At the end of January, the EPA’s efforts to regulate ozone and fine particle were again frustrated, this time by the U.S. Court of Appeals for the D.C. Circuit’s decision not to reconsider its August 2012 remand of the Cross-State Air Pollution Rule (CSAPR).[1] This is just the latest in a series of setbacks for the EPA in its attempt to achieve the National Ambient Air Quality Standards (NAAQS) established under Clean Air Act (CAA) authority. It’s worth looking at how we got here before later considering potential next steps.

In 2005, the EPA issued the Clean Air Interstate Rule (CAIR) with the goal of reducing the amount of power plant emissions – originating in 27 eastern states – that drifted across state lines, specifically sulfur dioxide and nitrogen oxides. In 2008 however, that rule was first vacated and then remanded, with the U.S. Court of Appeals for the D.C. Circuit instructing the EPA to produce a replacement rule.[2] In response, the EPA proposed CSAPR in 2010 and finalized the rule in 2011, with a scheduled implementation date of January 1, 2012. CSAPR require twenty-seven eastern states to power plant emissions that contribute to ground level ozone and fine particle pollution across state lines. CAIR’s cap and trade system, which the U.S. Court of Appeals found to lack reasonable measures to ensure the abatement of unlawful emissions, remains in place until the EPA is able to produce a revised CSAPR rule.

Whereas CAIR was remanded for not doing enough to protect public health, CSAPR was ruled to be an overreach. In its August 2012 ruling, the Court of Appeals held that the EPA had gone beyond its statutory powers on two separate grounds. First, the court found that under CSAPR the EPA overstepped its jurisdiction in requiring states to reduce emissions beyond the level of pollution actual impacting neighboring states. The CAA enables the EPA to require a state to reduce its emissions that drift across state boundaries, but in remanding CAIR in 2008, the Court of Appeals specifically held that the EPA’s CAA authority could not be used to require larger reductions.[3] CSAPR was written in such a way that a state’s required contributions could be based on regional projections rather than on the amount produced by the individual state.[4] The court also faulted CSAPR for circumventing a state’s authority to develop its own emission reduction plan.[5]

The EPA now must decide whether to appeal the remand, and, more importantly, whether CSAPR is or ever was the correct approach. The EPA is still under court order to strengthen and replace CAIR, but the EPA has other alternatives to achieve its statutory goals. Other EPA rules, such as the one on Mercury and Air Toxics, will help to decrease many of the pollutants targeted by CSAPR and CAIR. Additionally, CSAPR was structured in such a way that reductions would be required based on cost rather than on a state’s production, which was a significant departure from CAIR’s model and led to the remand of the rule. Unfortunately, under current law the EPA is limited in its ability to require sufficient reductions when applying a cross-state rule such as CSAPR.

The federal implementation plans (FIPs) that CSAPR would have implemented to structure each regulated state’s emissions reduction are another subject that the EPA will have to evaluate. The Appeals Court held that instead the EPA should first defer to states and allow each to develop its own plan to reach the EPA-mandated goals. As a result, the EPA must find a way to both provide the necessary latitude for states to implement their own plans while also holding them accountable enough to avoid the same issues of lax enforcement plaguing CAIR.

How the EPA decides to satisfy its duties will be a critical question for the agency as it continues to actively engage the issues of public health and pollution.

 

Jeff Jay is a General Member of MJEAL.  He can be reached at jefjay@umich.edu.

 

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In President Obama’s first term in office, he made a bold promise to “usher in a new era of open government”[i] as he laid out his vision for increased transparency and accountability in the federal government. As part of his open government initiative, he directed federal agencies to make publicly available their daily operations and he crafted new guidelines for the Freedom of Information Act (FOIA).[ii] The government has made great strides towards pushing through this agenda, but many aspects of his bold promise remain unfulfilled. As Obama begins his final term in office, he needs to establish a second wave of momentum to push for increased governmental transparency.

