United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 27, 2004 Decided December 10, 2004
No. 03-1182
ELECTRIC POWER SUPPLY ASSOCIATION,
PETITIONER
V.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC
COMPANY, ET AL.,
INTERVENORS
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Robert C. Fallon argued the cause for petitioner. With
him on the briefs were Larry F. Eisenstat, John Michael
Adragna, Randolph Lee Elliott, and Scott H. Strauss. Julie
Simon entered an appearance.
Robert H. Solomon, Deputy Solicitor, Federal Energy
Regulatory Commission, argued the cause for respondent. With
him on the brief were Cynthia A. Marlette, General Counsel, and
Dennis Lane, Solicitor.
2
Before: EDWARDS and GARLAND, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge EDWARDS.
EDWARDS, Circuit Judge: Section 557(d) of the
Administrative Procedure Act ("APA"), enacted as part of the
Government in the Sunshine Act, Pub. L. No. 94-409, § 4(a), 90
Stat. 1241, 1246 (1976) (the "Sunshine Act"), prohibits "ex parte
communication[s] relevant to the merits of [a prescribed]
proceeding" between an "interested person outside the agency"
and an agency decision maker. 5 U.S.C. § 557(d)(1)(A), (B)
(2000). The regulations of the Federal Energy Regulatory
Commission (the "Commission" or "FERC") implementing §
557(d) are found at 18 C.F.R. § 385.2201 (2003) ("Rule 2201").
In this petition for review, the Electric Power Supply
Association ("EPSA"), a national trade association representing
participants in the competitive power industry, challenges two
FERC orders purporting to amend Rule 2201 to exempt
communications between private "market monitors" and FERC
decisional employees from the Sunshine Act's ban on ex parte
communications. Communications with Commission-Approved
Market Monitors, 102 F.E.R.C. ¶ 61,041 (2003) ("Initial
Order"), reh'g denied, 103 F.E.R.C. ¶ 61,151 (2003)
("Rehearing Order"). EPSA charges that FERC's proposed
exemption, on its face, violates § 557(d).
The Commission argues that EPSA lacks standing to
bring this challenge and, also, that EPSA's facial challenge is
unripe for judicial review. On the merits, the Commission
argues that the proposed exemption does not violate the
Sunshine Act, because it effects a reasonable balance between
the need for enhanced monitoring of national energy markets
through timely reporting of market information with the need for
3
fairness and openness in Commission proceedings. We reject all
of FERC's arguments and grant EPSA's petition for review.
We hold, first, that EPSA has standing to challenge the
Commission's market monitor orders and that the challenge is
ripe for review. We also hold that FERC's orders violate the
clear mandate of the Sunshine Act. An agency may lawfully
adopt regulations that faithfully implement the requirements of
§ 557(d). But no federal agency that is subject to the Sunshine
Act is authorized to modify, abrogate, or otherwise violate the
statutory ban on ex parte communications. Therefore, FERC's
claim that it has an interest in receiving ex parte
communications does not empower it to alter Congress' explicit
proscription against such communications. Because FERC's
market monitor exemption is plainly at odds with § 557(d), we
grant EPSA's petition for review and vacate the Commission's
orders.
I. BACKGROUND
A. Statutory and Regulatory Background
The Government in the Sunshine Act, 5 U.S.C. § 557(d)
(2000), applies "when a hearing is required to be conducted in
accordance with section 556 of [the APA]." Id. § 557(a). With
certain limited exceptions not applicable here, § 556 sets forth
the procedures to be used in cases in which proceedings are
"required by statute to be determined on the record after
opportunity for an agency hearing." Id. §§ 556(a), 554(a),
553(c). When such a hearing is required, the Government in the
Sunshine Act provides:
[N]o interested person outside the agency shall make or
knowingly cause to be made to any member of the body
comprising the agency, administrative law judge, or
4
other employee who is or may reasonably be expected to
be involved in the decisional process of the proceeding,
an ex parte communication relevant to the merits of the
proceeding[.]
Id. § 557(d)(1)(A). An "ex parte communication" is defined as
"an oral or written communication not on the public record with
respect to which reasonable prior notice to all parties is not
given, but it shall not include requests for status reports on any
matter or proceeding covered by this subchapter." Id. § 551(14).
