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Federal Energy Regulatory Commission v. Silkman

United States District Court, D. Maine

January 4, 2019

FEDERAL ENERGY REGULATORY COMMISSION, Petitioner,
v.
RICHARD SILKMAN, et al., Respondents.

          ORDER ON MOTIONS FOR SUMMARY JUDGMENT

          JOHN A. WOODCOCK, JR., UNITED STATES DISTRICT JUDGE

         An energy consulting company and its employee and managing member challenge FERC's assessment of civil penalties against them for violating FERC's anti-manipulation rule, alleging that the action brought in this Court by FERC is time-barred under the general statute of limitations, 28 U.S.C. § 2462. FERC maintains in a countervailing motion for summary judgment that its civil action was timely filed.

         First, the Court concludes that the Respondents did not waive their statute of limitations argument. Next, the Court concludes that FERC's disgorgement order is not subject to a separate accrual date for purposes of the statute of limitations. Finally, the Court rejects the Respondents' argument that Gabelli v. SEC, 568 U.S. 442 (2013) and Kokesh v. SEC, 137 S.Ct. 1635 (2017) eclipsed United States v. Meyer, 808 F.2d 912 (1st Cir. 1987). Based on Meyer, which the Court views as binding, the Court concludes that the FERC enforcement action is not time-barred.

         I. BACKGROUND

         A. Procedural History

         1. Proceedings in the District of Massachusetts

         On December 2, 2013, the Federal Energy Regulatory Commission (FERC, the Commission) filed a petition in the District of Massachusetts for an order affirming its assessment orders. Pet. for Order Affirming FERC's Aug. 29, 2013 Orders Assessing Civil Penalties Against Richard Silkman and Competitive Energy Services, LLC (ECF No. 1) (FERC Pet.). On December 19, 2013, the Respondents filed a motion to dismiss, Resp'ts' Mot. to Dismiss (ECF No. 8), and a motion to transfer to the District of Maine. Resp'ts' Mot. to Transfer (ECF No. 9). On January 9, 2014, FERC filed oppositions to the motion to dismiss, FERC's Opp'n to Resp'ts' Mot. to Dismiss (ECF No. 18), and the motion to transfer. FERC's Opp'n to Resp'ts' Mot. to Transfer (ECF No. 19). On July 18, 2014, Judge Woodlock heard arguments on the motion to dismiss and supplemental briefs on procedure, as well as additional arguments regarding transfer to the District of Maine. Elec. Clerk's Notes (ECF No. 43); Tr. of Mot. Hr'g (ECF No. 44).

         The case was effectively stayed pending resolution of related issues in the United States Supreme Court[1] and the United States Bankruptcy Court for the District of Maine.[2] By April 5, 2016, both matters were resolved, and the proceedings continued. On April 11, 2016, Judge Woodlock denied the Respondents' motion to dismiss, FERC v. Silkman, No. 13-13054-DPW, 2016 U.S. Dist. LEXIS 48409 (D. Mass. April 11, 2016) (ECF No. 65) (Order on Mot. to Dismiss), and transferred the cases to the District of Maine. FERC v. Silkman, 177 F.Supp.3d 683 (D. Mass. 2016) (ECF No. 66) (Silkman I).

         2. Proceedings in the District of Maine

         On April 21, 2016, following transfer to the District of Maine, the Respondents answered FERC's petition. Resp'ts' Answer (ECF No. 72). That same day, the Respondents filed a motion requesting a scheduling conference and an order assigning the case to the complex track. Defs.' Mot. for Scheduling Order and Conf. (ECF No. 73).

         On June 3, 2016, the Court held a scheduling conference. Minute Entry (ECF No. 84); Tr. of Proceedings (ECF No. 85). At the scheduling conference, the parties presented arguments concerning the procedures that should govern the Court's de novo review of the Commission's assessment orders. Tr. of Proceedings at 2:24-49:18. The Court ordered additional briefing from both parties. Id. at 46:6-48:7. On January 26, 2017, the Court issued an order regarding the procedures applicable to FERC's petition and assigned the case to the complex track. Order Regarding Procedures Applicable to Pet. for Order Affirming Assessment of Civil Penalties (ECF No. 95).

         On February 15, 2017, the parties appeared telephonically for a conference of counsel before this Judge, and the Court issued an order staying the case pending a settlement conference. A settlement conference was held before Magistrate Judge Rich on March 31, 2017, but settlement was not achieved. Min. Entry (ECF No. 104).

         On February 28, 2018, the Respondents filed a Motion for Summary Judgment (ECF No. 133) (Resp'ts' Mot.) along with an accompanying Statement of Fact (ECF No. 136) (DSMF). FERC responded in opposition on March 30, 2018, FERC's Resp. in Opp. to Mot. for Summ. J. (ECF No. 140) (Pl.'s Opp'n), and filed a response to the Respondents' statement of fact with a statement of additional facts that same day. FERC's Resp. to Statement of Fact with Statement of Additional Facts (ECF No. 141) (PRDSMF; PSAMF). On April 20, 2018, the Respondents replied to FERC's additional statement of fact and responded to FERC's requests to strike made in response to the Respondents' statement of fact. Defs.' Reply to Resp. to Mot. for Summ. J. (ECF No. 143) (Resp'ts' Reply); Defs.' Reply Statement of Material Fact (ECF No. 144) (DRPSAMF).

         Meanwhile, on February 28, 2018, FERC filed a cross-motion for partial summary judgment on the issue of the statute of limitations. Mot. for Partial Summ. J. regarding Statute of Limitations (ECF No. 134) (Pl.'s Mot.). The Respondents responded in opposition on March 30, 2018. Defs.' Resp. in Opp'n to Mot. for Partial Summ. J. (ECF No. 138) (Resp'ts' Opp'n). FERC replied on April 20, 2018. Reply to Resp. to Mot. for Partial Summ. J. (ECF No. 145) (Pl.'s Reply).

         On September 25, 2018, FERC filed an unopposed motion for leave to file supplemental authority. Mot. for Leave to File Notice of Supple. Information (ECF No. 152). The Court granted the motion on November 7, 2018. Order Granting Mot. for Leave to File Notice of Supple. Information (ECF No. 153). On November 8, 2018, FERC filed as supplemental authority a copy of the Fourth Circuit Court of Appeals' order granting interlocutory appeal in Federal Energy Regulatory Commission v. Powhatan Energy Fund., LLC, 286 F.Supp.3d 751, 754 (E.D. Va. 2017).

         B. The Parties and Relevant Entities

         FERC is an administrative agency of the United States, organized and existing pursuant to the Federal Power Act (FPA), 16 U.S.C. §§ 791a et seq. FERC Pet. ¶ 13. FERC's Office of Enforcement (Enforcement) “initiates and executes investigations of possible violations of the Commission's rules, orders, and regulations relating to energy market structures, activities, and participants. Office of Enforcement (OE), FERC, https://www.ferc.gov/about/offices/oe.asp (last visited December 18, 2017). Based on its investigations, Enforcement may submit reports to the Commission recommending that the Commission institute administrative proceedings. FERC's Opp'n to Resp'ts' Br. Concerning Disc. (ECF No. 88) (FERC's Disc. Resp.) at 4. Once the Commission authorizes an administrative proceeding, Enforcement's role shifts from investigator to litigator, and a “wall” goes up between the Commission and its Enforcement arm to prevent ex parte communication. Id.

         ISO-New England (ISO-NE) is an independent, non-profit organization that works to ensure the day-to-day reliable operation of New England's bulk electric energy generation and transmission system by overseeing the fair administration of the region's wholesale energy markets. FERC Pet. ¶ 2. FERC regulates the markets that ISO-NE administers. Id.