Initiative:

Obama’s inaugural address in 2009 highlighted the need to do “business in the light of day.”[iii] He issued memos calling for government agencies to be more transparent and for FOIA to be administered with the presumption of openness. Obama’s initiative was further clarified in a White House directive that specified how agencies could fulfill the transparency requirement. He directed each federal agency to devise a public plan on how to increase their transparency, launch an open-government website, and make all data available on the new websites.

With regards to FOIA, Attorney General Eric Holder issued new guidelines to limit instances in which agencies could deny requests for government data and called on agencies to more efficiently respond to such requests.[iv] After a FOIA request is received, an agency has 20 working days to respond and must provide a reason for the denial of any request.

Assessment:

Per the Open Government Directive, agencies have largely met their obligations to create open government webpages and to develop plans that embrace transparency, public participation, and cooperation with other agencies.[v] However, there is a great deal of scrutiny regarding the quality of the government information available on the websites.

For instance, USASpending.gov reports on how agencies spend taxpayers’ money. Ellen Miller of the Sunlight Foundation said that the website consists of over “$1.2 trillion worth of misreported spending in 2009 alone.”[vi] The government has compiled and made data easy to find, with simple websites such as Grants.gov for federal grants and Recalls.gov for unsafe products. However, in order for the data to be useful in attempts to hold the government accountable, the data needs to be accurate. There have been numerous instances of discrepancies between website reporting and federal budget documents.[vii]

The Obama Administration launched FOIA.gov, which tracks data regarding agency responses to information requests. According to FOIA.gov, the backlog on requests has decreased from 130,419 in FY 2008 to 83,490 in FY 2011. While the data is now publicly accessible, there are still a significant number of backlogged requests and many inadequately explained denials.[viii]

A National Security Archive audit found that 62 of 99 agencies have not updated FOIA regulations since Holder’s 2009 memorandum.[ix] Moreover, there was a June 2012 Bloomberg study where a reporter requested executive travel information from 57 major federal agencies. Only eight of those agencies responded within the allocated 20-day period.[x]

Reform:

Obama has not addressed the initiative in his inaugural address or in any other public forum since the beginning of his second term. Obama needs to continue to make the open government initiative a priority on his agenda. Below are proposals that would strengthen Obama’s open government initiative and provide a solid foundation for future administrations:

(1)  Re-assert executive support for the Open Government Initiative

(2)  Follow up with agencies that have not complied with Holder’s 2009 memorandum

(3)  Assess progress in the first term and compile a list of “best practices” that agencies should adopt

(4)  Monitor agency FOIA exemptions and reduce agency use of discretionary withholdings[xi]

(5)  Establish a central body that can assess the accuracy of agency data and enforce compliance with FOIA requirements

(6)  Remove financial barriers to requesting information from the government

– Eric Merron is a general member of MJEAL. He can be reached at merron@umich.edu

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My last blog post was about a pipeline to carry fuel. I thought it would be interesting to keep the same pipeline theme going for my latest post, so I decided to write about another proposed pipeline. But this time around, it’s not about fuel. It’s about water.

The Colorado River is a precious water source for at least seven states,[i] 25 million people [ii] and 5.5 million acres of irrigation throughout and beyond the Colorado Basin.[iii] It is vital to the lives and livelihoods of many in this country, but it struggles to maintain sufficient water levels and is often the center of controversial water law issues. A new U.S. Department of the Interior’s Bureau of Reclamation Report, released in December 2012, has come up with a novel idea to maintain the water level of the river: it proposes to construct a 600-mile pipeline in order to pump water from the Missouri River into the struggling Colorado River.[iv] The amount of added water to the Colorado River system could contribute significantly to its recipients, and increase the quantity of water flow by adding supplies sufficient to support upwards of one million single family homes.[v]

While the report also includes some of the more common proposals you may expect, such as water conservation and limiting water consumption, the large project-based proposal is a more radical approach reminiscent of 20^th century attempts at water provision that have largely failed.[vi] Large projects have recently begun to resurface as viable options in the present day as mere conservation alone is becoming increasingly incapable of fixing systemic issues, such as ever-increasing demand.[vii] It is true that there was a time not so long ago when people thought that “the big dam era is over and that a central task of water policy is to stretch, reallocate and protect the quality of existing supplies of water,” but population growth and climate change have clearly frustrated these predictions.[viii] Now, the United States federal government, through its various administrative outlets, has been increasingly responding to water shortages with a recurring concept that science and engineering can fix problems too large for simple conservation strategies.[ix]

