FERC in each instance. For example, it provides that the right of cross-examination should be afforded only "[t]o the extent that the Commission in its discretion determines that such is required for a full and true disclosure of the facts." Thus, if a meaningful evidentiary hearing were held before an objective decisionmaking prior to an appeal to the FERC, it is entirely possible that the FERC would not have to hold an evidentiary hearing of its own in such circumstances. However, this initial evidentiary hearing could not be conducted by an employee of ERA, and the same basic rights that would be available in an adjudicatory hearing of this sort before the FERC would have to be accorded. Finally, remedial actions formally initiated prior to the October 1, 1977 effective date of the DOE Act are exempt from the specific terms of § 503. See § 503 (f). The Conference Report, however, makes it clear that the Congress always intended that basic notions of fair play and due process would be adhered to in the administrative process. The Report states that "the Department should adhere to the principles of due process while completing action on pending proceedings not subject to these provisions." See Attachment E. On this basis, although the Secretary is not required to send all administrative appeals to the FERC, it would appear that the fundamental reforms embodied in § 503 should be observed with respect to all outstanding remedial actions, regardless of whether they were formally initiated before October 1, 1977. III. THE ECONOMIC REGULATORY ADMINISTRATION AND THE IMPLICATIONS OF SEC. 503 The provisions of § 503 are not intended to affect the procedures employed by the ERA prior to the issuance of a remedial order. In fact, § 503 (e) explicitly provides that nothing in § 503 should be construed so as "to affect procedural action taken by the Secretary prior to or incident to initial issuance of a remedial order which is the subject of the hearing provided in this section, but such procedures shall be reviewable in the hearing." In these circumstances, the ERA has considerable flexibility in determining its pre-remedial action procedures. While the ERA has considerable discretion in this respect, it is believed that those procedures should not be developed in the abstract. Instead, since most cases will be a prelude to FERC proceedings, this paper attempts to bring into focus some of the considerations that should be taken into account in developing procedures for the ERA. The ERA has yet to propose any rules in response to § 503. Should the ERA consider proposing rules, the purpose of which is to curtail or supplant adjudications by the FERC, it should take into account the following. First, as discussed in detail above, enactment of § 503 was designed to achieve a complete separation of prosecutorial and adjudicative functions. To achieve this objective, the Congress placed adjudications in the FERC, an independent entity. Regardless of what steps are taken by the ERA, there will be proceedings before the FERC "at which the Secretary must prove to the satisfaction of the [Commission] that a violation has been committed." See Attachment B." Second, although the ERA could attempt to develop a record for presentation to the Commission, it must be kept in mind that, unless the record is developed before an objective decisionmaker, firms are likely to insist that the FERC develop its own record in accordance with its own rules of procedure. In this respect, it must be recognized that the absence of an objective decisionmaker would likely affect, inter alia, rulings on the scope of discovery, the admissability of evidence and the extent of cross-examination as well as any findings arrived at based on the record developed. Since the ERA unquestionably has prosecutorial functions (see Department of Energy Delegation No. 0204-4 (42 F.R. 60725, November 29, 1977)) and since one of its principal missions is the development and enforcement of regulations under the Emergency Petroleum Allocation Act, the ERA is not itself able to provide for a separation of functions.10 Thus, while the ERA might find it desirable to amplify its procedures in hopes of limiting the FERC's role to an appellate one, it cannot overcome the basic problem that its role is a prosecutorial one. Third, for purposes of developing an administrative record for use before the FERC, it is conceivable that the Secretary could establish a body independ Because these proceedings will be de novo in nature, the ERA may not implement any restriction on a firm's ability to raise arguments or contentions before the FERC that were not raised before the ERA. But cf. 42 F.R. 47210 (September 20, 1977). 