When an ex parte communication occurs, the Sunshine Act
requires disclosure of the communication and an opportunity for
parties to file a response. Id. § 557(d)(1)(C). There are no
exceptions to the disclosure requirement.
The controlling provisions of the Sunshine Act were
fully explored over two decades ago in Professional Air Traffic
Controllers Organization v. FLRA, 685 F.2d 547 (D.C. Cir.
1982) ("PATCO"). PATCO makes it clear that the sweep of the
Sunshine Act is broad and that the statutory proscriptions are
inviolate. Although the Act's prohibition applies only to
communications to or from an "interested person outside the
agency," Congress did not "intend . . . that the prohibition on ex
parte communications would therefore have only a limited
application." Id. at 562. Rather,
[t]he term "interested person" is intended to be a wide,
inclusive term covering any individual or other person
with an interest in the agency proceeding that is greater
than the general interest the public as a whole may have.
The interest need not be monetary, nor need a person to
[sic] be a party to, or intervenor in, the agency
proceeding to come under this section. The term
includes, but is not limited to, parties, competitors,
public officials, and nonprofit or public interest
5
organizations and associations with a special interest in
the matter regulated. The term does not include a
member of the public at large who makes a casual or
general expression of opinion about a pending
proceeding.
Id. at 562 (citations omitted).
PATCO also indicates that, while the communications
subject to the Act are limited to those "relevant to the merits of
the proceeding," the congressional reports underlying the
Sunshine Act make it clear that the phrase should "be construed
broadly and . . . include more than the phrase 'fact in issue'
currently used in [§ 554(d)(1) of] the Administrative Procedure
Act." Id. at 563 (citations omitted).
Finally, PATCO cautions that requests for status reports,
which are explicitly exempted from the definition of ex parte
communications, see 5 U.S.C. § 551(14), should not
automatically be exempted from the Sunshine Act's prohibition.
See PATCO, 685 F.2d at 563. The same is true with respect to
communications characterized as "background information."
The key to exclusion under the Sunshine Act is not the label
given the communication, but rather whether there is a
possibility that the communication could affect the agency's
decision in a contested on-the-record proceeding. See id. This
is clear from the legislative history underlying the Act:
The phrase [relevant to the merits of the proceeding]
excludes procedural inquiries, such as requests for status
reports, which will not have any effect on the way the
case is decided. It excludes general background
discussions about an entire industry which do not
directly relate to specific agency adjudication involving
a member of that industry, or to formal rulemaking
6
involving the industry as a whole. It is not the intent of
this provision to cut an agency off from access to general
information about an industry that an agency needs to
exercise its regulatory responsibilities. So long as the
communication containing such data does not directly
discuss the merits of a pending adjudication it is not
prohibited by this section.
However, a request for a status report or background
discussion may in effect amount to an indirect or subtle
effort to influence the substantive outcome of the
proceedings. The judgment will have to be made
whether a particular communication could affect the
agency's decision on the merits. In doubtful cases the
agency official should treat the communication as ex
parte so as to protect the integrity of the decision making
process.
H.R. REP . NO. 94-880, pt. 2, at 20 (1976), reprinted in 1976
U.S.C.C.A.N. 2212, 2229, accord S. REP . NO. 94-354, at 36-27
(1975).
In sum, PATCO plainly highlights the two distinct
interests served by the Sunshine Act. First, the decision makes
it clear that "[d]isclosure is important in its own right to prevent
the appearance of impropriety from secret communications in a
proceeding that is required to be decided on the record."
PATCO, 685 F.2d at 563. Second, "[d]isclosure is also
important as an instrument of fair decisionmaking; only if a
party knows the arguments presented to a decisionmaker can the
party respond effectively and ensure that its position is fairly
considered." Id. These interests are not subject to compromise
in agency regulations, orders, or proceedings.
7
B. FERC's Regulations
FERC regulations implementing § 557(d) are found at 18
C.F.R. § 385.2201 (2003). The most recent version of these
regulations, known as Order No. 2201, was adopted in 1999.
Regulations Governing Off-the-Record Communications,
F.E.R.C. Stats. & Regs., Regs. Preambles ¶ 31,079 (1999), order
on reh'g, F.E.R.C. Stats. & Regs., Regs. Preambles ¶ 31,112
(2000). In January 2003, the Commission, by order, amended
its ex parte regulations, purporting to exempt from the Sunshine
Act communications between Commission-approved market
monitors and Commission decisional staff in those situations in
which a market monitor is not a party to and does not appear on
behalf of a party to the on-the-record proceeding to which the ex
parte communication relates. Initial Order at 61,088, 61,091.