One of the most contentious issues about this particular pipeline – legally speaking – boils down to a question of federalism. Does the federal government reserve the right to construct and implement such a pipeline?  What about the water rights reserved to the states? The pipeline will be transporting water from Missouri, over the state of Kansas and into Colorado. From there it will be deposited into the Colorado River, feeding many more states downstream, and eventually ending up in Mexico. At the end of the Executive Summary of the Bureau of Reclamation’s Report, there is an explicit statement disclaiming the study’s imposition on any rights or entitlements reserved to the seven states of the Colorado Basin. Such an express repudiation presents strong evidence of the tense balance of power that exists between state and federal management systems with respect to water rights.[x] It’s not just the construction costs that are huge, but the political costs as well.[xi]

The American West has historically maintained a unique legal structure of water rights, especially as compared to the Eastern part of the country.[xii] In the West, state laws have consistently and historically dominated the legal landscape; these laws tended to regulate the “beneficial” use of water within state boundaries, leaving any surplus water in streams and rivers up for grabs on a first-come, first-served basis.[xiii] This type of market-based, individualized management was implemented because water shortage concerns in the 19^th century were very different from those of today; scarcity was recognized, but the need for government intervention was not yet seen as an appropriate solution.

While state authorities have historically maintained control over their water rights as an inherently state issue,[xiv] grandiose federal enactments such as the Clean Water Act, and Supreme Court decisions such as Cappaert v. United States, 426 U.S. 128 (S.Ct. 1976) (holding property rights reserved to the federal government include related water rights), have gradually infringed on state water rights.[xv] Acts and decisions such as these are supported by a federal power that can be traced back to the United States Constitution. Multiple references within the Constitution highlight federal supremacy over state rights, including the Commerce Clause (denoting federal power over navigable rivers) and the Property Rights Clause (denoting federal power of United States property, interpreted to include water on the property).[xvi] While under the Constitution the states retain a police power to regulate within their borders, the national government has been able to expand its regulation and infringe upon such regulations over the last half a decade. Indeed, laws governing rivers, lakes and groundwater especially have seen paradigmatic regulatory shifts.[xvii] One thing is clear, however: history has consistently reinforced the supremacy of public necessity over any private interests in water.[xviii] Yet the question remains whether such “public necessity” should be decided by the state government or the federal government.

On the one hand, precedence has often held in favor of a strong deference for state rights.[xix] Yet deference to states is not due to a complete lack of federal power. The federal government maintains the Constitutional and regulatory powers enumerated above to control states’ decisions. Even though the federal government has remained self-restrained when exercising these powers, there have also been very few instances in the water law history of the United States when any significant need has arisen.[xx] Remember that large water projects have been absent from the American legal scheme for many years. Historically, deference for state law has been subjugated to a few large federal projects – such as the Hoover Dam – in which the courts have held that federal directives take precedence over state interests.[xxi] It appears that we may be seeing a re-emergence of these large projects in the present day, after years of absence, which may lead to a new re-balancing of state and federal rights. The federal government has an arsenal from which to pull from in support of their ability to implement large-scale water projects in the Western United States.

However, states too have a large arsenal to pull from in support of their individual concerns. Even with the power of the federal government so delineated, it remains that deference to state water laws has been “high, but not absolute” throughout history.[xxii] The Hoover Dam, a primary example of a massive federal water project, was initially facilitated by a 1922 compact made between the seven downstream states. As recent evidence of this same deference, a 2003 report by the United States Department of the Interior called “Water 2025: Preventing Crises and Conflict in the West” explicitly called for state deference in any water-making decisions that may follow from the report.[xxiii] And this very report, discussing the Missouri River pipeline, has also made note of the state powers remaining reserved to the states. Given the proposed pipeline’s routing, the state of Missouri is especially likely to speak up for state deference; it will be feeling a pure loss of resources, and no gain, under this large-scale project. So too will the states who receive the downstream waters of the Missouri River, for they too have only to lose with this proposal. However, the fact that the Colorado Basin states have already formed a coalition to resolve water disputes is telling that at least those states directly connected to the Colorado River may be more amenable to federal guidance in the construction and implementation of such a pipeline.

