On Petition for Review of Orders of the Federal Energy Regulatory Commission
Before: Edwards and Garland, Circuit Judges, and
Williams, Senior Circuit Judge.
The opinion of the court was delivered by: Edwards, Circuit Judge
Argued September 27, 2004
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 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.
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 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 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 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. ...