Monday, February 18, 2019

FERC Enforcement Process Under Fire in House Hearing

By Michael Brooks

WASHINGTON — The Federal Energy Regulatory Commission was the subject of intense criticism Wednesday and Thursday as members of a congressional subcommittee considered legislation to rein in the agency’s Office of Enforcement.

The House of Representatives Energy and Commerce Committee is considering a legislative package that would institute a wide variety of changes to energy policy. This week’s Energy and Policy subcommittee’s hearing focused on Title IV, which would make changes to FERC’s enforcement procedures, along with Department of Energy efficiency standards and the Public Utility Regulatory Policy Act (PURPA).

Under Section 4212 of the title, FERC would be required to disclose to investigation subjects “any exculpatory materials, potentially exculpatory materials, or materials helpful or potentially helpful to the defense” within a week of issuing preliminary findings.

Brady Doctrine

The provisions are in response to criticism by defense attorneys — embraced by some congressional Republicans — that Enforcement has denied subjects due process. The allegations were highlighted in the Powhatan Energy Fund case, in which brothers Richard and Kevin Gates claim that FERC withheld exculpatory evidence from them in violation of the Brady doctrine. (See Gates, Powhatan Say FERC Enforcers Didn’t Share Crucial Info.)


Larry Parkinson, FERC

Responding to a question on Wednesday from Rep. Jerry McNerney (D-Calif.) about the implications of the phrase “helpful or potentially helpful” in the section, FERC Enforcement Director Larry Parkinson called it “a pretty dramatic rewrite” of the Brady doctrine.

The doctrine, stemming from the 1963 case Brady v. Maryland, holds that the prosecution may not withhold evidence that could aid a defendant.

Under the proposed language, “essentially what it would end up being is an open-file discovery policy,” Parkinson said. “If you say you’re entitled to information in possession of FERC that is ‘helpful or potentially helpful’ to the defense, I don’t know what wouldn’t be, whether it’s inculpatory, exculpatory or anything even neutral.” He also noted that Brady doesn’t apply to civil cases, even though FERC voluntarily adopted the doctrine in 2009.

These comments incensed Rep. Morgan Griffith (R-Va.), who flung his hands in the air and stood up in exasperation. When it was his turn for questioning the witnesses, he blasted Parkinson’s remarks.

“I don’t know how y’all did it wherever you worked, but the really good prosecutors … they gave you the open file because it helped you reach a settlement,” said Griffith, who referred to himself as a “simple country lawyer.”


Rep. Morgan Griffith

“So I don’t understand the resistance. I’m having a real hard time sitting here listening to you talk about how this a problem.”

“This is not a hide-the-ball kind of process,” Parkinson responded. “We lay out in extraordinary detail for the subjects of our investigations everything we’ve concluded, both factually and legally.”

On Thursday, the subcommittee heard from William Scherman, a former FERC general counsel who has led the attack on the agency, making his case in a law review article, Wall Street Journal op-ed and National Association of Regulatory Utility Commissioners conference. Senate Republicans quoted from his critique during the confirmation hearings for former Enforcement Director Norman Bay last May. (See LaFleur Cruises, Bay Bruises in Confirmation Hearing.)

Scherman told the subcommittee that it was “shocking” that Parkinson would say the language was not necessary. He suggested replacing “helpful” with “favorable.”

“There is no possible way that [FERC] could object to that,” Scherman said.

Commissioners’ Role

The proposed legislation would also allow investigative subjects “to communicate with the commissioners regarding the substance of settlement considerations to the same extent as such communications occur between the commissioners and the investigatory staff of the commission.”

Parkinson said that such a change would “impede the ability of the enforcement staff to regularly communicate with the commission or with others in the agency. It is simply unworkable to restrict the enforcement staff from those communications unless we ignore the fact that the commission itself owns and manages its enforcement program.”


Bill Scherman, former FERC General Counsel

“I don’t know how a commission effectively oversees an enforcement program if the enforcement staff isn’t able to regularly communicate with them without having to put it in writing, or without having to give the investigative subject the opportunity to address the commission in the same way.”

Griffith, however, criticized what he saw as the dual role of FERC commissioners as prosecutors and judges. Griffith compared this to a building code investigator going to the judge and asking how he should investigate and lay out his case against a potential violator.

Scherman noted that because Enforcement staff has regular communication with commissioners, “human nature would suggest that cannot be a fair adjudication. It has nothing to do with the integrity of the commissioners personally. But if you’re told for five years that somebody is guilty of fraud, if you’re told for five years that somebody has manipulated the markets, if you’re told for five years that somebody has unjustly enriched themselves at the detriment of consumers, and at the very last part you then have to sit, where only one party has had access to you, where only one party knows what you’re thinking and only one party has had a free exchange, that is a problem.”

Griffith suggested allowing the commissioners to retain their power to settle cases but said adjudication should occur in federal court “where you can have a legitimate, due process-filled trial.”

Scherman thought it would be a good idea — if FERC recognized that de novo review meant a new trial. “The commission is taking the absurd position that the words ‘de novo review’ does not lead to a full trial, does not lead to discovery, does not lead to the right to confront witnesses,” he said. “They’re taking the position that de novo review is essentially no different than a court review, where the commission gets deference on the record that they built on a flawed process.”

‘Neutering’ Enforcement

McNerney, who noted that California is still dealing with the aftermath of the Enron scandal, expressed concern that the section went too far in “neutering FERC’s investigative authority.”


Sue Kelly, APPA

With no one from FERC on Thursday’s witness panel, Sue Kelly, CEO of the American Public Power Association, attempted to defend the agency.

“I would just note that what they’re trying to do is protect consumers in these electric markets,” she said. “And if you look at the orders that have come out, if you look at the entities that are being chastised, if you look at the behaviors that are being engaged in, I think a case could be made that it’s really important to have a strong enforcement at the FERC because consumers are otherwise going to be taken to the cleaners.”

Scherman countered that “It is easy to say ‘don’t do this’ when your members are not subject to the very regulations that are violating due process. Ms. Kelly’s members are not subject to these rules. They’re not subject to this enforcement process.”

Kelly interjected: “Not true.”

“Well it is true, Sue. Other than [the North American Electric Reliability Corp.], what are you subject to?” Scherman replied.

Kelly noted that there was an enforcement case against an APPA member in ISO-NE. But “generally speaking, we don’t engage in behavior that would require” the enforcement process, she said to laughter. Kelly, however, was not smiling.

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