10 Even though the OAR may handle EPAA-related adjudications, it lacks the requisite separation because it is part of the ERA and subject to the control of the Administrator of the ERA. ent of the ERA. However, if any such pre-FERC proceeding is to serve any purpose, it must have the following minimum characteristics. The burden of proof in the proceeding must be on the compliance staff. The person conducting the proceeding must be independent of the ERA and not otherwise subject to the control of persons whose principal mission prosecutorial in nature. The proceeding must be conducted in accordance with rules along the lines of those discussed below in Part IV in connection with adjudications by the FERC. Fourth, if the Secretary fails to establish an independent body to handle adjudications and the ERA acknowledges its inability to conduct the kind of evidentiary hearing necessary to avoid a full evidentiary hearing before the FERC, the question arises as to whether the ERA should streamline its current procedures, set forth in § 205.190, et seq. It is submitted that the interests of all parties would suffer if the pre-remedial order proceedings were streamlined or abbreviated. Pre-remedial order opportunities to challenge the propriety of an NOPV will be as helpful to the ERA as to private parties. It will be to the ERA's benefit to avoid remedial orders which will be vacated on appeal. It is to the private parties' advantage to have an opportunity to persuade the ERA that an NOPV is without basis in fact and law. Also, there should be substantial encouragement for consent order negotiations in the pre-remedial order stage. Such consent order negotiations would be facilitated rather than impeded by the continuation of the current procedures employed by the ERA." IV. RECOMMENDED PROCEDURES FOR THE FERC As already discussed, the ERA is unable to conduct the adjudications mandated by § 503 because of its prosecutorial role. Thus, a de novo hearing must be accorded at the FERC for the establishment of a record.12 The hearing before the FERC should have all the basic attributes of an adjudicatory proceeding. See Attachment F, the rules of the Occupational Safety and Health Review Commission. These include rules on the following procedural matters. (a) Requirement for the filing of a complaint by the ERA in cases where an appeal is taken to the FERC (see Attachment F, § 2200.33 (a)); (b) The burden of proof should be placed on the ERA; (c) Subpoenas should be issued upon request of a party and other basic discovery rights should be accorded, subject to reasonable safeguards; (d) A notice of hearing should be issued, stating the time, place, nature, legal authority and jurisdiction therefor, and the issues of fact and law to be decided; (e) A full opportunity for interested parties to submit facts and arguments should be accorded; (f) Any oral or documentary evidence should be received, subject to the exclusion of irrelevant, immaterial or unduly repetitious evidence ; (g) There should be an opportunity to conduct such cross examination as may be required for a full and true disclosure of the facts; (h) There should be a prohibition on ex parte communications; 11 Although current procedures should in general be maintained, there are specific reforms needed in regard to the current regulations. First, flexible regulations and/or published guidelines should be issued on the negotiating flexibility possessed by the Agency's compliance staff. Although the July 13. 1977 Report of the Task Force on Compliance and Enforcement emphasized the importance of compromise of overcharges to the Agency's enforcement efforts, the Agency has yet to implement this important reform Second, the time for reply to an NOPV (10 days) is unreasonably short and should be extended to 30 days. See $205.191(b). Third, the current regulations require that the reply to an NOPV shall include a complete statement of all relevant facts and reasons justifying an act or transaction. See § 205.191 (c). While the requirement that a reply be a full and exhaustive statement may well facilitate the resolution of an NOPV, this require ment should not serve to bar a firm from raising new arguments that may be subsequently discovered or developed. This is particularly so in view of the time constraints imposed on filing a reply and in recognition of the fact that such a reply may often be filed without the benefits of counsel and a full development of the facts and law. In addition, since proceedings before the FERC are of a de novo nature, it hardly makes sense to be overly restrietive in proceedings before the ERA. 12 If the Secretary created an entity independent of the ERA to conduct pre-remedial order hearings and those hearings were conducted with the basic requisites the FERC would accord in a hearing, the FERC could then consider the record so developed. This would not. however, prevent the FERC from taking additional evidence, if deemed necessary, and the burden of proof would still be on the ERA. (i) Person hearing evidence should not be subject or responsible to supervision or direction of an employee or agent engaged in an investigative or prosecuting function; (j) The transcript of testimony and exhibits together with all papers and requests filed therein should constitute the exclusive record for decisions; (k) There should be an opportunity to submit proposed findings and conclusions or exceptions to proposed decisions; (1) Decisions should be rendered on consideration of the entire record and should be supported by and in accordance with reliable, probative, and substantial evidence; (m) Decisions, including initial decisions, should include a statement of findings and conclusions and the reasons or basis therefore on all material issues of fact, law or discretion