You may have noticed the Federal Energy Regulatory Commission (FERC) has received lots of heated criticism over its enforcement of alleged market manipulation and fraudulent behaviors.  You may also have noticed FERC has not responded to the criticism.  That’s because the Department of Justice (DOJ) frowns on that.  Market manipulation cases are high profile and can involve criminal proceedings.  DOJ does not want enforcement agencies to fan those fires.  So it was with an interest heightened by lack of information that I devoured a just-published article adapted from a speech given last October by Commissioner Tony Clark on FERC’s enforcement policy.  It’s called “Ensuring Reliability and a Fair Energy Marketplace,” and I commend it to you.  It’s a great read at 25:2 Colo. Nat. Resources, Energy & Envtl. L. Rev. 2014.  In it, Commissioner Clark explains how FERC administers principles-based enforcement.  In response to the argument that FERC should specify by rule all specific misconduct in which a market participant could conceivably engage, he observes that such an approach is not only unrealistic but also leads to unacceptable gaming.  He cites former imprisoned Enron exec, Andrew Fastow, who confessed that he “used the rules to break the rules.”  Fastow explains that the more complex the rules are, the more opportunity they present to subvert them.  A reformed Fastow now preaches that one should ask “not what is the rule, but what is the principle?” Clark concedes that FERC must provide clear guidance as to the nature of prohibited conduct, but he also exhorts market participants to “use judgment.”

Reprinted with permission from the Friday Burrito, published by 2014 Foothill Services Nevada Inc.