Under this purported exemption, an ex parte communication
will only be memorialized and included in the official record of
the relevant proceeding if the Commission determines that it
relied on the ex parte communication in reaching a decision in
an on-the-record proceeding. Rehearing Order at 61,526. The
Commission explicitly acknowledged that exempted
communications could involve matters that are at issue in
ongoing on-the-record proceedings, Initial Order at 61,090, and
that Commission-approved market monitors are "persons
outside the agency," id. at 61,091.
Market monitor functions were endorsed by the
Commission as part of its Order No. 2000 initiative. In Order
No. 2000, FERC directed all transmission owning utilities to
participate in a regional transmission organization ("RTO").
Regional Transmission Organizations, F.E.R.C. Stats. & Regs.,
Regs. Preambles ¶ 31,089 (1999) ("Order No. 2000"), order on
reh'g, Order No. 2000-A, F.E.R.C. Stats. & Regs., Regs.
Preambles ¶ 31,092 (2000), dismissed sub nom. Pub. Utility
Dist. No. 1 v. FERC, 272 F.3d 607 (D.C. Cir. 2001). RTOs, in
8
turn, were ordered to perform a market monitoring function to
"'ensur[e] that markets within the region covered by an RTO do
not result in wholesale transactions or operations that are unduly
discriminatory or preferential or provide opportunity for the
exercise of market power.'" Br. for Respondent at 5-6 (quoting
Order No. 2000, F.E.R.C. Stats. & Regs., Regs. Preambles at
31,155). RTOs can choose to perform the monitoring function
themselves or use an independent contractor. Br. for
Respondent at 6 (citing Order No. 2000, F.E.R.C. Stats. &
Regs., Regs. Preambles at 31,155-56).
"[M]arket monitors must report to the Commission
objective information about RTO markets, evaluate the behavior
of market participants, and recommend how markets can operate
more competitively and efficiently." Br. for Respondent at 6
(citing Order No. 2000, F.E.R.C. Stats. & Regs., Regs.
Preambles at 31,155-56). It is undisputed, however, that market
monitors are private parties who work outside the agency. They
are not hired, paid, or directly managed by FERC in their work.
C. Procedural Background
EPSA is a national trade association representing the
competitive power industry. Its board includes 26 member
companies. Eleven of the top 20 sellers of electricity nationwide
are EPSA members. EPSA also includes numerous associate
and supporting members, as well as state and regional entities
representing the competitive power industry. EPSA members
own generating facilities and market electricity in wholesale
markets administered by RTOs and individual system operators
("ISOs"). On behalf of its members, EPSA advocates policies
relating to the restructuring of the nation's electricity markets.
As part of that effort, EPSA and its members regularly
participate in contested FERC proceedings which affect
wholesale markets administered by RTOs and ISOs. In 2002,
9
EPSA participated in 10 such proceedings. In 2003, it
participated in 20. Given the significant investment of its
members in electric generation and electricity markets, it is
undisputed that EPSA is actively engaged in and will continue
to be actively engaged in such contested FERC proceedings.
Affidavit of Julie Simon, Vice Pres. of Policy, EPSA, (May 14,
2004) (submitted as an addendum to Br. for Petitioner).
Following the Commission's issuance of the initial order
purporting to amend its ex parte regulations, petitioner EPSA
sought rehearing, asserting, inter alia, that the market monitor
exemption was contrary to § 557(d)(1). In an order issued in
May 2003, the Commission rejected this argument. The
Commission conceded that a market monitor may have an
"interest in the outcome of a particular proceeding" to which his
or her communication may be relevant, but contended that such
an interest "does not make him [or her] an 'interested person' as
that term is used in APA § 706(d)." Rehearing Order at 61,524.
The Commission also noted that "market monitors may not be
Commission employees," but argued that "they serve as the
functional equivalent of such employees" and, thus, may be
properly exempted from the requirements of § 557(d) just as
Commission staff are exempt. Id. According to the
Commission, "[c]ommunications with market monitors are
similar to communications between Commission staff, which
give no appearance of impropriety, nor lead to biased decision-
making." Id.
Following issuance of the order denying its petition for
rehearing, EPSA filed a petition for review before this court.
