enhanced role in the federal government’s law enforcement efforts targeting corporate entities over the past 15 years. The Energy Policy Act of 2005 (EPAct 2005) increased FERC’s jurisdiction and enhanced its enforcement authority; and, since the EPAct 2005’s enactment, FERC – and its Office of Enforcement in particular – has been on a mission to combat fraud, waste, and other forms of non-compliance.
FERC has subpoena authority, and it can also gather information in support of its investigations through various other means. The Office of Enforcement also relies heavily on whistleblowers and other government agencies to provide information about potential violations of the EPAct 2005, the federal Prohibition of Energy Market Manipulation law, and the myriad other laws falling within FERC’s enforcement jurisdiction. When its investigations uncover wrongdoing, FERC can impose substantial civil penalties; and, when warranted, it can refer cases to the U.S. Department of Justice (DOJ) for civil or criminal prosecution.
Former Federal Prosecutors and Agents for FERC Investigation Defense
At Oberheiden P.C., we provide skilled and strategic defense representation for FERC subpoenas and investigations. Our lawyers include several former senior federal prosecutors, and our consultants include high-ranking investigative agents with the DOJ and other agencies. With a deep understanding of FERC’s enforcement authority and priorities, we are able to help our clients make informed decisions from the earliest stages of FERC investigations, and we are able to steer our clients’ investigations toward efficient and favorable resolutions. Meet our team.
Why Has Your Company Received a FERC Subpoena?
If your company has received a FERC subpoena, your first question is probably, “Why?” The answer to this question is important—not only for identifying the allegations at issue, but also for determining what defenses your company can assert in response. Typically, FERC will issue subpoenas and launch investigations based upon one (or more) of the following.
- Self-Report – Companies have self-reporting obligations to FERC under various sources of federal authority; and, while complying with these obligations is important for mitigating the consequences of non-compliance, it does not provide immunity from prosecution. As a result, self-reporting is a matter that needs to be handled with caution; and, prior to self-reporting violations to FERC, companies must ensure that they have defense strategies in place.
- Enforcement Hotline – FERC “invites market participants and the general public to [contact] the Hotline to report market activities or transactions that may be market manipulation, fraud, an abuse of an affiliate relationship, a tariff violation . . . or other possible violation.” Employees, competitors, and others can contact FERC’s Enforcement Hotline anonymously, and FERC has identified the Hotline as a key weapon in its enforcement arsenal.
- Complaint – In addition to its Enforcement Hotline, FERC also accepts formal complaints from members of the public. FERC investigates all complaints that appear to have a reasonable basis, and it publishes public notices of all complaints filed.
- FERC Analytics and Surveillance – Of course, beyond relying on companies self-reporting obligations and members of the public, FERC conducts its own surveillance activities as well. The agency’s Division of Analytics and Surveillance is responsible for triggering many of the agency’s investigations targeting energy market participants.
- Referral from a Market Monitoring Unit – Market Monitoring Units of Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) are also important sources of information for FERC’s Office of Enforcement. The Office of Enforcement often works closely with these organizations to analyze transactions and other market activity for signs of possible manipulation, fraud, or abuse.
- Referral from Another Government Agency – Finally, FERC also frequently issues subpoenas following referrals from other government agencies. Just as FERC can refer cases to the DOJ, other agencies can refer cases to FERC when they involve issues falling within FERC’s enforcement authority. In these cases, companies can face a broad range of allegations, and building an effective defense strategy requires a comprehensive understanding of all of the various substantive issues involved.
What Do Companies Need to Do During FERC Investigations?
In parallel with seeking to determine why your company has received a subpoena from FERC, your company also needs to begin its efforts to respond. At the same time, however, it is important not to be overly cooperative and disclose records that could unnecessarily create challenges for your company’s defense. With this in mind, some of they key steps involved in responding to a FERC investigation include:
- Identifying the subpoena’s response deadline
- Carefully reviewing the subpoena to determine the what documents are required (or what questions need to be asked)
- Determining whether your company has grounds to challenge the subpoena, in whole or in part
- Determining the substantive allegations at issue in the investigation
- Formulating a subpoena response plan
- Formulating substantive defenses to the substantive allegations at issue
- Working with FERC as appropriate to favorably resolve the investigation
What are Potential Defense Strategies During FERC Investigations?