         Respondent Competitive Energy Services (CES) is a limited liability company organized under the laws of Maine with its principal place of business in Portland, Maine. Id. ¶ 15. It provides energy consulting and other services to clients throughout North America. Id. ¶ 35. Respondent Richard Silkman resides in Maine and is an employee and managing member of CES. Id. ¶ 14.

         II. STATEMENT OF FACTS[3]

         A. Statement of Facts: Respondents' Motion for Summary Judgment

         FERC alleges that the Respondents' wrongdoing occurred “from July 2007 until February 2008.” DSMF ¶ 1; PRDSMF ¶ 1. On December 2, 2013, FERC filed a Petition for an Order Affirming the Federal Energy Regulatory Commission's August 29, 2013 Orders Assessing Civil Penalties Against Richard Silkman and Competitive Energy Services, LLC.[4] DSMF ¶ 2; PRDSMF ¶ 2. The petition was filed at least five years, ten months, and two days after the wrongdoing ceased.[5] DSMF ¶ 3; PRDSMF ¶ 3.

         Enforcement began an inquiry in February 2008 following a telephone call from the ISO-NE market monitoring unit regarding certain market participants' conduct relating to their participation in the ISO-NE Day Ahead Load Response Program (DALRP). In March 2008, after receiving a written referral from ISO-NE, Enforcement commenced a non-public investigation pursuant to Part 1b of the Commission's regulations (18 C.F.R. Part 1b) to determine whether certain market participants had engaged in fraudulent conduct in their participation in the DALRP. In November 2009, Enforcement commenced an investigation of Dr. Silkman individually, pursuant to Part 1b of the Commission's regulations for Dr. Silkman's conduct related to the DALRP, as memorialized in a November 4, 2009 letter sent to Dr. Silkman's counsel.[6] DSMF ¶ 4; PRDSMF ¶ 4.

         1. Roles of FERC Enforcement and the Commission

         Enforcement staff, in their role as the Commission staff tasked with investigating potential violations of the FPA and the Commission's regulations, communicated with the Commission and certain members of its advisory staff during the investigation of the Respondents. The Commission initiated adversarial adjudicatory proceedings on July 17, 2012 when it issued Orders to Show Cause and Notice of Proposed Penalty (“Proposed Penalty Orders”) to each Respondent. Under FERC's Separation of Functions Rule (18 C.F.R. § 385.2202), a “wall” went up between agency decisional staff - the Commissioners and the staff that may advise them - and the Enforcement staff serving a prosecutorial role in the proceedings. In accordance with the Commission's rule regarding ex parte communications (18 C.F.R. § 385.2202), a prohibition on ex parte communications between decisional staff and Enforcement prosecutorial staff also went into effect at that time. Pursuant to the Commission's Separation of Functions Rule and ex parte rule, following issuance of the Proposed Penalty Orders, the Commission issued a notice in each proceeding on July 26, 2012 identifying decisional and non-decisional staff.[7] DSMF ¶ 5; PRDSMF ¶ 5.

         Over the course of the investigation of the Respondents, Enforcement communicated in writing and orally with the FERC Commissioners and their staff concerning the investigation outside the presence of the Respondents and their counsel.[8] DSMF ¶ 6; PRDSMF ¶ 6. During the investigation, Enforcement considered FERC and the FERC Commissioners to be their client. DSMF ¶ 7; PRDSMF ¶ 7. Enforcement's communications with the FERC Commissioners and their staff concerning the investigation of the Respondents have not been disclosed to the Respondents.[9] DSMF ¶ 8; PRDSMF ¶ 8.

         2. Notice and Disclosure to the Respondents

         In this litigation, FERC disclosed the identities of people with “relevant knowledge” who had been interviewed as part of the investigation, and who had not been disclosed to the Respondents prior to the time FERC issued the Orders Assessing Penalties.[10] DSMF ¶ 87; PRDSMF ¶ 87. FERC also disclosed documents that it claims were part of the administrative record which had not been disclosed to the Respondents prior to the time FERC issued the Orders Assessing Penalties.[11] DSMF ¶ 88; PRDSMF ¶ 88. FERC disclosed additional documents that appear to have been obtained as part of the investigation which had not been disclosed to the Respondents prior to the time FERC issued the Orders Assessing Penalties and which were not included in what FERC claims were part of the administrative record.[12]DSMF ¶ 89; PRDSMF ¶ 89.

         a. Depositions

         Under FERC's regulations, the Respondents were not notified in advance of depositions conducted by Enforcement during its investigation, other than the deposition of Dr. Silkman.[13] DSMF ¶ 9; PRDSMF ¶ 9. Other than the deposition of Dr. Silkman, the Respondents and their counsel were also not allowed to attend the depositions conducted by Enforcement during its investigation, pursuant to FERC's regulations. The Commission's regulations require the sequestration of witnesses during testimony taken in an investigation, and all information and documents received during an investigation, as well as the existence of an investigation, is treated as confidential, non-public information. Disclosure of information during an investigation is permitted only at the Commission's direction or authorization, or as is otherwise required to be disclosed.[14] DSMF ¶ 10; PRDSMF ¶ 10.

         The Respondents and their counsel were not given copies of the depositions conducted by Enforcement (other than the deposition of Dr. Silkman) until after their depositions had been taken-sometimes over a year later-and then only after Respondents' counsel pressed Enforcement to provide such copies.[15] DSMF ¶ 11; PRDSMF ¶ 11. Under FERC's regulations, deponents and their counsel in the investigation were instructed by Enforcement not to give copies of their deposition transcripts to the Respondents or their counsel; deponents and their counsel were instructed regarding the testimony of witnesses in accordance with the requirements of section 1b.16 of the Commission's regulations, requiring sequestration of witnesses.[16] DSMF ¶ 12; PRDSMF ¶ 12.

         In this litigation concerning events that occurred in 2007 and 2008, fact witnesses repeatedly testified in their 2017 depositions that they did not remember or did not recall in response to over forty questions asked during their depositions, and for several witnesses, for over eighty questions asked during their depositions, although some witnesses' lack of memory was resolved by follow-up questions or the use of exhibits to refresh their recollections.[17] DSMF ¶ 90; PRDSMF ¶ 90.

         Enforcement requested Dr. Silkman to come to Washington, D.C. for his two-day deposition in February 2009.[18] DSMF ¶ 13; PRDSMF ¶ 13. At the conclusion of Dr. Silkman's deposition on February 27, 2009, Enforcement instructed Dr. Silkman not to share a copy of his deposition transcript with anyone else, including Mark Isaacson, who was a member and managing partner of CES during the relevant period; Enforcement also instructed Dr. Silkman that if he felt the need to share the transcript with anyone else, to contact Enforcement and they would discuss it.[19]

         DSMF ¶ 14; PRDSMF ¶ 14. Dr. Silkman was instructed by Enforcement not to share the questions or answers that were given during the deposition with anyone else; Enforcement issued these instructions to Dr. Silkman in accordance with applicable regulations, 18 C.F.R. § 1b.12, 1b.16.[20] DSMF ¶ 15; PRDSMF ¶ 15. In accordance with applicable regulations, Enforcement also instructed him not to disclose questions or answers that were given in the course of the deposition to anyone from Rumford Paper Company (Rumford).[21] DSMF ¶ 16; PRDSMF ¶ 16.

         b. Document Requests

         Enforcement does not have to obtain approval from a FERC administrative law judge or any other independent entity or decisionmaker concerning the scope of data requests or its investigation. DSMF ¶ 21; PRDSMF ¶ 21. Despite numerous requests, in accordance with the confidentiality provisions in the Commission's regulations, Enforcement did not provide the Respondents all the information it obtained during its investigation from Rumford, Constellation NewEnergy, Inc. (Constellation), and ISO-NE. DSMF ¶ 22; PRDSMF ¶ 22. However, during the investigation, Enforcement staff provided the Respondents with copies of all materials Enforcement staff cited in the preliminary findings letters to CES and Dr. Silkman except publicly-available information already in the Respondents' possession. Id. During the investigation, Enforcement staff provided the Respondents with all potentially exculpatory information regarding the Respondents in its investigative files. Id. On July 17, 2012, the date of issuance of the Commission's Proposed Penalty Orders, Enforcement provided CES and Dr. Silkman copies of all documents cited in the Enforcement Staff Reports attached to the Proposed Penalty Orders except those documents already in Respondents' possession or publicly available.[22] Id.