The Commission responded with a motion to dismiss, arguing
that EPSA lacked standing and that the case was, in any event,
not ripe for review. EPSA, representing itself and the three
intervenors in this suit, argues that the market monitor
exemption, on its face, violates the Government in the Sunshine
10
Act. As it did below, EPSA also agues that the purported
exemption violates the due process clause of the United States
Constitution and that FERC's enactment of the modification by
order, rather than notice-and-comment rulemaking, violated §
553 of the APA. Because we conclude that the market monitor
exemption plainly violates the Sunshine Act, we need not reach
EPSA's due process or notice-and-comment arguments.
II. ANALYSIS
A. Standard of Review
FERC's delegated authority does not include
administration of the Sunshine Act. The Sunshine Act is a
statute of general applicability governing FERC and all other
federal agencies within its compass. FERC has no authority
whatsoever to change the terms of the Act; rather, FERC must
conform its regulatory activities to comply with the overriding
terms of the Sunshine Act. Thus, we review de novo the legality
of the Commission's modification of its ex parte regulations
purporting to exempt market monitor communications from the
requirements of the Sunshine Act. See Ala. Rivers Alliance v.
FERC, 325 F.3d 290, 296-97 (D.C. Cir. 2003); see also 5 U.S.C.
§ 706(2)(A) (2000) ("The reviewing court shall . . . hold
unlawful and set aside agency action found to be . . . not in
accordance with law.").
B. Standing and Ripeness
1. Standing
The Commission's standing challenge is quite narrow
and easily dismissed. No one, including FERC, doubts that
EPSA and its members have a right to participate in contested
FERC hearings when their financial interests are at stake.
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Moreover, FERC does not contest EPSA's assertion that EPSA
and its members, on the basis of their financial interests,
routinely appear before FERC in contested hearings in which
market monitors have an interest. Finally, FERC acknowledges
that in challenging the market monitor exemption, EPSA is
asserting the violation of certain procedural rights. Br. for
Respondent at 18. Nevertheless, FERC maintains that EPSA
does not have standing, because it "cannot demonstrate concrete
and particularized harm to show that it is currently aggrieved by
the challenged orders." Br. for Respondent at 16. Specifically,
FERC argues that the market monitor exemption cannot cause
current or future injury to the financial interests of EPSA or its
members, because it is designed to enhance the competitiveness
and efficiency of regulated markets. Br. for Respondent at 17-
18. FERC's argument is entirely off the mark.
As regular participants in contested FERC hearings,
EPSA and its members have a right, protected by the Sunshine
Act's proscription against ex parte communications, to "fair
decisionmaking" by the Commission. See PATCO, 685 F.2d at
563 ("Disclosure is also important as an instrument of fair
decisionmaking; only if a party knows the arguments presented
to a decisionmaker can the party respond effectively and ensure
that its position is fairly considered."). This, not the financial
interests of EPSA and its members, is the right directly protected
by § 557(d) and impaired by the market monitor exemption. In
complaining that the market monitor exemption violates the
Sunshine Act, EPSA is seeking to enforce procedural
requirements designed to protect EPSA's concrete interest in the
outcome of hearings to which EPSA is a party. That being the
case, EPSA's standing is not defeated by the fact that it cannot
show, with any certainty, that its or its members' financial
interests will be damaged by the operation of the market monitor
exemption.
12
"[I]n cases involving alleged procedural errors, 'the
plaintiff must show that the government act performed without
the procedure in question will cause a distinct risk to a
particularized interest of the plaintiff.'" Wyoming Outdoor
Council v. U.S. Forest Serv., 165 F.3d 43, 51 (D.C. Cir. 1999)
(quoting Florida Audubon Soc'y v. Bentsen, 94 F.3d 658, 664
(D.C. Cir. 1996)); see also Lujan v. Defenders of Wildlife, 504
U.S. 553, 572 n.7 ("The person who has been accorded a
procedural right to protect his concrete interests can assert that
right without meeting all the normal standards for redressability
and immediacy."). EPSA has done this. If the Commission,
following the market monitor exemption, were to engage in
undisclosed ex parte communications with market monitors
about matters relevant to a pending hearing to which EPSA or
its members were parties or in which they had intervened,
EPSA's and its members' particularized interests in fair decision
making would be adversely affected.
2. Ripeness
The Commission's ripeness argument is equally off base.
