With Heightened Enforcement Threatened against Objectionable Natural Gas & Power Transactions, FERC to Offer Industry Guidance in the Form of "˜No-Action Letters'
Congress in the Domenici-Barton Energy Policy Act of 2005 (EPAct 2005) and FERC in proposed implementing regulations looked to the Securities Exchange Act of 1934 and its anti-fraud provisions to put in place parallel new prohibitions against and heightened penalties for manipulation and deception in connection with the wholesale natural gas and power transactions that FERC regulates. [See FERC Looks to Past for Future Anti-fraud Enforcement and FERC Explains Its Policy on New Penalty Authority] Not surprisingly, in a November 18 interpretation of its rules, FERC has looked again to the practices of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) under the securities laws to adopt a process for educating and guiding the natural gas and power industry on complying with the new prohibitions. Specifically, through its staff FERC will now issue discretionary "˜no-action letters' similar to those that the SEC and CFTC staff issue.
Presented with a specific transaction that an applicant for a no-action letter proposes to undertake, FERC will have the division of its staff with relevant expertise examine the transaction for compliance with FERC's Standards of Conduct, Market Behavior Rules, and (once they are finalized and implemented) new rules implementing the anti-fraud provisions of EPAct 2005. If the contemplated transaction passes muster under these strictures, then the FERC staff can issue a no-action letter indicating that the staff will not recommend any enforcement action in connection with the transaction. While not binding on FERC itself (just as no-action letters are not binding on the SEC or CFTC), they almost always have this effect since they represent the consensus view of those on the staff most familiar with the subject matter of and rules pertaining to the proposed transaction at issue. Unlike FERC's earlier procedures for obtaining the informal advice of its staff, which ordinarily commanded a fee, the new no-action letter procedures will be free of charge, at least initially.
Because of ambiguities in FERC's Market Behavior Rules and the newness of the anti-fraud provisions, access to the no-action letter process should prove a welcome development. Use of the process should be integrated into the compliance program of every prudent participant in wholesale natural gas and power markets. Requests for issuance of no-action letters should be addressed to FERC's general counsel and should be submitted on a non-public basis. They will remain confidential until answered, at which time, absent extraordinary circumstances, both the request and answer will become public. The request must particularize in detail the parties to the proposed transaction and the requester's role. If FERC staff finds the transaction too speculative or vague, it can either request additional information or decline to respond. [Informal Staff Advise on Regulatory Requirements, 113 FERC ¶ 61,174 (2005)]