         Pursuant to FERC regulations, Enforcement did not give the Respondents advance or contemporaneous notice of any document requests or interrogatories (“data requests”) that Enforcement served upon third parties during the investigation.[23] DSMF ¶ 17; PRDSMF ¶ 17. However, Dr. Silkman and CES entered into a joint defense agreement with Rumford Paper Company (Rumford) and drafted responses for Rumford to Enforcement data requests. Id. The Respondents were not entitled to object to data requests served by Enforcement upon third parties during the investigation. DSMF ¶ 18; PRDSMF ¶ 18. According to FERC regulations, Enforcement did not give the Respondents contemporaneous notice of third party responses to any data requests served by Enforcement upon third parties during the investigation.[24] DSMF ¶ 19; PRDSMF ¶ 19. However, Dr. Silkman and CES entered into a joint defense agreement with Rumford Paper Company (Rumford) and drafted responses for Rumford to Enforcement data requests. Id. Enforcement determined what data requests to submit as part of its investigation, determined when the responses were due in the first instance, which could be in as little as one week, determined whether to grant enlargements of time, and determined whether the responses were adequate.[25] DSMF ¶ 20; PRDSMF ¶ 20.

         c. Preliminary Findings

         On November 23, 2009, Enforcement provided CES with a 32-page letter, which included 179 footnotes, titled “Preliminary Findings Letter, ” and initially gave CES three weeks to respond, which Enforcement later extended to January 8, 2010.[26] DSMF ¶ 23; PRDSMF ¶ 23. Prior to the time that CES was directed to respond to Enforcement's preliminary findings and analysis, Enforcement did not provide all the materials obtained in its investigation but claimed it had provided the materials that it had relied upon in making its preliminary findings and analysis.[27] DSMF ¶ 24; PRDSMF ¶ 24. Enforcement staff agreed to provide all documents referenced in Enforcement staff's November 23, 2009 Preliminary Findings Letter to CES that were not either (a) publicly available or (b) already within Respondents' possession.”[28]DMSF ¶ 25; PRDSMF ¶ 25.

         On January 8, 2010, CES provided its response to the preliminary findings and conclusions in a thirty page, single-spaced letter, asserting that Enforcement had not provided exculpatory evidence in its possession, including copies of depositions that Enforcement had taken outside the presence of the Respondents and counsel, and that Enforcement had seriously misstated the factual record in order to reach its preliminary findings and conclusions.[29] DSMF ¶ 26; PRDSMF ¶ 26.

         On April 19, 2010, Enforcement provided its preliminary findings and analyses concerning Dr. Silkman in a twenty-nine-page letter with 176 footnotes, and initially gave Mr. Silkman two weeks to respond. DSMF ¶ 27; PRDSMF ¶ 27. Enforcement staff later extended the response date an additional seventeen days, until May 20, 2010.[30] Id. Enforcement's preliminary findings and analyses concerning Dr. Silkman were virtually identical to Enforcement's preliminary findings and analyses concerning CES and did not directly respond to any factual or legal argument in the thirty-page response CES previously submitted.[31] DSMF ¶ 28; PRDSMF ¶ 28. FERC's corporate designee was not aware of any substantive fact or substantive conclusion that was changed in light of the thirty-page response CES previously submitted.[32] DSMF ¶ 29; PRDSMF ¶ 29. FERC's corporate designee was not aware of any substantive conclusion of Enforcement's preliminary findings and analyses concerning Dr. Silkman that was changed in light of the thirty-page response CES previously submitted.[33] DSMF ¶ 30; PRDSMF ¶ 30.

         On April 26, 2010, Enforcement informed Respondents for the first time that Rumford's “enrolling participant, ” Constellation, had changed its response to a data request concerning a meeting between Constellation and Respondents. DSMF ¶ 31; PRDSMF ¶ 31. Constellation had changed its answer from an answer that had originally been exculpatory for the Respondents to an answer now inculpatory, which attempted to deflect responsibility from Constellation to the Respondents.[34] DSMF ¶ 32; PRDSMF ¶ 32.

         On April 29, 2010, Enforcement proposed to disclose what it deemed to be additional relevant depositions, affidavits, and data responses of Constellation to Dr. Silkman and Mark Isaacson of CES, and to Respondents' counsel, provided that they agreed not to disclose the information to anyone else.[35] DSMF ¶ 33; PRDSMF ¶ 33. On May 20, 2010, Dr. Silkman responded to Enforcement's preliminary findings and analyses concerning Dr. Silkman in a thirty-four-page, single-spaced letter. DSMF ¶ 34; PRDSMF ¶ 34.

         d. Settlement Negotiations

         In May 2010, pursuant to Commission regulations, Enforcement had a closed meeting with a quorum of the FERC Commissioners outside the presence of the Respondents and their counsel in which Enforcement's investigation of the Respondents was discussed.[36] DSMF ¶ 35; PRDSMF ¶ 35. On November 15, 2010, The Petitioner denies the Respondents' paragraph 32, stating that “the statements and assertions of ‘fact' in the Brann Declaration and in Respondents' SMF ¶ 32 as unsupported by admissible record evidence.” The Court agrees with the Petitioner that portions of the Respondents' paragraph 32 put forth legal arguments in the guise of statements of fact. Also, the views of Respondents' counsel about the timing of disclosure are not material to the undisputed facts undergirding the resolution of this motion. The Court grants the Petitioner's denial and removes the impermissible legal argument from the Respondents' paragraph 32. Enforcement served additional data requests on CES, initially giving CES two weeks to respond.[37] DSMF ¶ 36; PRDSMF ¶ 36. Other than considering Dr. Silkman's response to the data requests and sending a new data request, FERC's corporate designee was either not aware of or unable to reveal anything else that Enforcement did as part of its investigation between May and November 2010 without violating attorney-client privilege.[38] DSMF ¶ 37; PRDSMF ¶ 37. Whether to do anything during that period, as well as during the entire investigation, was up to Enforcement. DSMF ¶ 38; PRDSMF ¶ 38.

         Between November 2010 and March 2013, i.e., both before and after FERC issued its Orders to Show Cause in July 2012, Enforcement communicated with FERC Commissioners and their staff outside the presence of the Respondents or their counsel concerning a possible settlement with Rumford regarding Rumford's participation in the DALRP.[39] DSMF ¶ 39; PRDSMF ¶ 39. In this action, FERC withheld the communications between Enforcement and FERC Commissioners and their staff outside the presence of the Respondents or their counsel concerning a possible settlement with Rumford between November 2010 and March 2013 on the grounds of attorney-client privilege, among other reasons. DSMF ¶ 40; PRDSMF ¶ 40. FERC produced to the Respondents a privilege log describing those communications pursuant to Magistrate Judge Nivison's September 8, 2017 Order on Discovery Issues (ECF No. 117).[40] Id. The same lawyers from Enforcement who communicated between November 2010 and March 2013 with the FERC Commissioners and their staff outside the presence of the Respondents or their counsel concerning a possible settlement with Rumford were conducting the investigation of the Respondents. DSMF ¶ 41; PRDSMF ¶ 41.