Under the familiar two-prong test of Abbott Laboratories v.
Gardner, 387 U.S. 136, 149 (1967), this case is clearly ripe for
review. Contrary to what FERC alleges, EPSA is not
challenging the "independence or motivations of Commission-
approved market monitors." Br. for Respondent at 20. Rather,
EPSA raises a straightforward legal question – whether the
market monitor exemption, on its face, violates the requirements
of the Sunshine Act. Moreover, it is apparent from the Initial
and Rehearing Orders that FERC has promulgated the
exemption in its final form. Both orders make clear that market
monitor communications will be exempted from § 557(d)'s
prohibition unless a market monitor is a party to or appears on
behalf of a party to a proceeding. Initial Order at 61,091;
Rehearing Order at 61,526. In its order on rehearing, the
13
Commission also made clear that it will not subsequently
disclose any such communications unless the agency determines
that it has relied on them in reaching a decision. Id.
No further factual development is necessary to clarify the
issue before the court. The question raised by EPSA is currently
fit for judicial review as it can be wholly resolved by an analysis
of the Sunshine Act, the Act's legislative history, and its
construction by relevant case law. See Better Gov't Ass'n v.
Dep't of State, 780 F.2d 86, 92 (D.C. Cir. 1986). Thus, nothing
would be gained by postponing resolution of EPSA's challenge.
The hardship prong under the ripeness doctrine is largely
irrelevant in cases, such as this one, in which neither the agency
nor the court have a significant interest in postponing review.
See Payne Enters., Inc. v. U.S., 837 F.2d 486, 493 (D.C. Cir.
1988). Nevertheless, were we required to consider whether
EPSA has demonstrated a hardship sufficient to outweigh any
possible institutional interest in deferring review, we would have
no problem doing so. In light of EPSA's regular appearance as
a party in contested Commission hearings, there can be no
question that implementation of the market monitor exemption
will have a "'direct and immediate' impact on the appellant[] that
rises to the level of hardship." Better Gov't Ass'n, 780 F.2d at 93
(quoting Abbott Labs., 387 U.S. at 152). The amendment
involves regulations that have a direct effect on EPSA's ability
to represent itself and its members in pending and future FERC
hearings. It thus implicates EPSA's conduct in a way that is
immediate. See Better Gov't Ass'n, 780 F.2d at 93 (citing Toilet
Goods Assoc., Inc. v. Gardner, 387 U.S. 158, 164 (1967));
accord Payne Enters., 837 F.2d at 493-94.
Moreover, this case does not resemble the situation
posed in Association of National Advertisers v. FTC, 617 F.2d
611 (D.C. Cir. 1979), where advertisers and trade associations
14
sought interlocutory review of special rules promulgated by the
FTC for use in some proceedings on television advertising
aimed at children. Plaintiffs argued that FTC Rule 1.18 gave
sub silentio approval to ex parte communications between
Commissioners and members of the FTC's general staff, id. at
618, thereby violating this court's holding in Home Box Office,
Inc. v. FCC, 567 F.2d 9 (D.C. Cir. 1977), that ex parte
communication of information "relevant to a rulemaking"
violated the due process clause, id. at 57. But see Action for
Children's Television v. FCC, 564 F.2d 458, 474-78 (D.C. Cir.
1977) (narrowing Home Box Office); Sierra Club v. Costle, 657
F.2d 298, 400-02 (D.C. Cir. 1981) (similar). We rejected the
claim as unripe, relying, in part, on the fact that the FTC had
made it clear that it would include any staff comments "that
pertain[ed]" to the rulemaking to "ensure[ ] that a court of
appeals passing on a seasonably presented challenge will have
a complete factual record to explore" the legal issues posed.
Nat'l Advertisers, 617 F.2d at 620.