Since 20/20 foresight does not exist, the legal balance of powers that will come into play if the pipeline is built remain to be seen. Will the federal government assert sufficient control, through Constitutional claims, Federal Acts or Supreme Court precedence, or will a few states sufficiently support their independent right to regulate water laws, as history has shown a consistent deference for? First we must see if the pipeline will even be implemented. But if it is implemented, we can be sure to look forward to a court case or two hinging on this inherently federalist question.

—–Alison Toivola is a general member of MJEAL.

 

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After losing more than a quarter of its population between 2010 and 2012[iii], Detroit has more than 200,000 vacant tracts that generate no significant tax revenue and cost money to maintain[iv]. The city has more vacant land than almost any other U.S. city[v] — an estimated 25[vi] to 40[vii] percent of the city’s 139 square miles. This vacant land often “blighted” with abandoned buildings and high unemployment and crime rates[viii]. On the other hand, urban agriculture can improve a neighborhood’s economic prosperity, health and safety, create a sense of community, and remove blight from the city’s vacant lots.[ix] As a result, Detroit Mayor David Bing has looked to urban farming to get the land off the city’s budget and into productive use[x].

One of the issues with urban farming in Detroit is that Michigan’s Right to Farm Act (RTFA) protects farmers from nuisance claims by providing that any farm that follows the state’s “Generally Accepted Agricultural Management Practices” is per se not a nuisance[xi]. Originally adopted in 1981, the RTFA meant to protect farms in rural areas from urban encroachment by preempting local laws, including zoning regulations[xii]. Under the RTFA, cities have been wary of permitting commercial agriculture because they would not be able to control issues like odors and traffic[xiii].

However, in January 2012, Michigan’s Department of Agriculture and Rural Development exempted cities with a population over 100,000 “in which a zoning ordinance has been enacted to allow for agriculture.”[xiv] In addition to Detroit, this would exempt Ann Arbor, Flint, Grand Rapids, Lansing, Sterling Heights, and Warren.[xv]

Detroit’s City Planning Commission responded by drafting an ordinance to allow urban agriculture. The draft Urban Agriculture Ordinance, dated September 12, 2012, is expected to go before the Detroit City Council in January 2013[xvi]. City planners realize they will need to revisit the ordinance, if passed, in the future[xvii]. For instance, the ordinance does not currently allow animal agriculture, but the city would eventually like to allow for chickens, rabbits, and bees, which people are currently raising in the city anyway[xviii]. While it may not be perfect, passing the current ordinance is a vital step to legitimizing urban agriculture in Detroit.

At this time, the draft Urban Agriculture Ordinance puts no size limits or minimums on commercial and non-commercial plots[xix]. It also allows for sales from farmers markets and on-site farm stands, and directly to public or private entities, retail or wholesale[xx]. In addition, the draft ordinance states the operations “shall not be detrimental to the physical environment or to public health and general welfare by reason of excessive production of noise, smoke, fumes, glare, vibrations, or odors,” thus creating the grounds for nuisance claims[xxi]. The ordinance also creates an Agriculture Review Committee to “review and investigate” the site plans for proposed developments of two acres and above[xxii].

With many large-scale agricultural projects poised to break ground in Detroit[xxiii], the draft ordinance will not solve all of the city’s agricultural problems. The city must still consider how it sees itself growing in the future, including maintaining the momentum of urban agriculture[xxiv], planning for future economic development[xxv], and avoiding large “land grabs” by developers looking to capitalize on higher property values[xxvi]. However, these issues cannot even begin to be dealt with until the city council legalizes urban agriculture in Detroit.

- Kevin Petersen is a General Member of MJEAL. He can be reached at kevinjp@umich.edu.