         In February 2011, Enforcement made a settlement proposal orally to Respondents' counsel at a meeting in Washington, D.C. DSMF ¶ 42; PRDSMF ¶ 42. On March 11, 2011, the Respondents requested seven categories of material not previously disclosed in order to respond to Enforcement's settlement proposal, including a deposition of Rumford's expert; all communications with and data provided by Constellation; all communications with and data provided by ISO-NE; all other information considered, evaluated, or relied upon by FERC to assess the claims against the Respondents; and the methodology behind its settlement proposal. DSMF ¶ 43; PRDSMF ¶ 43. On March 31, 2011, Enforcement responded to the Respondents' request, declining to produce such additional information because it “does not believe that further disclosures of non-public investigative information are warranted, ” DSMF, Attach 1., FERC Dep. Ex. 18, (ECF No. 136-16), given the Commission's disclosure policies, the fact that the Commission already provided CES and Dr. Silkman copies of all documents the Commission relied upon for their preliminary conclusions, and that the Commission had already provided CES and Dr. Silkman all potentially exculpatory material consistent with longstanding Commission practice. DSMF ¶ 44; PRDSMF ¶ 44. Additionally, in a letter sent to Respondents' counsel on May 9, 2011, Enforcement staff provided a detailed explanation of its calculation of the proposed penalties against CES and Dr. Silkman that formed the basis of its settlement proposal.[41] Id. Enforcement determines whether to provide information in the possession of Enforcement staff to the subject of an investigation based on the law, the Commission's regulations, policy statements, and statutes governing the confidentiality of information gathered during investigations.[42] DSMF ¶ 45; PRDSMF ¶ 45.

         On April 26, 2011, the Respondents submitted an eight-page response to FERC's oral settlement proposal. DSMF ¶ 46; PRDSMF ¶ 46. On May 9, 2011, Enforcement rejected the Respondents' settlement proposal, did not make a counterproposal, and initially gave the Respondents two days to submit a revised settlement proposal. DSMF ¶ 47; PRDSMF ¶ 47. On May 9, 2011, Enforcement staff sent an email and attached letter to Respondents' counsel, which stated “[w]e carefully considered your response, but disagree with your analysis, ” and provided an explanation of the Commission's Penalty Guidelines and Enforcement's calculations of the proposed penalties articulated during the February 2011 settlement conference.[43] Id. The Respondents' counsel stated in an email to Enforcement staff on May 9, 2011 that he would be meeting with his clients on May 11, and that he anticipated getting back to Enforcement staff on May 12. Id. Enforcement staff responded by email and agreed to delay any further action until after the close of business on May 12, 2011. Id. On May 12, 2011, the Respondents responded to Enforcement's settlement letter but did not make a revised settlement proposal or accept Enforcement's prior unchanged settlement demand. DSMF ¶ 48; PRDSMF ¶ 48. On May 13, 2011, Enforcement responded to the Respondents' settlement letter, stating: “[i]t appears at this time that we will be unable to reach a settlement regarding this matter.”[44] DSMF ¶ 49; PRDSMF ¶ 49. In the same letter, Enforcement informed the Respondents that their “preliminary conclusions have not materially changed” and it intended to recommend that FERC issue Orders to Show Cause but allowed the Respondents to submit a response to Enforcement. DSMF ¶ 51; PRDSMF ¶ 51.

         On June 27, 2011, CES and Dr. Silkman submitted a joint seventy-nine-page response to Enforcement's 1b.19 Letters. DSMF ¶ 52; PRDSMF ¶ 52. As required by 18 C.F.R. § 1b.19, Enforcement submitted the Respondents' response to the Commission together with Enforcement staff's report and recommendation that the Commission initiate adversarial on-the-record order-to-show-cause proceedings against the Respondents. In their 1b.19 response, which Enforcement staff provided to the Commission, the Respondents restated the settlement positions they asserted in the April 26, 2011 letter.[45] DSMF ¶ 50; PRDSMF ¶ 50.

         e. Orders to Show Cause

         On February 16, 2012, Enforcement submitted drafts of FERC's Orders to Show Cause and Enforcement's Reports concerning the Respondents to FERC Chairman Wellinghoff's Chief of Staff, which have been withheld in this litigation on the grounds of attorney-client privilege, among other reasons.[46] DSMF ¶ 53; PRDSMF ¶ 53. Enforcement did not provide its reports to the Respondents when Enforcement submitted them to the FERC Commissioners and did not disclose what specific evidence it provided the FERC Commissioners. DSMF ¶ 54; PRDSMF ¶ 54. There is no entry on FERC's privilege log that indicates that when Enforcement submitted the draft Orders to Show Cause and Enforcement's Reports concerning the Respondents to the FERC Commissioners and their staff, but Enforcement conveyed to the FERC Commissioners or their staff the Respondents' seventy-nine-page response concerning Enforcement's intention to recommend that FERC issue Orders to Show Cause.[47] DSMF ¶ 55; PRDSMF ¶ 55.

         Between February 16, 2012, when Enforcement submitted drafts of FERC's Orders to Show Cause and Enforcement's Reports concerning the Respondents to the Chairman Wellinghoff's Chief of Staff, and July 17, 2012, when FERC issued the Orders to Show Cause and Reports, there were written communications between Enforcement and the Commission and the FERC Office of the Secretary outside the presence of the Respondents and their counsel that have been withheld in this litigation on the grounds of attorney-client privilege, among other reasons.[48] DSMF ¶ 56; PRDSMF ¶ 56. The FERC corporate designee was instructed not to answer whether he knew if the FERC Commissioners made any changes to the draft Orders or Reports submitted by Enforcement to them.[49] DSMF ¶ 57; PRDSMF ¶ 57.

         On July 17, 2012, FERC issued a four-page Order to Show Cause against Dr. Silkman, which attached Enforcement's thirty-one-page report that “describes the background of [Enforcement's] investigation, findings and analysis, and proposed sanctions.” DSMF ¶ 58; PRDSMF ¶ 58. FERC initially gave the Respondents thirty days to respond to the Order to Show Cause, and to “elect (a) administrative hearing before an ALJ at the Commission [‘Option 1'] or (b) if the Commission finds a violation, an immediate penalty assessment by the Commission which a United States district court is authorized to review de novo [‘Option 2'].” Id. On the same day, FERC issued a four-page Order to Show Cause against CES, which attached Enforcement's thirty-one-page Report that “describes the background of [Enforcement's] investigation, findings and analysis, and proposed sanctions.” DSMF ¶ 59; PRDSMF ¶ 59.

         FERC initially gave the Respondents thirty days to respond to the Orders to Show Cause, and to “elect (a) administrative hearing before an ALJ at the Commission [‘Option 1'] or (b) if the Commission finds a violation, an immediate penalty assessment by the Commission which a United States district court is authorized to review de novo [‘Option 2']. DSMF ¶ 59; PRDSMF ¶ 59. Neither FERC nor Enforcement ever made statements to the Respondents concerning the two options other than what was contained in the Orders to Show Cause. DSMF ¶ 60; PRDSMF ¶ 60. In other words, neither FERC nor Enforcement ever stated to the Respondents that they could only get discovery or a hearing if they selected Option 1, or that Option 2 was an “informal adjudication, ” an “administrative penalty assessment process, ” or a “show cause proceeding” being conducted by FERC. Id.