presented on the record; (n) Recommended decisions or initial decisions should be rendered by the person who receives the evidence; and (0) There should be a right of appeal from initial decisions to the full Commission. Only with procedures along these lines, which are fundamental to an adjudicatory-type proceeding, will the letter and intent of § 503 be carried out. In addition to these basic requirements, the FERC rules should also contain provisions on, inter alia, (i) service, (ii) the automatic staying of contested remedial orders, (iii) the protection of confidential information, (iv) compromise and settlement, (v) rules of evidence, and (vi) the persons that will be presiding officers in the adjudicatory hearings." V. THE OFFICE OF ADMINISTRATIVE REVIEW AND THE IMPLICATIONS OF SECTION 503 As discussed in Part II above, the Congress exempted from the specific provision of § 503 those remedial actions formally initiated before the October 1, 1977 effective date of the DOE Act. At the same time, however, the Congress made clear that "the Department should adhere to the principles of due process while completing action on pending proceedings not subject to these provisions." See Attachment E. It also stated that the statutory procedures contained in § 503 "are intended to clearly reaffirm the intent of Congress that those involved in enforcement actions * * * be extended procedural due process. Congress always intended that the notions of fair play and due process be followed in the administrative process." Id. Thus, if the intent of Congress and basic notions of fair play and due process are to be accorded, those remedial actions initiated prior to October 1, 1977 should at least reflect the two fundamental reforms embodied in § 503—the right to an adjudicatory-type hearing and a separation of prosecutorial and adjudicatory functions. These reforms could, of curse, be achieved if the Secretary chose "to apply [the statutory procedures] to such pre-existing proceedings in [his] option." See Attachment E. They also could be achieved if the Secretary created a completely independent body to adjudicate these matters and provided the basic types of procedural rights discussed above in connection with the FERC's implementation of § 503. If, however, the Secretary has the OAR, as a entity of the ERA, perform this adjudicative function, both congressional intent and the requirements of due process will be contravened. See Part II above. In order to provide uniformity in the treatment of those persons subject to regulation under the EPAA, it is urged that the Secretary implement a single approach for all outstanding and future remedial actions. Thus, regardless of the date on which an action was formally initiated, basically equal treatment, both procedurally and substantially, would be accorded to all persons subject to regulation. Based on the current structure of the Department, this desirable result could be most easily achieved by using the FERC for appeals of all outstanding remedial actions. Senator JOHNSTON. Thank you very much, Mr. Giroir. Did I pronounce that correct, Mr. Giroir? Mr. GIROIR. That's correct, yes, sir. 13 Since these proceedings will be adversary in nature and will involve the formal receipt of evidence, the persons conducting these proceedings should have administrative law judge or equivalent experience. 34-747 O-79-48 And you don't feel that the small marketer gets an adequate hearing by going through the Office of Hearings and Appeals? Mr. GIROIR. No, sir, I do not. Senator JOHNSTON. And it's just another layer of hearings in the bureaucracy and delays and legal fees. You feel that you would get a much fairer and more expeditious hearing directly in the FERC. Is that correct? Mr. GIROIR. Yes, sir. That is correct. Senator JOHNSTON. Very well. And I understand this is a panel, so, Senator Hansen, do you have any questions at this point? Senator HANSEN. No, I do not. Thank you, Mr. Chairman. Senator JOHNSTON. All right. Good. Mr. Richard C. Morse, who is chairman of the Committee on DOE Regulations of the American Petroleum Institute, from Washington, is our next witness. We are glad to welcome you, Mr. Morse. STATEMENT OF RICHARD C. MORSE, CHAIRMAN, COMMITTEE ON DEPARTMENT OF ENERGY REGULATIONS, AMERICAN PETRO LEUM INSTITUTE Mr. MORSE. Thank you, Mr. Chairman. I am pleased to have the opportunity to appear before your committee to express the concern of the American Petroleum Institute members which covers the full spectrum of those who are subject to the regulations of the Department of Energy. We have a committee of lawyers who spend a good deal of all of our time attempting to understand and cope with these complex regulations, and in the process of trying to understand and deal with the regulations as they've changed and have been enforced. We were heartened when Congress established section 503 (c) of the Department of Energy Organization Act in order to separate the function of policy formulation and enforcement from that of adjudication. It has been our perception and our view that there is simply no way that there can be a genuine guarantee of due process in the adjudication of specific cases if it is left under the umbrella of the person who is responsible