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Especially in an election year, contentious energy issues are a recurring theme in mainstream media. While both Presidential candidates lauded energy independence and America’s ability to source energy domestically through natural gas reserves and renewable energy sources, a related and once prominent motif of American energy security has fallen to the wayside – TransCanada’s Keystone XL Pipeline. A volatile topic just one year ago, it is still on the table and has yet to overcome its largest administrative hurdle and be ultimately approved or denied in Washington, D.C.

The Keystone XL Pipeline, as proposed by TransCanada, has faced emotive arguments from both supportive and opposing sides. The pipeline, a 1,179 mile expansion running from Alberta, Canada to Texas, has highlighted fundamental debates ranging from the environmental externalities of tar sands sourcing to the benefit of American energy independence.[1] However, most perspectives tend to overlook one of the preeminent legal issues facing the pipeline’s implementation – the various administrative rules and regulations that have been and will continue to be alternatively facilitating, frustrating, and supervising the pipeline’s construction and use. International agreements and federal approvals between Canada and the United States govern the project at the broadest level. Provincial rules in Alberta and Saskatchewan, and state laws in Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas further address the portions of the pipeline within their respective jurisdictions. Additionally, and within these already complex legal webs, sovereign aboriginal laws and local laws at the county and city level will come into play. The administrative details and hurdles that stand in the way of the pipeline are monstrous.

In order to construct pipeline facilities across the international border, the Canadian company TransCanada is first and foremost required to obtain a Presidential Permit from the U.S. Department of State.[2] While all large-scale projects are required to clear specific federal procedures, such as those outlined in the National Environmental Policy Act (NEPA), the Presidential Permit uniquely attaches to Keystone XL because of the agreement’s international scope.[3] TransCanada is currently reapplying for this permit, as its first comprehensive application was rejected in early 2012 due a time limit issue; that said, smaller portions in Oklahoma and Texas were approved by President Obama just a few months later in March of 2012.[4] One dominant argument suggests that this partial approval hinged on an absence of delicate environmental issues in these portions, unlike the Nebraska and South Dakota portions of the pipeline which contain environmental concerns relating to the Ogalala Aquifer and the Sand Hills, respectively.[5]

To receive permit approval, the pipeline must be able to withstand U.S. federal environmental standards as per the National Environmental Policy Act (NEPA). NEPA requires a “general review process” of environmental impacts before the pipeline can be approved; the process includes an overall assessment of environmental damages balanced against the utility of the proposed project on a national scale.[6] This incorporates a variety of factors such as public input, scientific tests and economic cost-benefit analyses.[7] While NEPA “allows for environmental analysis – and public or judicial review of that analysis – before the United States commits to major infrastructures,” it “may also be a more powerful tool than alternative sources of law, as it has broader scope than the major pollution control laws” such as can be found at the state and local levels.[8]

However, NEPA’s broad scope is not always perceived as a powerful tool. Many criticize the statute as a purely procedural Act that lacks the teeth to enforce any of its own findings. To some, state regulations will present more difficult obstacles, with more substantive measures and stricter standards. NEPA is thus the first major threshold of administrative regulations which the pipeline must satisfy before it can seek approval under other laws, but it is highly debatable whether NEPA will be an easier or a more difficult hurdle to jump than subsequent state restrictions.[9] While one of the primary and broadest administrative regulations in the process, NEPA is still only one among a multiplicity of obstacles TransCanada must tackle.

Aside from NEPA restrictions as mandated by statute, there remain other federal requirements which must be satisfied before the pipeline may proceed. Further required administrative permits and approvals at the U.S. federal level include (but are not limited to) approvals by the Bureau of Land Management, the Federal Highway Administration, three different U.S. EPA Regions and the U.S. Department of Treasury’s Bureau of Alcohol, Tobacco, and Firearms.[10]

