The Federal Energy Regulatory Commission's ("FERC") Office of Enforcement ("Enforcement") issued its 2015 Report on Enforcement ("Report") on November 19, 2015.  The Report summarizes FERC's enforcement efforts during the fiscal year 2015 in Enforcement's four divisions:  Investigations, Audits and Accounting, Energy Market Oversight, and Analytics and Surveillance.  The Report offers insight into FERC's public and non-public enforcement activities, which include self-reported violations and investigations that were closed without further action, and audits of jurisdictional companies.  Consistent with the form of its past reports, FERC focused on four major areas:

  1. Fraud and market manipulation;
  2. Serious violations of the Reliability Standards;
  3. Anticompetitive conduct; and
  4. Conduct that threatens the transparency of regulated markets.

It intends to maintain these priorities in 2016.  The Report's hard numbers verify an increase in FERC enforcement activity this year, and confirm FERC's continued emphasis on investigations and audits.

Division of Investigations

FERC highlighted several significant matters to which it directed its resources this year.  FERC is litigating six enforcement actions in federal district courts, more than ever before.  FERC also approved nine settlement agreements with eleven subjects to resolve six alleged violations of the Anti-Manipulation Rule, four alleged violations of reliability standards related to the 2012 blackout in Arizona and California, and an alleged violation of tariff provisions.

District Court Litigation:  FERC issued orders to show cause why a penalty should not be assessed in three investigations for violations of its Anti-Manipulation Rule.  In all three cases, FERC imposed civil penalties.  The targets of these investigations were Powhatan Energy Fund, Maxim Power Corporation, and City Power Marketing as well as individual defendants associated with each of these entities.  Each defendant refused to pay the assessed penalties, and FERC sought to enforce the penalties in United States District Courts across the country.

In Powhatan, FERC alleged that Powhatan, Alan Chen, HEEP Fund, Inc., and CU Fund, Inc. violated the Anti-Manipulation Rule by engaging in a scheme of fraudulent up-to congestion trades in the PJM Interconnection.  Maxim Power, Maxim Power Holding Company, Inc., Pawtucket Power Holding Co, LLC and Pittsfield Generating Company, LP allegedly violated the Anti-Manipulation Rule through a scheme to collect inflated "make-whole" payments based upon alleged misrepresentations and material omissions to the ISO-NE market monitor.  Finally, FERC assessed penalties against City Power and its owner K. Stephen Tsingas for engaging in fraudulent up-to congestion trades.

FERC also continued to litigate cases it had filed in years prior against Barclays Bank PLC and Lincoln Paper & Tissue, Inc. in federal district court and litigated against BP in an administrative hearing.  FERC sought to enforce civil penalties against Barclays and several of its traders for violating the Anti-Manipulation Rule, alleging that Barclays and its traders made certain trades between 2006 and 2008 that manipulated prices for electricity at four trading hubs in the western United States.1 In Lincoln Paper, FERC assessed civil penalties after finding that Lincoln Paper artificially inflated its energy load baseline and offered load reductions against that inflated baseline.  In the ongoing administrative litigation between BP and FERC, FERC contends that BP made uneconomic sales at Houston Ship Channel and took steps to increase its market share at Houston Ship Channel as part of a manipulative scheme to suppress the Houston Ship Channel Gas Daily index, and that this scheme was motivated by a desire to benefit certain physical and financial positions held by BP whose price was set by the same index.

Anti-Manipulation Rule Settlements:  In addition to the blackout cases, FERC issued an Order approving the settlement of a market manipulation investigation with Twin Cities Energy, two of its affiliates, and three of its traders. This settlement resulted in $3,250,000 in civil penalties, $978,186 in disgorgement, and temporary trading bans for each of the individuals involved.

Reliability Standards Settlements: The Office of Enforcement sought penalties against the California Independent System Operator ("CAISO") for failing to monitor the intertie separation scheme at the San Onofre Switchyard moments before the outage began.  Because of its failed monitoring, CAISO could not take the necessary emergency measures to stop the scheme when the intertie became overloaded.  To settle, CAISO agreed to a civil penalty of $6 million—$2 million to the U.S. Treasury, $2 million to NERC, and $4 million to be invested in measures to improve reliability.  Southern California Edison Company ("SCE") agreed to pay $650,000—$250,000 to the U.S. Treasury, $250,000 to NERC, and $400,000 to be invested in reliability enhancement—for failing to develop emergency plans to deal with a similar blackout.  The Office of Enforcement targeted Western Area Power Authority-Desert Southwest ("Western DSW") for operating faulty equipment that shut down during the blackout.  Western-DSW agreed to mitigation and compliance monitoring, but escaped a civil penalty.  Finally, the Office of Enforcement alleged that Western Electricity Coordinating Council ("WECC") failed to respond properly to alarms and relying on outdated reliability data.  For these failures, WECC paid a civil penalty of $16 million—$3 million to the U.S. Treasury, $3 million to NERC, and $13 million to be invested in reliability enhancements.