for formulation of the policies and enforcement of the regulations. And so, as I say, we were heartened when 503 (c) was enacted into law. Our purpose here today is primarily to insure or attempt to encourage your committee to make it abundantly clear through the funding of the Federal Energy Regulatory Commission that it does have the responsibility established in 503 (c), and that it has the funds and the resources with which to discharge those critical responsibilities. And I have submitted my written comments to the committee before today, so I would ask that those be introduced into the record, and not burden you with the full text of my statement. Senator JOHNSTON. That will be done. Mr. MORSE. But I would like to simply emphasize that we're concerned about the proposals or procedures that have been alluded to just now within the Department which would appear to be duplicative and which, even though they have taken steps toward establish ing some element of due process, simply can't perform that function because they are, nevertheless, subject to the jurisdiction of the Secretary who has the responsibility of enforcing the rules. And so it's just an unavoidable conflict in adjudicating individual matters. I think it's important to stress that, given the reality of the Department of Energy and within it the Special Counsel's Office and the charge it has been given by the Secretary, that there is going to be a tremendous amount of enforcement activity within the Department, and that, therefore, I think that there are going to be substantial matters brought to the attention of the FERC under the terms of 503 (c), and so that there should be strong attention paid to the necessity of funding that agency appropriately that it can perform its adjudicative function sufficiently and fairly and develop and a full record of the matters are presented to it. [The prepared statement of Mr. Morse follows:] STATEMENT OF RICHARD C. MORSE, CHAIRMAN, COMMITTEE ON DEPARTMENT OF ENERGY REGULATIONS, AMERICAN PETROLEUM INSTITUTE Mr. Chairman, members of the Subcommittee, my name is Richard Morse, and I am an attorney with Atlantic Richfield Company. I am appearing before you today on behalf of the American Petroleum Institute's Committee on Department of Energy Regulations, of which I serve as Chairman. The Committee is made up of representatives of a broad range of oil companies which are subject to regulation by the Department of Energy. The Committee has requested the opportunity to appear at this authorization hearing for the DOE in order to address certain budgetary questions arising in connection with the implementation of Section 503 of the Department of Energy Organization Act. By letter dated March 7, 1978 and addressed to the Chairman of this Subcommittee, the American Petroleum Institute submitted a brief statement of its views concerning the implementation of Section 503. The API's Committee on DOE Regulations now welcomes the opportunity to provide a more detailed statement of its views. The Department of Energy Organization Act mandates important changes in the procedures formerly employed by the Federal Energy Administration, the DOE's predecessor. Of particular importance is the change found in Section 503 of the Act, which gives recipients of remedial orders, issued pursuant to the Emergency Petroleum Allocation Act of 1973, the right to an adjudicatory hearing before an independent decisionmaker, the Federal Energy Regulatory Commission. The basic purpose of my appearance this morning is to urge the Congress, in its actions on the DOE's budget, to insure that the Commission receives the resources needed to carry out the adjudicatory function which the Congress has charged it to perform and that the Secretary does not conduct duplicative and protracted adjudicatory proceedings prior to the proceedings which the Commission itself is required to conduct. Under Section 503 of the DOE Act, each recipient of a remedial order is entitled to a hearing before the Commission. According to the express terms of the statute, this hearing must, at a minimum, include an opportunity for the submission of briefs, oral or documentary evidence, and oral argument and an opportunity for cross-examination to the extent such is required for a full and true disclosure of the facts. Thereafter, the Commission must issue a decision, including findings of fact, affirming, modifying or vacating the remedial order or taking other appropriate action. The legislative history of the DOE Act, which is discussed in the legal analysis attached to my written testimony, makes clear that these requirements were intended to guarantee that recipients of remedial orders would be accorded due process of law. Because of the Commission's congressionally-mandated independence from the remainder of the Department and its lack of enforcement responsibilities under the Emergency Petroleum Allocation Act, the Commission is able to serve as an independent and objective decisionmaker in remedial order proceedings. Under these circumstances, the congressional objective underlying Section 503-the separation of prosecutorial and judicial functions-is achieved. The Commission has yet to propose regulations to implement the requirements |