Upon the (pending) approval of the Presidential Permit, and subsequent approvals by subsidiary federal agencies, the pipeline must also maneuver the relatively smaller administrative obstacles inherent to each province, state and locality. For example, a 313-mile portion of the planned Pipeline will cut through nearly half of the state of South Dakota.[11] In March 2009, TransCanada submitted its application to the South Dakota Public Utilities Commission “for a permit under the South Dakota Energy Conversion and Transmission Facilities Act, with respect to the proposed Keystone XL Project.”[12] The application included detailed information on the Pipeline’s environmental impact expectations, above ground facilities, prospective operating pressure of crude oil content, surface disturbance expectations, special construction procedures through the ecologically delicate Sand Hills region, and general procedures for both normal and abnormal operation of the Pipeline.[13] This comprehensive application was reviewed by the Commission, and included public input.[14] The permit was subsequently granted by the Public Utility Commissioners with 50 stipulated conditions on February 18, 2010.[15]

The South Dakota Public Utilities Commission, however, is still only one of a variety of state level agencies from whom TransCanada must receive approval. In South Dakota, further permits and approvals are required from the South Dakota Department of Transportation, South Dakota Historical Society, and the South Dakota Department of Environment and Natural Resources, Surface Water Quality Program.[16] Even more approvals, typically relating to construction details, are required from eight different South Dakota counties.[17]

In addition to the federal and state level approvals, smaller jurisdictions hold further discretional approval on the Pipeline’s construction and operation. In Canada, Aboriginal people constitute a strong example of these additional legal requirements: the legal relationship between Aboriginal people and the Canadian federal government is much more robust than that of Native Americans in the U.S., and plays an important role in Canada’s legal matrix. In Canada, the government must undergo a “meaningful consultation” with any Aboriginal group(s) to be affected by the Keystone XL Pipeline, a consultation which “may require the [Canadian government] to accommodate the Aboriginal interest in some way, although the Aboriginal group does not have veto power over the project.”[18] This “duty to consult” arises once the government grants “permission to a project proponent to undertake a project or an aspect thereof,” such as the Canadian government’s approval of the Keystone XL construction project.[19] While this is an issue specifically inherent to the Canadian legal system, it further highlights the administrative complexity in approving, constructing and utilizing the Keystone XL Pipeline.

Ultimately, if the Keystone XL Pipeline is to be completed, it must overcome multiple regulatory and administrative hurdles. Beyond the preliminary approvals cited above, regulation and monitoring will be maintained by many of these agencies throughout the construction and active use of the pipeline. These administrative obstacles present significant challenges, and should not be excluded from a holistic discussion of Keystone XL. Following the recent Presidential election, the pipeline will undoubtedly re-enter the mainstream debate as an issue in the President’s new term. It is unclear whether President Obama will side with many of his environmental constituents and deny approval, or if he will approve the remainder of the pipeline, as he has already approved portions in Oklahoma and Texas. Whether the pipeline is a good or bad decision is a separate, complex and contentious issue. What is clear is that the administrative obstacles have been, and will remain, a truly massive hurdle to the implementation of the Keystone XL Pipeline.

— Alison Toivola is a general member of MJEAL.

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Energy markets have become an important area of governmental regulation.  The Federal Energy Regulatory Commission (the FERC) is an agency that regulates, monitors and investigates energy markets in the United States.  It was created by the Department of Energy Organization Act of 1977, and strengthened with the Energy Policy Act of 2005 signed into law by President George W. Bush.¹ This Act, created in response to the Enron scandal, gave the FERC an investigatory unit and the ability to levy significant fines for infractions.  Further, this unit has received a 50% increase in funding under the Obama Administration.  Because many of the large banks and investment firms have expanded into the energy markets, they have put themselves under the watch of the FERC.²

Previously, the FERC has taken action against both JPMorgan Chase and Deutsche Bank, and recently filed a claim against the British multinational banking company, Barclays.³ On October 31, the FERC threatened Barclays with its largest fines for a bank thus far, seeking a $435 million civil penalty and $34.9 million in ill-gotten gains for manipulation of energy markets in the western United States.⁴ Further, the FERC is seeking $18 million from four traders who have all since left Barclays.⁵ The bank is still recovering from punishments assessed by American and British authorities related to its actions in rigging the London Interbank Offered Rate, or Libor.  Those actions cost the bank $450 million in penalties and led to Barclays firing its CEO, Robert Diamond.