In this case, by contrast, FERC has made it clear that it
will not include an ex parte communication in the official record
unless it relies on the communication in reaching a decision in
a contested proceeding. Rehearing Order at 61,526. Petitioner
correctly notes that the Sunshine Act requires more. As we
explain above, the Sunshine Act requires disclosure whenever
an ex parte communication is "relevant to the merits" of the
proceeding. In short, whereas the FTC in National Advertisers
pledged to make public all ex parte communications that
plaintiffs claimed were covered by Home Box Office, the
Commission here has pledged to make public only some of the
ex parte communications that petitioner claims are covered by
the Sunshine Act. Thus, FERC cannot contend that petitioner's
challenge is unripe. Indeed, in Regular Common Carrier
Conference v. United States, 793 F.2d 376 (D.C. Cir. 1986), in
15
an opinion by then-Judge Scalia, we flatly rejected just such a
claim by the Interstate Commerce Commission:
As to ripeness: The Commission argues that petitioners
should be required to wait until they actually suspect an
FFTB member of abusing the new rule, file a complaint,
seek discovery, and then, depending on the results of
discovery, ask the Commission for help. But the
gravamen of petitioners' complaint is that any use of the
rule is an abuse, precisely because it does not permit
petitioners and others to know what rates are being
offered. When the very basis of attack is the secrecy of
rates and hence the inability to challenge them, it would
be absurd to hold the controversy unripe because
petitioners cannot identify instances where the secret
rates have been unreasonable or discriminatory.
Id. at 378-79. Here, too, it would be absurd to require EPSA to
guess about when secret communications between market
monitors and the Commission violate the Sunshine Act. The
mere statement of the suggestion exposes its absurdity.
C. Application of the Sunshine Act
On the merits, it is clear that the orders creating the
market monitor exemption violate the explicit and sweeping
proscription against ex parte communications contained in §
557(d). First, it is obvious that ex parte communications
covered by the exemption are subject to § 557(d). The
exemption is not limited to status inquiries and therefore does
not escape the requirements of § 557(d) on that ground. See 5
U.S.C. § 551(14) (2000). Moreover, FERC does not argue that
the exempted communications are outside the ambit of § 557(d)
because they consist only of background information about the
entire industry that does not directly relate to an agency
16
adjudication. Quite the contrary, in the Initial Order, the
Commission made clear that in carrying out their reporting
duties, market monitors undertake communications "relevant to
the merits" of Commission proceedings. It said:
In these [reporting] efforts, however, market monitors
may encounter situations or matters that are also at issue
in ongoing contested on-the-record proceedings at the
Commission. While they may rightly need to bring such
situations or matters promptly to the Commission's
attention, or to discuss them with Commission staff,
market monitors are currently prohibited from doing that
off-the-record under Rule 2201. The reason is, as noted,
Rule 2201 prohibits any communications on the merits
of any issue in contested proceedings between decisional
Commission staff members and any person outside the
Commission.
Initial Order at 61,090. The Commission went on to explain
that, because, in its view, the application of Rule 2201 in these
circumstances was counterproductive to the Commission's goals,
it was justified in modifying its regulations to "treat such
communications as exempt communications not subject to
disclosure or notice." Id.; see also Br. for Respondent at 28
(conceding that "some background discussions as to market
conditions may relate to the merits of particular matters").
To the extent FERC suggests that the market monitor
exemption is saved by its very limited disclosure requirement,
this argument fails. The market monitor exemption requires
disclosure only if the Commission determines that it relied on
the ex parte market monitor communication in reaching a
decision. The Sunshine Act, in contrast, requires disclosure, as
a corrective measure, whenever an ex parte communication
takes place. 5 U.S.C. § 557(d)(1)(C) (2000).
17
FERC also concedes that Commission-approved market
monitors are "outside the agency." Initial Order at 61,091. And
now, before the court, FERC appears to have abandoned its
argument that "a Commission-approved market monitor's
interest in the outcome of a particular proceeding does not make
him an 'interested person' as that term is used in APA § 706(d)."
Rehearing Order at 61,524. In its brief to the court, FERC
refers only obliquely to this rationale, characterizing the market
monitors' duties to stand apart from market participants and
serve as the functional equivalent of Commission staff as
nothing more than one of several limitations that the
Commission imposed on market monitor communications to
minimize the prejudice that they could cause in contested
proceedings. Br. for Respondent at 29-31. FERC's
abandonment of its "interested person" argument makes sense,
because under the "wide, inclusive" definition of the term
approved in PATCO, 685 F.2d at 562, it is clear that market
monitors qualify as "interested persons" under the Sunshine Act.
No one can reasonably argue that market monitors, who are
charged with "ensuring that markets within [their assigned
RTOs] do not result in wholesale transactions or operations that
are unduly discriminatory or preferential or provide opportunity
for the exercise of market power," Br. for Respondent at 5-6, do
not have an interest in contested proceedings concerning their
RTOs that is "greater than the general interest the public as a
whole may have." PATCO, 685 F.2d at 562 (quotations and
citation omitted).