Tariff Provisions Settlements: FERC's allegations against Columbia Gas Transmission for violating the FERC gas tariff ended in settlement when Columbia Gas agreed to pay a civil penalty of $350,000.

Self-reports:  In FY 2015, FERC received 122 new self-reports, the highest number in any year since 2011.  The total number of self-reports since then now stands at 460.  The majority of these self-reports came from RTOs and ISOs.

The Division of Investigation closed 78 self-reports during 2015.  FERC enumerated several examples of conduct that, when self-reported, lead to no action: regulatory filing violations, errors in electric quarterly reports, tariff/OATT violations, and RTO/ISO billing failures.  FERC also noted that the absence of significant harm to the market can be a factor in its decision to close a self-report.

Investigations:  During FY 2015, the Division of Investigations opened 19 investigations, two more than it opened in 2014.  As in the year before, most of these new investigations began with a referral from either the Division of Analytics and Surveillance or the RTO/ISO market monitoring units.  Of the 19 new investigations, 14 involve market manipulation, seven involve tariff violations, four involve violations of the market behavior rules, one involves gas capacity releases, one involves violations of natural gas posting requirements, and one involves false statements to FERC.

The Division of Investigation also closed 22 investigations, seven more than it closed in FY 2014.  Six of the 22 cases were closed as a result of a settlement, while the remaining 16 cases were closed because the Division of Investigations found insignificant evidence of a violation.

Division of Audits and Accounting

The Division of Audits and Accounting administers FERC's audit and accounting programs.  The Division of Audits and Accounting completed 22 audits of oil pipeline, public utility, and natural gas companies.  These audits covered market-based rate authority and electric quarterly reports ("EQRs"), formula rates, transmission incentives, natural gas tariff and accounting, mergers and acquisitions, oil tariff and accounting, Form No. 552, nuclear decommissioning trust funds, and capacity markets and demand response.  The Division of Audits and Accounting issued 360 recommendations for corrective action and collected more than $26.3 million in refunds and recoveries.  The amount of refunds and recoveries gets higher every year – it more than doubled this year over the last.2

Division of Energy Market Oversight

The Division of Energy Market Oversight oversees wholesale natural gas and electric power markets.  It continued to study the market for emerging trends, as reported to the Commission in the 2014 State of the Markets Report and seasonal market assessments.  The Division of Market Oversight reviewed EQR submittals from more than 2,000 individual respondents – roughly 100 more than in FY 2014.  And it led a technical conference devoted to the eForms Refresh Project and transitioning to a new electronic filing format.

Division of Analytics and Surveillance

The Division of Analytics and Surveillance analyzes transactional and market data to detect potential market manipulation, anticompetitive conduct, and other anomalous activities in the energy markets.  In FY 2015, this Division issued a Notice of Proposed Rulemaking for the Collection of Connected Entity Data from RTOs and ISOs.  It also continued to analyze manipulative and anti-competitive behavior in the natural gas and electricity markets.  The Division worked on more than 30 investigations this year.

The full Report is available on FERC's website at:


1 While the Federal Power Act provides for de novo review if the parties elect to litigate in federal court, FERC has taken the position that the de novo review is limited to the pleadings in the administrative file, without discovery or an evidentiary hearing in the federal court proceeding.

2 FY 2010: 52 audits completed, 210 corrective action recommendations and $4.1 million in monetary recoveries; FY 2011: 72 audits completed, 300 corrective action recommendations, $290,00 in refunds and a write-off of $95.8 million in regulatory assets; FY 2012: 44 audits completed, 399 corrective action recommendations, $5.8 million in refunds, and accounting adjustments of $3.5 million not recoverable in future rate proceedings; FY 2013: 29 audits completed, 360 corrective action recommendations, $15.4 million in refunds, and accounting adjustments of $200,000; FY 2014: 19 audits completed, 62 corrective actions recommendations and $11.7 million in refunds and recoveries.

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