         At the same time, the statutes and regulations applying to contested on-the-record show cause proceedings are publicly available and were available to the Respondents. Id. The Proposed Penalty Orders expressly stated that Respondents could “elect (a) an administrative hearing before an ALJ at the Commission or (b) if the Commission finds a violation, an immediate penalty assessment by the Commission which a United States district court is authorized to review de novo.” Id. That a proceeding before the Commission would be different than a proceeding before an ALJ is apparent both from the language of the Proposed Penalty Orders issued to Respondents on July 17, 2012 (“if the Commission finds a violation, an immediate penalty assessment” by a Commission “order assessing a penalty”) and the governing statute, which provides for a “prompt assessment” by Commission “order” if a violation is found without mention of discovery or a live hearing.[50] Id.

         On July 27, 2012, Enforcement provided the Respondents with additional information “specifically referenced” in Enforcement's Report and Recommendation to FERC that had not been previously provided to the Respondents. DSMF ¶ 61; PRDSMF ¶ 61. That same day, the Respondents filed a written election of option two-to have an immediate penalty assessment by FERC if it found a violation- which a district court could then review de novo. DSMF ¶ 62; PRDSMF ¶ 62.

         On September 14, 2012, the Respondents submitted their written response to the Orders to Show Cause.[51] DSMF ¶ 63; PRDSMF ¶ 63. On November 13, 2012, Enforcement filed a reply with FERC to the Respondents' response to the Orders to Show Cause, the last filing before FERC issued the Orders Assessing Penalties.[52] DSMF ¶ 64; PRDSMF ¶ 64. On November 14, 2012, Enforcement provided the Respondents with additional information “specifically referenced” in Enforcement's Reply that had not been previously provided to the Respondents. DSMF ¶ 65; PRDSMF ¶ 65.

         Other than these written submissions, there were no communications to or from FERC and the Respondents after FERC issued the Orders to Show Cause until FERC issued its Orders Assessing Penalties. DSMF ¶ 66; PRDSMF ¶ 66. Other than making its written declaration of Option 2 and submitting a written response to the Orders to Show Cause, the Respondents did not participate in any proceeding after FERC issued the Orders to Show Cause.[53] DSMF ¶ 67; PRDSMF ¶ 67. After FERC issued Orders to Show Cause, the Respondents were not automatically entitled to obtain or conduct discovery; however, the Respondents could have made a request for discovery to the Commission via motion, pursuant to the Commission's Rules of Practice and Procedure, 18. C.F.R. Part 385.[54] DSMF ¶ 68; PRDSMF ¶ 68. During the investigation and the Order to Show Cause Proceedings, the Respondents did not take any depositions, although defense counsel was permitted to ask questions of Dr. Silkman when Enforcement took his deposition.[55] DSMF ¶ 84; PRDSMF ¶ 84. FERC and Enforcement did not conduct additional fact-finding after FERC issued the Orders to Show Cause.[56] DSMF ¶ 69; PRDSMF ¶ 69. Subsequently, the Commission conducted additional fact-finding after FERC issued Orders to Show Cause cited by FERC in the Orders Assessing Penalties.[57] Id. There was no live hearing, as opposed to a paper hearing, conducted before the FERC Commissioners or a decisionmaker who in the Respondents' view was neutral and impartial either before or after FERC issued Orders to Show Cause concerning the merits of the allegations against the Respondents.[58] DSMF ¶ 70; PRDSMF ¶ 70. The Respondents were not permitted to meet ex parte with the FERC Commissioners and their staff concerning the merits of the claims asserted against Respondents after the commencement of the order-to-show-cause proceedings as the Commission's regulations prohibit any party to a contested on-the-record proceeding, including an order-to-show-cause proceeding, from engaging in ex parte contacts with the Commission.[59] DSMF ¶ 71; PRDSMF ¶ 71.

         In their written submissions, the Respondents could only cite evidence from the investigation that had been developed by Enforcement to prosecute the case against the Respondents and that had been disclosed by Enforcement, and could only cite answers to deposition questions asked by Enforcement outside the presence of the Respondents or their counsel or witnesses who had incentive to deflect responsibility from themselves to the Respondents.[60] DSMF ¶ 72; PRDSMF ¶ 72.[61]

         f. Orders Assessing Penalties

         On August 29, 2013, FERC issued Orders Assessing Penalties against the Respondents. DSMF ¶ 74; PRDSMF ¶ 74. FERC had control over its docket and could decide how long to take to issue a decision, and thus it was within its control whether to take over a year from July 17, 2012, when FERC issued the Orders to Show Cause, until August 29, 2013, when FERC issued the Orders Assessing Penalties. DSMF ¶ 75; PRDSMF ¶ 75. During that period, the Respondents and Enforcement each moved for an enlargement of time of approximately thirty days, and each extension was granted by the Commission.[62] Id. Other than requesting and receiving additional time to respond to Enforcement's Preliminary Findings and Proposed Penalty Orders, the Respondents did not have any control or input over when FERC issued its Orders Assessing Penalties, or when FERC issued its earlier Orders to Show Cause, or when Enforcement issued its earlier preliminary findings and conclusions, or when Enforcement recommended to FERC that it issue its Orders to Show Cause.[63] DSMF ¶ 76; PRDSMF ¶ 76.

         Enforcement did not provide the Respondents with all the information it obtained as part of its investigation of the Respondents before FERC issued the Orders Assessing Penalties.[64] DSMF ¶ 77; PRDSMF ¶ 77. Although the Respondents could have requested discovery, the Respondents did not have the right to conduct discovery at any point prior to the time FERC issued the Orders Assessing Penalties.[65] DSMF ¶ 78; PRDSMF ¶ 78. Although the Respondents could have requested discovery, the Respondents also did not have the right to serve document requests on FERC or to compel Enforcement to disclose what it had obtained as part of its investigation at any time before FERC issued the Orders Assessing Penalties.[66]DSMF ¶ 79; PRDSMF ¶ 79. Both before and after FERC issued its Orders to Show Cause, the Respondents did not serve any interrogatories on FERC.[67] DSMF ¶ 80; PRDSMF ¶ 80. Although the Respondents could have requested discovery, the Respondents did not have the right to serve interrogatories on FERC at any time before FERC issued the Orders Assessing Penalties.[68] DSMF ¶ 81; PRDSMF ¶ 81. Although the Respondents could have requested discovery, they did not have the right to serve third party subpoenas at any time before FERC issued the Orders Assessing Penalties.[69] DSMF ¶ 82; PRDSMF ¶ 82. Although the Respondents could have requested discovery, the Respondents did not have the right to compel the production or preservation of any documents from any third parties at any time before FERC issued the Orders Assessing Penalties.[70] DSMF ¶ 83; PRDSMF ¶ 83. The Respondents did not have the right to notice testimony of any third-party witness at any time before FERC issued the Orders Assessing Penalties.[71] DSMF ¶ 85; PRDSMF ¶ 85. Although the Respondents could have requested discovery, the Respondents did not have the right to compel testimony or an interview with any third-party witness before FERC issued the Orders Assessing Penalties.[72] DSMF ¶ 86; PRDSMF ¶ 86.

         In or around February 2009, Enforcement staff requested the testimony of Dr. Richard Silkman in its investigations of certain DALRP participants. PSAMF ¶ 2; DRPSAMF ¶ 2. Enforcement staff could have compelled Dr. Silkman's testimony only after (a) receiving the Commission's authorization to convert its investigation to formal status under 18 C.F.R. § 1b.5, (b) issuing a subpoena for Dr. Silkman's testimony, and (c) if Dr. Silkman refused to comply with the subpoena, successfully seeking to have the subpoena enforced by a federal judge, 18 C.F.R. § 1b.15, none of which FERC Enforcement staff did in this instance. Id. The Commission was neither asked to pay, nor paid, Dr. Silkman's travel expenses in appearing to testify. Id. FERC Enforcement set the location for the deposition in Washington, D.C., rather than Maine, and then informed Dr. Silkman's counsel on several occasions that the Defendants' “cooperation” would be taken into account in determining how to proceed.[73] Id.

