This week, the Federal Energy Regulatory Commission (“FERC”) issued an order rescinding its Notice of Alleged Violation (“NAV”) Policy. The NAV Policy was put in place by a 2009 order and authorized FERC’s Office of Enforcement Staff (“OE staff”) to ask the FERC Secretary to issue a public NAV at the stage of the investigation after the subject has had a chance to respond to OE staff’s preliminary findings. This usually happened at about the time staff sought settlement authority from the Commission in order to potentially resolve the matter. The NAV was a very short document stating that FERC staff had preliminarily determined that the named subject had violated a FERC rule, oftentimes FERC’s anti-Market Manipulation rule. FERC investigations typically begin non-publicly and frequently remain that way—especially if FERC decides not to charge subjects with violations. Often the NAV was the first public notice of the case.
The NAV Policy was initially and nominally put in place to add transparency to the process for cases that would possibly proceed past investigation and provide an opportunity for members of the public to come forward with information that might be relevant to the case and evaluate their own conduct in light of the allegations set out in the NAV. But, those theoretical benefits came at a very real price: damning public disclosure of the allegations against the subject before any adjudicative process that might allow a public defense or a settlement that would put the matter into a final context. In the ensuing years, the practice came under increasing criticism in the industry and the bar.
FERC is now abandoning this step because, per its own analysis, it has not worked out as intended. FERC last issued an NAV in April 2018, after which it announced settlements in other cases without NAVs, so it appears that in practice FERC had already abandoned its NAV Policy. After ten years of the NAV Policy in practice, FERC has concluded that “the potential adverse consequences that NAVs pose for investigative subjects are no longer justified” based on the limited information brought to FERC’s attention through the NAV process. FERC also claimed the need for publicly-supplied information has been reduced, as FERC’s own investigative methods have improved in the intervening decade through the addition of a slew of data driven analytical tools to FERC’s arsenal.
FERC’s re-visitation of this matter and change of course are, in our view, a sign that good government is at work. The publicly-issued NAV has been a major area of frustration for investigation subjects—especially those expecting to settle their cases. In practice, the NAV would issue once OE had obtained settlement authority but before any settlement had been finalized. Investigation subjects were thus forced, as a practical matter, to sit idly by while the news of their (alleged) bad acts was announced in the NAV, unable to make any public pronouncements for fear of disrupting the settlement negotiations. With the NAV step removed, subjects of an investigation will be able to announce their “positive” news of a settled (and final) investigation together with the negative news of the alleged bad acts.
Even subjects who expected they might not settle suffered—because they usually and correctly recognized that there was not a practical way to respond publicly to a very cryptic statement that had yet to be formally and fully advanced as an allegation by the Commission. Some subjects of NAVs never ended up being charged or settling so their names were needlessly publicized (as FERC’s order candidly recognized). All that will now stop. That is good.
Most subjects suffered real and lasting negative consequences from the reputational harm associated with these NAV disclosures. As against all of these downsides for subjects, FERC’s order recognizes what has long been known in inside and outside FERC: that the expected benefits of the NAV Policy never materialized. So, for companies and individuals that find themselves under investigation by FERC, this comes as welcome news. No longer will the NAV be the first public word of alleged violations unaccompanied by context-setting settlement or other expressions that can at least somewhat be influenced by the investigation subject.