FERC Enforcement Litigation Update: Defendants Cannot Take Discovery Of FERC's Decision Not To Pursue Enforcement Cases Against Other Market Participants

One of the big Federal Energy Regulatory Commission (FERC) Enforcement litigation developments of the past two years has been the federal judiciary's rejection of the agency's “de novo review” position in electricity market manipulation cases. Briefly stated, FERC has argued that the Federal Power Act (FPA) should be interpreted to allow federal courts to adjudicate an enforcement action by reviewing FERC's Order Assessing Penalties and underlying record, allowing supplementation of that record through additional discovery only as the court found necessary or useful. Courts, however, have held that there is no such FPA-mandated review action of that nature, but rather only a civil action that proceeds under the Federal Rules of Civil Procedure—including, most importantly, the civil discovery rules.1

With the law now clear on the procedure governing FERC's federal court enforcement actions, a key question for FERC court-watchers becomes what type of discovery defendants will be allowed to take of FERC. Just last week, a federal court in the long-running DALRP matter2 ruled that one type of discovery the defendants sought (which defendants in other enforcement cases have also sought) would not be allowed: discovery into FERC's decisions both to investigate and to decline to pursue enforcement actions against other market participants who may have engaged in similar conduct as the defendants.

Defendants' discovery argument and FERC's rebuttal are more involved than this brief summary provides, but, in essence, defendants claim that their participation in the demand response program was a legitimate, non-manipulative effort to comply with unclear rules created through a flawed market design. They sought discovery to show that other market participants participated in the DALRP program in similar ways, reflecting an industry understanding that suggests the legitimacy of their own conduct, and that FERC acknowledged this legitimacy by declining to proceed against those participants. FERC disputed that there was such an industry understanding or similar industry conduct, or that flawed market rules justified defendants' behavior. In any event, FERC argued that any prosecutorial discretion with respect to other market participants was not a valid subject of discovery under well-established case law from various enforcement contexts.

The magistrate judge agreed with FERC's argument, and the district court affirmed. Specifically, the court found...