         The Respondents produced in discovery in this litigation a joint defense agreement entered into between CES and Rumford effective March 19, 2009, concerning FERC's investigation of Rumford's participation in the ISO-NE DALRP. PSAMF ¶ 3; DRPSAMF ¶ 3.

         Dr. Silkman provided draft answers to Rumford or its counsel to data requests served on Rumford by Enforcement staff during Enforcement's investigation of Rumford's participation in the DALRP.[74] PSAMF ¶ 4; DRPSAMF ¶ 4.

         Although the Respondents question whether the so-called preliminary findings were in fact preliminary, Enforcement staff sent a Preliminary Findings Letter to CES on November 23, 2009, explaining Enforcement's preliminary conclusion that CES had committed fraud in violation of the Commission's Anti-Manipulation Rule, as well as the factual and legal bases for this conclusion.[75] PSAMF ¶ 5; DRPSAMF ¶ 5. In the letter, Enforcement staff initially asked for a response within three weeks from the date of the letter. Id. Enforcement staff subsequently provided CES additional time, until January 8, 2012, to respond to the November 23, 2009 Preliminary Findings Letter to CES. Id.

         Again, although the Respondents question whether the so-called preliminary findings were in fact preliminary, Enforcement staff sent a Preliminary Findings Letter to Dr. Silkman on April 19, 2010, explaining Enforcement's preliminary conclusion that Dr. Silkman had committed fraud in violation of the Commission's Anti-Manipulation Rule, as well as the factual and legal bases for this conclusion. PSAMF ¶ 6; DRPSAMF ¶ 6. In the letter, Enforcement staff initially asked for a response by May 3, 2010. Enforcement staff subsequently provided Dr. Silkman with additional time, until May 20, 2010, to respond to the April 19, 2010 Preliminary Findings Letter to Dr. Silkman. Id.

         As stated in the May 2008 Policy Statement on Enforcement, the purpose of preliminary findings issued by Enforcement staff is to allow the subject of an investigation to understand Enforcement staff's position and to provide an opportunity for the subject to respond with argument or evidence if it believes Enforcement staff's position is incorrect, thereby allowing Enforcement staff to change its position before reaching its final conclusions should they be persuaded by the subject's response.[76] PSAMF ¶ 7; DRPSAMF ¶ 7.

         On April 29, 2010, Enforcement staff sent Respondents' counsel a letter that was later countersigned by the Respondents and their counsel, which, in part, stated: (a) “Staff believes that disclosure of certain documents will facilitate CES's understating of the investigation and Constellation NewEnergy, Inc.'s (CNE) purported knowledge of Rumford's baseline period generation curtailment, ” (b) “However, all of the information was obtained as part of a non-public investigation and the information is confidential in nature under section 1b.9 of the Commission's regulations. 18 C.F.R. § 1b.9 (2009), ” (c), “CNE also believes that the information includes non-public and confidential commercial information, ” (d) “Nevertheless, Enforcement has obtained permission from CNE and counsel to Ms. Amy Richard, Mr. Peter Kelly-Detwiler, and Mr. Bruce McLeish to release relevant portions of all deposition transcripts and affidavits of CNE employees as well as other narrative data request responses from CNE involving CNE's knowledge of Rumford's operations, subject to the restrictions in this letter, ” and (e),

In order to maintain the non-public nature of this investigation and the materials obtained as part of the investigation, we will require CES to agree that these documents, and this letter, will be used only by the CES attorneys working on this matter, and, for purposes of review, shown only to fellow signatories to the attachment.

PSAMF ¶ 8; DRPSAMF ¶ 8. The letter contained signature lines for Dr. Silkman, Mark Isaacson, Attorney Brann, and any Brann & Isaacson attorneys or employees working on the matter. Id. Respondents' counsel could have asked that other signatories be added to the letter. Id. The letter stated that both the documents and the letter “will be used only by the CES attorneys working on this matter, ” and that “[a]t no time shall CES or the other signatories to the attachment permit further dissemination of these documents, including to any other subject of the investigation. Id. The letter only came after the Respondents specifically requested that principals of CES and co-counsel be permitted to see the materials FERC had initially forbidden them to see.[77] Id.

         On November 15, 2010, Enforcement staff served a second set of data requests on CES via counsel for CES. The second set of data requests consisted of five request items and asked for a response by November 29, 2010. PSAMF ¶ 9; DRPSAMF ¶ 9. CES, through counsel, provided a four-page written response to the second set of data request on November 29, 2010. Id. In addition, certain attachments to the response were sent on disk and received by Enforcement staff on December 1, 2010. Id.

         The Commission issued an Order to Show Cause and Notice of Proposed Penalty to Rumford on July 17, 2012 and commenced a proceeding against Rumford.[78]PSAMF ¶ 10; DRPSAMF ¶ 10. In accordance with the Commission's Separation of Function Rule, 18 C.F.R. § 385.2202, and the Commission's ex parte rule, 18 C.F.R. § 385.2201, following issuance of the Order to Show Cause and Notice of Proposed Penalty to Rumford, the Commission issued a notice in the docketed proceeding on July 26, 2012 identifying decisional and non-decisional staff. PSAMF ¶ 11; DRPSAMF ¶ 11.

         On September 6, 2012, Enforcement staff who participated in the investigation of Rumford and received a settlement offer from Rumford obtained a written waiver from Rumford of the provisions of 18 C.F.R. § 385.2202 and 18 C.F.R. § 385.2201 to consult with the Commission and Commission decisional staff for purposes of exploring potential settlement with Rumford.[79] PSAMF ¶ 12; DRPSAMF ¶ 12. Enforcement staff neither asked for or received waivers from Respondents to engage in what Respondents view as ex parte discussions with the FERC Commissioners regarding Rumford's DALRP participation, an issue that the Respondents view as being at the heart of the pending claims against them. Id.

         Although Respondents believe otherwise, consistent with the Commission's Policy Statement on Disclosure of Exculpatory Materials, 129 FERC ¶ 61, 248 (2009), Enforcement staff provides subjects of Enforcement investigations under Part 1b of the Commission's regulations with all potentially exculpatory materials obtained during Enforcement's investigation.[80] PSAMF ¶ 13; DRPSAMF ¶ 13.

         Enforcement staff submitted to the Commission in paper form Enforcement's Staff Report and Recommendations together with Respondents' joint seventy-nine-page written response provided by Respondents to Enforcement staff pursuant to 18 C.F.R. § 1b.19.[81] PSAMF ¶ 14; DRPSAMF ¶ 14.

         B. Statement of Facts: FERC's Partial Motion for Summary Judgment

         1. Organization, Powers, and Rulemaking Authority

         The Commission is an administrative agency of the United States, organized and existing as an independent, bipartisan Commission. PSMF ¶ 1; DRPSMF ¶ 1. A majority of the Commission determines its actions, with three members of the Commission constituting a quorum for the transaction of business.[82] PSMF ¶ 2; DRPSMF ¶ 2. The Federal Power Act (FPA) §§ 307 et seq. authorizes the Commission to conduct investigations. PSMF ¶ 3; DRPSMF ¶ 3. Section 307(a) provides that “[t]he Commission may permit any person, electric utility, transmitting utility, or other entity to file with it a statement in writing under oath or otherwise, as it shall determine, as to any or all facts and circumstances concerning a matter which may be the subject of investigation.” PSMF ¶ 4; DRPSMF ¶ 4. FPA § 307(b) provides that:

For the purpose of any investigation or any other proceeding under this Act, any member of the Commission, or any officer designated by it, is empowered to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, contracts, agreements, or other records which the Commission finds relevant or material to the inquiry.