According to the FERC, the alleged manipulations occurred between late 2006 and 2008.  The Commission says that traders for Barclays intentionally took losses on trades in the physical markets to make gains in the financial markets.  Certain bets made by Barclays were tied to energy prices in the physical markets, and by artificially suppressing prices there, Barclays would see significantly higher gains in the other areas.  Though the mechanisms are complex, the FERC believes that certain emails among traders may prove especially detrimental to any potential defense Barclays tries to make.

During this period the commission claims Barclays lost $4 million in the physical markets, which were offset by $35 million in gains on financial contracts.⁶ Barclays, in a November 1^st statement, said that it strongly disagrees with the allegations and that is has fully cooperated with the FERC investigation.  Barclays stated that its trading was completely legal and legitimate.  Barclays “intend[s] to vigorously defend this matter.”⁷

Though Barclays is facing the most significant penalties, both JPMorgan Chase and Deutsche Bank are planning on fighting the FERC’s allegations.  These two banks are facing smaller punishments – Deutsche Bank is facing only a $1.5 million fine – both are willing to fight the FERC.  Typically firms will seek settlements with regulators to quickly resolve scandals.  However, the banks fear that this could be the beginning of a regulatory battle with a new agency; if the FERC’s threats are not challenged, they may set a precedent that could plague them and their bottom lines for years to come.³ If the banks do not defend themselves against these early threats, they may open the floodgates to much more litigation and punishment in the future.

Should the banks choose to fight the FERC, they are not facing a quick solution.  Experts have said that it could be a few years before Barclays would pay any fines.  Barclays will have until the end of November to respond to the FERC, and then Barclays will wait up to 60 days for the FERC to decide if they will impose fines.  From there it would likely go to an administrative law judge or federal court.  If it goes to an administrative law judge the hearing would likely take a year, with re-hearings potentially dragging the case another year before it would be appealable in a federal court.⁴ Given the financial institutions’ incentives to defend themselves and the FERC’s goals to eliminate or reduce these forms of fraudulent trading, it appears both sides will likely be in it for the long haul, each facing many months of litigation before the issue is settled.

— Matt Evans is a General Member of MJEAL.

1. ENERGY POLICY ACT OF 2005, PL 109–58, 119 Stat. 594 (2005).

2. Overview of the FERC, About FERC (Nov. 11, 4:11 PM), available at http://www.ferc.gov/about/overview.asp; Ben Protess & Michael J. De La Merced, FERC Takes Aim At Wall Street, The New York Times Deal Book (Nov. 11, 2011, 3:34 PM), available at http://dealbook.nytimes.com/2012/11/01/ferc-takes-aim-at-wall-street/?pagewanted=print.

3. Ben Protess & Michael J. De La Merced, FERC Takes Aim At Wall Street, The New York Times Deal Book (Nov. 11, 2011, 3:34 PM), available at http://dealbook.nytimes.com/2012/11/01/ferc-takes-aim-at-wall-street/?pagewanted=print.

4. Cezary Podkul & Jonathan Leff, Analysis: Barclays Set to Fight FERC Over Branking, Not Rigging, Reuters (Nov. 11, 2011, 3:56 PM), available at http://www.reuters.com/article/2012/11/05/us-barclays-ferc-idUSBRE8A406320121105.

5. David Entrich, Barclays Faces $435 Million Fine, Another Probe, Wall Street Journal (Nov. 11, 3:45 PM), available at http://online.wsj.com/article/SB10001424052970204712904578090053851107918.html.

6. Peater Eavis, How Barclays Allegedly Took Losses to Make Bigger Gains, The New York Times Deal Book (Nov. 11, 2011, 3:35 PM), available at http://dealbook.nytimes.com/2012/11/01/how-barclays-allegedly-took-losses-to-make-bigger-gains/.

7. FERC Notice – Barclays Statement, Press Releases (Nov. 11, 2011, 3:56 PM), available at http://group.barclays.com/about-barclays/news/press-release-item/navigation-1329924296988?releaseID=2429.

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