For Immediate Release:
April 11, 2014

David W. Schnare, Esq. Ph.D.
[email protected]

Free Market Environmental Law Clinic Files FOIA Suit vs. FERC to Compel Production of Emails Related To Opaque, Arbitrary Regulatory Decisions That Unfairly Penalize Small Businesses And Discourage Investment

 Washington, D.C. – The Free Market Environmental Law Clinic (FME Law), on behalf of energy traders STS Energy Partners LP (STS Energy), has filed suit in the U.S. District Court for the District of Columbia against the Federal Energy Regulatory Commission (FERC). The suit asks the Court to compel FERC to produce information responsive to two separate STS Energy requests under the Freedom of Information Act (FOIA).  STS Energy submitted the requests last year in response to two seemingly arbitrary actions by FERC that caused uncertainty in the power markets.  The two FERC decisions at issue in STS Energy’s FOIA requests are the latest in a series of actions by FERC and FERC’s Office of Enforcement that are forcing financial traders to voluntarily exit the markets because of regulatory and enforcement uncertainty.

STS Energy wants to understand the rules under which trading firms can participate in the power markets without being retroactively labeled as a “market manipulator” by the FERC Office of Enforcement.  Former Securities and Exchange Commission (SEC) Deputy Chief Economist Stewart Mayhew states that trades which FERC finds objectionable offer “an example of a spread strategy, a broad category of strategies that are not only legal but are ubiquitous in the financial markets.”  The comparison to SEC-approved trades is paramount because FERC is required to abide by SEC precedent and the FERC OE case is based upon an SEC decision.

The specific actions that drew STS Energy’s attention were the reversal of FERC’s decision concerning arbitrageurs participation in obtaining rebates for excess payments (the “Black Oak” Orders), and the investigation into and subsequent settlement with Oceanside Power LLC and Robert Scavo (The “Oceanside Investigation”).  The Black Oak orders and the Oceanside Investigation both involve the “spread strategy” that FERC opposes but is legal under SEC rules.  The lack of any clear explanation by FERC for its refusal to follow a trading strategy deemed lawful by the SEC, along with FERC’s Office of Enforcement’s seemingly arbitrary enforcement actions have left investors to wonder what kinds of conduct is prohibited, and led some to withdraw from the power market.

FERC acknowledges that nearly three hundred fifty emails and other records responsive to both FOIA requests exist, but has refused to comply with its legal obligations to release segregable portions.  This is the same behavior prompting FME Law’s recent suit on behalf of the Energy & Environment Legal Institute for records relating to an apparent effort to “burrow” the head of FERC’s Office of Enforcement, Norman Bay, into a career position before his nomination to chair the Commission.

This lack of diligent compliance with federal disclosure law appears to be part of an unfortunate pattern at FERC.  In this case, the records involve the appearance of FERC acting as a sort of unaccountable prosecutor, pursuing violations, either real or perceived, in secret and with less of the safeguards generally allowed for someone in a true criminal trial.  As recently put in the Wall Street Journal, regulatory enforcement of similar financial transactions “is now almost as bad as from criminal prosecution,” yet FERC is loath to shed light on its increasingly aggressive and inconsistent actions.  STS Energy and FME Law believe the Commission should respect the President’s promise of transparency and fulfill its legal obligations under FOIA.

“The records this case seeks should bring fresh scrutiny of the Commission’s enforcement agenda and may shape how other participants approach trades and FERC investigations in the future.  Further, It should produce a more thoughtful and reasoned FERC enforcement policy,” said Dr. David W. Schnare, Director of FME Law.

FERC’s wholesale withholding of public information led FME Law to assist STS Energy in this matter seeking release all non-exempt portions of these records.  “As we have been forced to argue in yet another matter regarding FERC withholding, there is nothing in FOIA that provides an agency a blanket exemption for these records,” Dr. Schnare continued.  “This is the third such move by FERC in response to three separate requests of which we are aware, indicating that FERC’s understanding of these laws is mistaken and should not go unchallenged.  This is particularly true given its increasingly aggressive actions that are driving investors from an important market.”

STS Energy Partners LP v. Federal Energy Regulatory Commission was filed today, April 10, 2014, and has been assigned the case number 1:14-cv-00591.

The Energy & Environment Legal Institute maintains copies of all FME Law case documents including this complaint.

The Free Market Environmental Law Clinic (FME Law) provides litigation and research services to qualified clients. We concentrate on cases involving landmark free-market pro-environmental and energy-related litigation; use of open records and data quality laws to force greater governmental accountability and transparency; and, cases that allow the Clinic to help create the next generation of free market oriented attorneys.

STS Energy Partners LP is a private investment partnership organized under Delaware law. STS has traded in the PJM UTC market and desires to participate in the UTC market again.