PSMF ¶ 5; DRPSMF ¶ 5. Section 308 authorizes the Commission to conduct hearings but does not require the Commission to do so, and no hearing was conducted in this case.[83] PSMF ¶ 6; DRPSMF ¶ 6.

         Congress described the Commission's authority:

In carrying out any of its functions, the Commission shall have the powers authorized by the law under which such function is exercised to hold hearings, sign and issue subpoenas, and receive evidence at any place in the United States it may designate The Commission may, by one or more of its members or by such agents as it may designate, conduct any hearing or other injury necessary or appropriate to its functions, except that nothing in this subsection shall be deemed to supersede the provisions of section 556 of title 5 relating to hearing examiners.

42 U.S.C. §7171(g) (2012). PSMF ¶ 7; DRPSMF ¶ 7.

         FPA § 308(b) requires that:

All hearings, investigations, and proceedings under this Act shall be governed by rules of practice and procedure to be adopted by the Commission, and in the conduct thereof the technical rules of evidence need not be applied. No. informality in any hearing, investigation, or proceeding or in any manner of taking testimony shall invalidate any order, decision, rule, or regulation issued under the authority of this chapter.[84]

16 U.S.C. § 825g(b) (2012). PSMF ¶ 8; DRPSMF ¶ 8.

         FPA § 309 further grants the Commission:

The power to perform any and all acts, and to prescribe, issue, make, amend, and rescind such orders, rules, and regulations as it may find necessary or appropriate to carry out the provisions of this chapter. Among other things, such rules and regulations may define accounting, technical, and trade terms used in this Act; and may prescribe the form or forms of all statements, declarations, applications, and reports to be filed with the Commission, the information they contain, and the time within which they shall be filed. Unless a different date is specified therein, rules and regulations of the Commission shall be effective thirty days after publication in the manner which the Commission shall prescribe. Orders of the Commission shall be effective on the date and in the manner which the Commission shall prescribe.[85]

16 U.S.C. § 825h (2012). PSMF ¶ 9; DRPSMF ¶ 9.

         Congress provided the Commission with the authority to establish rules and procedures:

The Commission is authorized to establish such procedural and administrative rules as are necessary to the exercise of its functions. Until changed by the Commission, any procedural and administrative rules applicable to particular functions over which the Commission has jurisdiction shall continue in effect with respect to such particular functions.

42 U.S.C. § 7171. PSMF ¶ 10; DRPSMF ¶ 10. The Commission codified Rules Relating to Investigations at 18 C.F.R. Part 1b and Rules of Practice and Procedure at 18 C.F.R. Part 385. PSMF ¶ 11; DRPSMF ¶ 11.

         2. Civil Penalty Authority

         FPA § 316A authorizes the Commission to levy civil penalties for violations of Part II of the Act-which includes the prohibition of energy market manipulation, § 222, 16 U.S.C. § 824v(a)-or “of any rule or order thereunder.” 16 U.S.C. § 825o-1 (2012).[86] PSMF ¶ 12; DRPSMF ¶ 12. The FPA requires that the Commission assess such penalties, after “notice and opportunity for public hearing, in accordance with the same provisions as are applicable under section 823b(d) in the case of civil penalties assessed under section 823b.”[87] PSMF ¶ 13; DRPSMF ¶ 13. FPA § 31(d) sets out two applicable provisions, or paths that the proceeding can take at the election of the respondent: (1) the “default” procedure enunciated in § 31(d)(2), under which the Commission shall provide a hearing before an ALJ, or (2) an alternative process under § 31(d)(3), whereby the Commission shall assess a penalty, and then institute an action in the appropriate U.S. district court for an order of affirmance, during which resulting proceeding the district court is able to review de novo the law and facts involved.[88] 16 U.S.C. § 823b(d)(1) (2012). PSMF ¶ 14; DRPSMF ¶ 14. Regardless of whether a respondent elects the procedures under § 31(d)(2) or under § 31(d)(3), the Commission is required by statute to assess a penalty “by order.” 16 U.S.C. §§ 823b(d)(2)(A) & 823b(d)(3)(A). PSMF ¶ 15; DRPSMF ¶ 15.

         When assessing and imposing penalties, the Commission must consider and apply statutorily-prescribed criteria, namely, “the seriousness of the violation and the efforts of such person to remedy the violation in a timely manner.”[89] PSMF ¶ 16 (quoting 16 U.S.C. § 825o-1(b)(2012)); DRPSMF ¶ 16. If a civil penalty has not been paid within 60 calendar days after an order assessing the civil penalty has been made under § 31(d)(3)(A), “the Commission shall institute an action in the appropriate district court of the United States for an order affirming the assessment of the civil penalty. The court shall have authority to review de novo the law and the facts involved, and shall have jurisdiction to enter a judgment enforcing, modifying, and enforcing as so modified, or setting aside in whole or in [p]art such assessment.”[90]PSMF ¶ 17 (quoting 16 U.S.C. § 823b(d)(3)(B)); DRPSMF ¶ 17. Pursuant to the FPA, this Court has authority to “review de novo the law and the facts involved and . . . jurisdiction to enter a judgment enforcing, modifying, and enforcing as so modified, or setting aside in whole or in [p]art, such assessment.” Id. PSMF ¶ 18 (quoting 16 U.S.C. § 823b(d)(3)(B)(2012)); DRPSMF ¶ 18.

         3. Commission Regulations Regarding Investigations

         The Commission's rules relating to investigations are set forth in Part 1b of the Commission's regulations. PSMF ¶ 19; DRPSMF ¶ 19. Enforcement is authorized to initiate and conduct investigations relating to any matter subject to the Commission's jurisdiction. PSMF ¶ 20 (citing 18 C.F.R. § 1b.3 (2008) & 18 C.F.R. § 375.311 (2008)); DRPSMF ¶ 20. Section 1b.7 of the Commission's regulations provides:

Where it appears that there has been or may be a violation of any of the provisions of the acts administered by the Commission or the rules, opinions or orders thereunder, the Commission may institute administrative proceedings, initiate injunctive proceedings in the courts, refer matters, where appropriate, to the other governmental authorities, or take other appropriate action.

PSMF ¶ 21 (quoting 18 C.F.R. § 1b.7 (2012)); DRPSMF ¶ 21. All information and documents received during an investigation, as well as the existence of an investigation, are treated by regulation as non-public and confidential, “except to the extent that (a) the Commission directs or authorizes the public disclosure of the investigation; (b) the information or documents are made a matter of public record during the course of an adjudicatory proceeding; or (c) disclosure is required by the Freedom of Information Act, 5 U.S.C. 552.” PSMF ¶ 22 (quoting 18 C.F.R. § 1b.9 (2008)); DRPSMF ¶ 22.

         The Commission's regulations provide: “There are no parties, as that term is used in adjudicative proceedings, in an investigation under this part and no person may intervene or participate as a matter of right in any investigation under this part.” PSMF ¶ 23 (quoting 18 C.F.R. § 1b.11 (2008)); DRPSMF ¶ 23. Section 1b.16 of the Commission's regulations addresses the rights of witnesses during an investigation. Id. This section provides that a witness or subject of an investigation may be accompanied, represented, and advised by counsel. Id. However, 18 C.F.R. §1b.16(c)(4) states:

The Investigating Officer shall take all necessary action to regulate the course of the proceeding to avoid delay and prevent or restrain obstructionist or contumacious conduct or contemptuous language. Such officer may report to the Commission any instances where an attorney or representative has refused to comply with his directions, or has engaged in obstructionist or contumacious conduct or has used contemptuous language in the course of the proceeding. The Commission may thereupon take such further action as the circumstances may warrant, including suspension or disbarment of counsel from further appearance or practice before it, in accordance with § 385.2101 of this chapter, or exclusion from further participation in the particular investigation.