While there are numerous potential defense strategies that companies can use during FERC investigations, the specific strategies that are available in any particular case will be determined by the facts and allegations at hand. Broadly speaking, however, some examples of potential defense strategies for FERC investigations include:
1. Challenging the Veracity of the Allegations Underlying the Investigation
From data anomalies that have routine explanations to false complaints from disgruntled former employees, there are several issues that can call the veracity of the allegations underlying a FERC subpoena or investigation into question.
2. Raising Substantive Statutory, Regulatory, and Common Law Defenses
The EPAct 2005, the federal Prohibition of Energy Market Manipulation law, and the other laws falling within FERC’s enforcement jurisdiction are extremely complex, and regulations and court decisions have added to the challenges of interpreting companies’ obligations in many respects. As a result, in many cases, defending against a FERC investigation is a matter of proactively demonstrating statutory and regulatory compliance.
3. Targeting a Pre-Charge Resolution
Typically, targeting a pre-charge resolution affords the greatest opportunity for a quiet and favorable outcome. By engaging FERC defense counsel promptly, companies can rely on their lawyers to steer their investigations in the right direction and build arguments that will facilitate an informal resolution short of charges being filed.
FAQs: Protecting Your Company During a FERC Investigation
What Factors Does FERC Consider When Deciding Whether to Open an Investigation?
FERC has outlined several factors that it considers when deciding whether to issue a subpoena and devote its resources to investigating an energy market participant. Some examples of these factors include:
- The nature and severity of the alleged violation(s) at issue
- The nature and severity of any harm resulting from the alleged violation(s)
- Whether the company has undertaken efforts to remedy the alleged violation(s)
- Whether the alleged violation(s) were isolated or are indicative of systemic noncompliance
- Whether the alleged violation(s) appear to be willful or inadvertent
- The likelihood of recurrence of the alleged violation(s)
- The company’s enforcement history (if any)
For companies that are facing investigations, it is worth keeping these factors in mind. By understanding both FERC’s general priorities and its specific reasons for launching a particular investigation, companies and their defense counsel can make strategic decisions about how to respond.
Is Information Obtained During a FERC Investigation Public Record?
Information obtained during a FERC investigation is subject to public disclosure. As FERC explains: “All information and documentation received during an investigation, as well as the existence of an investigation, is treated as non-public (only the Commission can authorize the public disclosure of the existence of an investigation or information obtained during an investigation).” While information obtained during a FERC investigation is classified as “non-public,” it may still be disclosed:
- At the direction or authorization of FERC;
- In the course of an adjudicatory proceeding; or,
- Pursuant to the Freedom of Information Act (FOIA).
When Should Companies Use FERC’s Dispute Resolution Service to Resolve Allegations of Fraud, Manipulation, and Other Violations?
FERC’s Dispute Resolution Service provides a forum for resolving certain types of complaints against energy market participants. While utilizing the Dispute Resolution Service can be a cost-effective means of resolution in appropriate cases, companies should be careful not to rush into alternative dispute resolution (ADR) with the goal of avoiding litigation or federal charges. In many cases, there will be better options available that serve to even further mitigate (if not eliminate) companies’ exposure to civil liability, administrative penalties, and other consequences.
What are the Potential Penalties Following a FERC Investigation?
FERC has the authority to impose civil penalties including fines of up to $1,000,000 per violation per day. However, “when possible, [FERC] will negotiate civil penalties as part of a Stipulation and Consent Agreement resolving compliance issues.” As a result, companies should rely on their defense counsel to negotiate their penalties when it is not possible to avoid enforcement action entirely.
As noted above, FERC can also refer cases to the DOJ for civil or criminal prosecution when warranted. DOJ prosecution can lead to penalties including fines, injunctions, and imprisonment of company owners and executives.
Speak with a Federal Defense Lawyer at Oberheiden P.C.
Is your company facing a FERC investigation? If so, it is important that you engage experienced defense counsel promptly. To speak with a senior federal defense lawyer at Oberheiden P.C., call 800-680-1745 or contact us online now.