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FERC rescinds order authorizing issuance of preliminary Notices of Violations

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Home Publikationen FERC rescinds order authorizing issuance of preliminary Notices of Violations
On May 16, 2019, the Federal Energy Regulatory Commission (FERC or the Commission) issued an order rescinding a prior order requiring the issuance of a preliminary Notices of Violations (NAV) after the subjects of investigations by the Office of Enforcement (OE) have responded to OE’s preliminary findings.1 FERC found that since the order requiring NAVs was issued in 2009, FERC has developed additional means of meeting its transparency goals. Given the availability of other methods to obtain transparency, and concerns regarding the confidentiality of investigations, the transparency benefits associated with NAVs no longer outweigh the potential reputational harm to the subject of NAVs. For this reason, FERC determined that NAVs should no longer be issued. This is a significant departure from FERC’s treatment of NAVs during the last decade.

In 2009, FERC modified its procedures governing investigations and enforcement actions to require the issuance of NAVs in order to increase transparency. Prior to requiring the issuance of NAVs, the existence of OE investigations or actions was not public until the Commission issued an Order to Show Cause or approved a settlement of the investigation or enforcement matter. Although the issuance of NAVs discloses investigations at an earlier stage, the Commission found that such disclosure was warranted to enhance transparency in two ways: (1) market participants may have information relevant to the investigation; and (2) market participants may wish to evaluate their own behavior in light of the investigation. At the time, FERC acknowledged concerns regarding reputational harm due to early disclosure of investigations or enforcement actions. FERC also noted that it would consider revisiting the requirement to issue NAVs after acquiring more experience.

On May 16, 2019, FERC decided to revisit the NAV question. FERC found that NAVs have not been a significant source of information during its investigations and that FERC has developed other means of obtaining information and enhancing transparency. FERC noted that it now has access to increased information due to various orders, agreements and access to subscription services. Furthermore, FERC concluded that NAVs provide limited guidance to market participants, as they contain limited information regarding the investigation or alleged violation.

FERC also found that NAVs’ risk to reputations prior to settlements or more formal findings regarding alleged violations remains a serious concern. FERC pointed to an instance in which a NAV was issued regarding a company and individual actors, but the subsequent settlement involved only the company. Without the issuance of the NAV, the existence of an investigation into one of the individual subjects would not have become public.

Given the limited transparency benefits, and concerns regarding reputation harm, resulting from NAVs, the May 16, 2019, order rescinds the policy requiring their issuance.

  1. Enforcement of Statutes, Regulations, and Orders, “Order Rescinding Commission’s 2009 Order Authorizing Secretary to Issue Staff’s Preliminary Notice of Violations,” 167 FERC ¶ 61,153 (May 16, 2019).

Client Alert 2019-132