FERC further concedes that "the Commission may not
be entitled to special deference [from this court] in its
construction of the [Sunshine Act]." Br. for Respondent at 23.
Nevertheless, the agency inexplicably argues that its market
monitor exemption should be assessed under the arbitrary and
capricious standard of Motor Vehicle Manufacturer's Ass'n v.
State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43
18
(1983), and asserts that deference is due the exemption because
it involves nothing more than FERC's interpretation of its own
regulations. Br. for Respondent at 22-23. In other words, FERC
argues that it is free to strike its own balance between its
perceived need for timely information and the procedural
fairness rules mandated by Congress in the Sunshine Act. See
id. at 24-37. Accordingly, FERC justifies the market monitor
amendment, which it essentially concedes is contrary to the
requirements of § 557(d), by asserting that "[s]trict adherence to
the ex parte rules, without an exemption for market monitoring,
would be 'counterproductive' when market monitors need to
bring market information to the Commission's attention, and
would 'imped[e] its goal to receive as much timely information
as possible from market monitors on the operation of energy
markets.'" Id. at 26 (quoting Initial Order at 61,090). This
entire line of analysis is patently wrong.
FERC can cite not a single case in support of its position.
Its reliance on Home Box Office, 567 F.2d at 57, in support of its
putative right to strike a balance, Br. for Respondent at 24, and
for the proposition that "informal contact between agencies and
the public . . . are completely appropriate so long as they do not
frustrate judicial review or raise serious questions of fairness,"
id. at 26-27, is completely misplaced. Home Box Office was
based on the due process clause, not the Sunshine Act. As the
court in Home Box Office noted, "the Sunshine Act by its terms
does not apply here. Its ex parte contact provisions are couched
as an amendment to 5 U.S.C. § 557, and as such the rules do not
apply to rulemaking under § 4 of the Administrative Procedure
Act, 5 U.S.C. § 553." 567 F.2d at 56 n.125. FERC's reliance on
Texas Office of Public Utility Counsel v. FCC, 265 F.3d 313,
327 (5th Cir. 2001), and Ass'n of National Advertisers, Inc. v.
FTC, 627 F.2d 1151, 1169 (D.C. Cir. 1979), see Br. for
Respondent at 27 n.12, is similarly misplaced as the cited dicta
from those cases also pertains to ex parte contacts in informal or
19
hybrid rulemaking proceedings that are not subject to the
requirements of § 557(d).
The Commission's citation to Louisiana Ass'n of
Independent Producers and Royalty Owners v. FERC, 958 F.2d
1101, 1112, 1113 (D.C. Cir. 1992), is also ill founded. As
FERC correctly notes, that case supports the proposition that
"[a]gency officials may meet with members of the industry . . .
to maintain the agency's knowledge of the industry it regulates."
Br. for Respondent at 27 (quotations and citation omitted); see
also id. at 31, 32. However, FERC fails to recognize that the
court there explicitly found that the ex parte communications at
issue did not violate § 557(d) because they were not relevant to
the merits of the proceedings. See La. Ass'n of Indep. Producers
and Royalty Owners, 958 F.2d at 1111-12 (citing PATCO, 695
F.2d at 563 (D.C. Cir. 1982)). Moreover, as the court noted,
"acting upon the chance that the industry representatives were
attempting subtly and indirectly to influence the outcome of this
proceeding, the Commission wisely placed summaries of these
meetings in [the] record." Id. at 1112. This "apprised the
petitioners of any argument that may have been presented
privately, thereby maintaining the integrity of the process and
curing any possible prejudice that the contacts may have
caused." Id.
As EPSA argues, when an agency acts in violation of an
express congressional mandate, its motives are irrelevant. Br.
for Petitioner at 14. If, as is the case here, a statute of general
applicability directs that certain procedures must be followed, an
agency cannot modify or balance away what Congress has
required of it. The Commission is powerless to override
Congress' directive banning ex parte communications relevant
to pending on-the-record proceedings between decisional staff
and interested persons outside the agency. Consequently,
20
FERC's orders modifying its ex parte regulations must be
reversed and vacated.
III. CONCLUSION
For the foregoing reasons, we grant the petition for
review and vacate the Commissions orders amending its ex
parte regulations.