18 C.F.R. § 1b.16 also requires the sequestration of witnesses during an investigation. It further states that “[n]o witness or the counsel accompanying any such witness shall be permitted to be present during the examination of any other witness called in such proceeding.”[91] PSMF ¶ 24; DRPSMF ¶ 24.

         The Commission's regulations provide that “[a]ny person may, at any time during the course of an investigation, submit documents, statements of facts or memoranda of law for the purpose of explaining said person's position or furnishing evidence which said person considers relevant regarding the matters under investigation.” PSMF ¶ 25; DRPSMF ¶ 25. The Commission noted in a May 2008 Policy Statement on Enforcement that the Commission's regulations allow the subject of an investigation to submit, in writing, any information or evidence directly to the Commissioners themselves at any time during the investigation. PSMF ¶ 26; DRPSMF ¶ 26. Neither the policy statement nor the rule regarding investigations places a page limit on such submissions nor requires any rules of evidence to apply. Id.

         If Enforcement preliminarily concludes that a subject committed a violation, Enforcement's practice pursuant to official Commission policy is to inform the subject of its preliminary conclusions, including both the relevant facts and legal theories, explain the evidence on which it relied, and invite the subject to respond.[92] PSMF ¶ 27; DRPSMF ¶ 27. If Enforcement determines to recommend to the Commission that an entity be made the subject of a proceedings governed by part 385 of this chapter, or that an entity be made a defendant in a civil action to be brought by the Commission, Enforcement shall, unless extraordinary circumstances make prompt Commission review necessary in order to prevent detriment to the public interest or irreparable harm, notify the entity that Enforcement intends to make such a recommendation.[93] PSMF ¶ 28; DRPSMF ¶ 28. As provided by § 1b.19, an enforcement subject may submit its own statement to Enforcement, in the form of a non-public response to the 1b.19 Letter, which “may consist of a statement of fact, argument, and/or memorandum of law, with such supporting documentation as the entity chooses.” PSAMF ¶ 29 (quoting 18 C.F.R. § 1b.19 (2011)); DRPSAMF ¶ 29. Enforcement is required to submit the subject's statement, if timely made, to the Commission together with Enforcement's recommendation. Id. Such statements from Enforcement subjects have no page limits and are subject to no rules of evidence.[94] Id.

         4. Commission Regulations Regarding Proceedings

         Sections 201 through 218 of Part 385 apply, inter alia, to any “pleading” or “order to show cause.” 18 C.F.R. § 385.201. PSMF ¶ 30; DRPSMF ¶ 30. Under the Commission's regulations, issuance of an Order to Show Cause commences a contested on-the-record proceeding, known as a “show cause proceeding, ” which is subject to the Commission's Rules of Practice and Procedure.[95] PSMF ¶ 31; DRPSMF ¶ 31. The Commission's regulations provide that the statement of matters set forth in an order to show cause “is tentative and sets forth issues to be considered by the Commission.” PSMF ¶ 32 (citing 18 C.F.R. § 385.209(b)(2012)); DRPSMF ¶ 32.

         Upon the initiation of a show cause proceeding, the Commission's Separation of Functions Rule requires that “no officer, employee, or agent assigned to work upon the proceeding or to assist in the trial thereof, in that or any factually related proceeding, shall participate or advise as to the findings, conclusion or decision, except as a witness or counsel in public proceedings.”[96] PSMF ¶ 33 (18 C.F.R. § 3985.2202 (2012)); DRPSMF ¶ 33. Upon the initiation of a show cause proceeding, the Commission's ex parte rule prohibits any off-the-record communications between (i) Commissioners and the staff that may advise them (decisional staff) and (ii) Enforcement prosecutorial staff involved in the investigation or show cause proceeding. PSMF ¶ 34 (citing 18 C.F.R. § 385.2201(c)(1)(i) (2012)); DRPSMF ¶ 34. However, the rule does not on its face preclude Enforcement from communicating with the Commission regarding related matters, which, in this case, included the settlement negotiations with Rumford concerning its participation in the DALRP, which is the subject of this action.[97] Id. Nor does the rule prohibit ex parte communications, so long as they are put “on the record, ” or prohibit FERC from making the record “non-public.” Id.

         A person who is ordered to show cause is required under the Commission's regulations to submit a formal answer.[98] PSMF ¶ 35; DRPSMF ¶ 35. The Commission's regulations require that an answer “[a]dmit or deny, specifically and in detail, each material allegation” and “[s]et forth every defense relied on” “to the extent practicable.”[99] PSMF ¶ 36; DRPSMF ¶ 36. The failure to submit an answer can give rise to a default judgment or summary disposition. PSMF ¶ 37; DRPSMF ¶ 37. An answer must also include “documents that support the facts in the answer in possession of, or otherwise attainable by, the respondent, including, but not limited to, contracts and affidavits.” PSMF ¶ 38; DRPSMF ¶ 38. Under the Commission's Rules of Practice and Procedure, a party to a contested on-the-record proceeding may file a motion for relief to the Commission at any time during the proceeding.[100] PSMF ¶ 39; DRPSMF ¶ 39.

         5. Enforcement's Investigation of Respondents

         Following a referral from ISO-NE's market monitoring unit, in March 2008, Enforcement commenced a non-public investigation pursuant to Part 1b of the Commission's regulations to determine whether certain market participants had engaged in fraudulent conduct in their participation in ISO-NE's DALRP.[101] PSMF ¶ 40; DRPSMF ¶ 40. Enforcement notified CES by letter dated August 1, 2009 that it commenced a non-public investigation of CES pursuant to Part 1b of the Commission's regulations concerning CES's conduct related to the DALRP. PSMF ¶ 41; DRPSMF ¶ 41. On February 26 and 27, 2009, Enforcement took investigative testimony of Dr. Richard Silkman as a witness in the investigation. PSMF ¶ 42; DRPSMF ¶ 42.

         In November 2009, Enforcement commenced an investigation of Dr. Silkman, individually, pursuant to Part 1b of the Commission's regulations of Dr. Silkman's conduct related to the DALRP, as memorialized in a November 4, 2009 letter sent to Dr. Silkman's counsel.[102] PSMF ¶ 43; DRPSMF ¶ 43. After CES and Dr. Silkman were identified as subjects of the investigation, Enforcement served data requests (the equivalent of interrogatories, requests for admission, and requests for production of documents) on CES and Dr. Silkman. PSMF ¶ 44; DRPSMF ¶ 44.

         On November 23, 2009, Enforcement staff sent CES a Preliminary Findings Letter explaining Enforcement's preliminary conclusion that CES had committed fraud in violation of the Commission's Anti-Manipulation Rule, 16 U.S.C. § 824v and 18 C.F.R. § 1c.2 (Anti-Manipulation Rule), as well as the factual and legal bases for this conclusion.[103] PSMF ¶ 45; DRPSMF ¶ 45. On December 1, 2009, Enforcement staff sent CES copies of the documents cited in the Preliminary Findings Letter to CES except publicly-available information and information already in the possession of CES.[104] PSMF ¶ 46; DRPSMF ¶ 46.

         On January 8, 2010, CES submitted a response to the Preliminary Findings Letter to CES. PSMF ¶ 47; DPRSMF ¶ 47. CES was not required to comply with any page limit nor any rules of evidence in drafting this ...


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