United States: This Is Not Your Father’s FERC: Understanding The New, Central Role Of FERC’s Enforcement Division – Part I

Last Updated: July 14 2013
Article by Marc D. Machlin and Min Choi

The Office of Enforcement at the Federal Energy Regulatory Commission ("FERC") has changed significantly in the past decade.  Its staff has increased from under 20, a decade ago, to 200 lawyers, economists, analysts, and investigators today.  Moreover, FERC has historically kept investigations confidential, but the once quiet agency is now making headlines.  A recent opinion by the D.C. Circuit Court of Appeals, Hunter v. FERC, was widely read because it highlighted FERC's involvement with the world of futures and derivatives trading.  Also, in the past year alone, the agency has made public a number of high profile investigations into energy trading at Wall Street investment firms, such as Barclays and JP Morgan Chase.

The purpose of this three-part series is to give the reader a primer on the new enforcement arm of FERC.  The first blog post discusses how the agency's mission has changed in recent years, and how and why the enforcement arm has expanded in size and in authority.  The second blog post reviews and analyzes the D.C. Circuit Court of Appeals' opinion in Hunter v. FERC, and discusses what the case reveals about the new enforcement division's priorities and capabilities.  The series concludes with an overview of several, current high-profile enforcement cases, and provides some takeaways on how the new enforcement division affects other participants in the energy sector.

Part 1: From Rate-Setting to Energy Trading Enforcement

FERC traces its history back to the 1920's and the creation of its predecessor, the Federal Power Commission ("FPC"), a small executive branch agency that focused mainly on the licensing and oversight of hydropower facilities.  A decade later, President Franklin D. Roosevelt worked with Congress during the Great Depression to enact legislation intended to limit the power of utility monopolies.  As part of that effort, Congress passed the Federal Power Act in 1935, which transformed the FPC into an independent agency, whose mission was to ensure "just and reasonable" wholesale electricity prices.  The FPC was later transformed into FERC in 1977.

Prior to the 1980s, the FPC and FERC remained largely hidden from the public eye.  Its responsibilities were limited mainly to overseeing wholesale rates, managing tariffs, and issuing rules on interstate sales of natural gas and electricity.  Thus, the agency's original enforcement responsibility was to regulate pricing by requiring that public utilities establish reasonable rates, making sure that utilities adhered to tariffs, and ordering refunds for overcharges to ratepayers.  The enforcement staff consisted of a handful of attorneys with a few support personnel within the agency's Office of General Counsel.  Moreover, the FPC and FERC rarely made investigations public out of concern for, among other things, how news of the investigation would affect the utilities' stock prices.

That all changed in the late 1980s.  As part of the Reagan Administration's efforts to deregulate major industries, FERC began deregulating the gas markets.  And, in 1992, Congress passed the Energy Policy Act of 1992 ("EPAct I"), which  initiated a partial transition for the nation's electricity industry from full regulation of power sales to partial deregulation and competition for many energy producers and suppliers.  Among other things, utility companies were now required to open their transmission lines to electricity wholesalers, and transmission service was effectively unbundled and could be purchased separately.  FERC was given oversight powers over this transition.  Also, in the 1990s, many states adopted legislation seeking to deregulate the power generation sector, either in whole or in part; electric utilities in these states either sold off their generation assets or moved these assets into separate market-driven affiliates.  (Other states chose to preserve their vertically integrated utilities and effectively limited or prohibited direct competition in the generation sector.)  In any event, by the early 2000s, prices for energy commodities came to be determined less by FERC staff, and more by the trading of financial instruments – like futures and derivatives – the value of which were tied to the prices of the underlying oil, gas, and energy commodities.  As we now know, this transition resulted in some turmoil in gas and energy prices – as well as production and transmission – which culminated in the California Energy Crisis.

Congress responded by passing the Energy Policy Act of 2005 ("EPAct II"), which called for a significant increase in FERC's staff and budget and specifically authorized FERC to pursue market manipulation.  The amendments also allowed the agency to impose fines of up to $1 million for each day that a company is found to be in violation of the rules governing electricity, oil, and gas markets.  Previously, FERC was only able to level civil penalties of up to $10,000 per day.  The amendments also increased the maximum fine and imprisonment time that applied to criminal cases.

Notably, the statutory language authorizing FERC to pursue manipulation was modeled on Section 10(b) of the Securities Exchange Act of 1934.  A FERC interpretive release from 2006 explains that FERC will look to cases interpreting the enforcement authority  of the Securities and Exchange Commission's ("SEC") under Rule 10b-5, which was promulgated under Section 10(b) of the Exchange Act, for guidance when bringing its own investigations and enforcement actions.  Thus, while FERC's original enforcement focus was on making sure that utilities adhered to rate-setting through tariffs and rebates, Congress shifted the agency's efforts to policing market manipulation.  In that respect, Congress intended for FERC to become very much an enforcement agency like the SEC.

Fast forward to the present.  Since the passage of the EPAct II in 2005, FERC's enforcement division has grown to about 200 staff, up from about 20 a decade ago.  The division is currently led by Norman Bay, the former U.S. Attorney for the District of New Mexico.  One of his top deputies is a former general counsel of the FBI, and the division's managerial ranks now include other former law enforcement officials and criminal investigators.  Moreover, in 2012, the enforcement division created a specialized group, the Division of Analytics and Surveillance ("DAS"), whose primary function is to collect and analyze market data to help detect instances of manipulation and other illegal activity.  DAS alone comprises more than 40 staff, including former traders, risk managers, and others with industry experience.

Another consequence of the move toward market-based regulation is FERC's ability to publicize its enforcement efforts.  This change is attributable to the fact that energy commodity prices are no longer controlled by FERC and by regulated public utilities, but rather a multitude of direct energy participants as well as trading and investment firms.  Specifically, prior to deregulation, there were only a handful of regulated utilities in the gas and electricity space, and so news of an investigation into one of these entities could have significant detrimental effects on the company's well-being.  With more competition within the industry, and more entities, that concern has lessened.

Thus, within the past two years, FERC has made public 13 investigations of alleged market manipulation.  In March 2012, for example, the agency disclosed that it reached a $245 million settlement with an energy firm, Constellation Energy, to resolve accusations that the company manipulated the New York and New England power markets.  And, beginning in the summer of 2012, FERC has disclosed probes of the trading units at Barclays Plc, Deutsche Bank AG and JP Morgan Chase & Co.  The Barclays case has drawn particular attention because FERC named individual traders as well as the bank.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Min Choi
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions