SACRAMENTO — A recent order in the case against a California energy company could have far-ranging implications in actions brought against companies by the Federal Energy Regulatory Commission.

An order was entered on March 8 in the U.S. District Court for the Eastern District of California ordering that in the suit brought by FERC against Etracom LLC and its owner, the respondents are entitled to discovery rights and a full trial on the merits. This is considered a victory for companies like Etracom that are the subject of FERC investigations.

Last June, Etracom LLC and Michael Rosenberg were ordered to pay civil penalties by the FERC as a result of alleged manipulation of the California electricity market. Rosenberg was ordered to pay a $100,000 file, and his company was ordered to pay a $2.4 million fine. FERC also ordered the company to pay back about $315,000 in profits because the profits were allegedly from market manipulation.

Rosenberg founded Etracom in 2008 and owns about 75 percent of the company.

Rosenberg and Etracom had argued that the market fluctuations in May 2011 were not under their control and the trading during that time was normal and aboveboard.

Attorney Michael Brooks, a partner with the law firm Bracewell, has written about this issue and understands the reasons why this court ruling is significant.

“Etracom is being accused of manipulation under the Federal Power Act,” Brooks told the Northern California Record. “That law says if you’re being accused of something, you can either go through a trial-like hearing at FERC, or a defendant can say no, I’d rather go to an independent, neutral, third-party judge to evaluate this case.”

“If you are a defendant and you go to FERC and you lose there, and you want to appeal, the court will defer to FERC a lot — unless they were completely wrong, arbitrary and capricious, that ruling will stand,” he said. “If you go to court, the de novo review means they will look at it fresh, just like a new trial. Then, FERC has to prove its case, and the court doesn’t just rubber stamp FERC’s decision. The hope is that it will be a fair trial with discovery and all the bells and whistles that come with a court proceeding.”

Brooks said that in this Etracom case, and in a recent ruling in California where Barclay’s Bank PLC is the defendant and FERC is the plaintiff, trials in district court are becoming more common.

“We didn’t really have any case law to say what really happens when you go to federal court in these types of cases,” he said. “Do you get a new, full trial, or do you just get a review of the record that FERC has created? In this instance, FERC said you chose to go to federal court, but you don’t really get a trial there. You don’t get to raise any new defenses or say anything new.

“The court’s just going to review what we did and what you did and see if they agree with us. Etracom argued that they wanted to conduct discovery and do the things you normally do in court. FERC argued that according to the statute, you don’t get to go to court and have a [regular] trial. What has happened in these two cases in California [Etracom and the Barclay’s bank case] and also in other district courts, is that the court has ruled that FERC was wrong, and there will be a normal trial.”

Defendants in these types of cases, where millions of dollars are at stake and defendant companies can be driven out of business, are entitled to their day in court, Brooks said.

“I think this is a question of fairness, and not just having an agency be able to dictate huge penalties,” he said. “Defendants now will have a chance to have a third party, a judge presiding and they can defend themselves. There are still open questions, but for five times in a row now, FERC has been told no to this notion that we’re going to defer to the agency now and waive all our rights. Now defendants can investigate fully and find other possible defenses.”

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