United States: 2015 FERC Enforcement Report Confirms Increase In Enforcement And Audit Activity As FERC Faces Unprecedented Number Of Litigated Enforcement Matters

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: http://www.ferc.gov/legal/staff-reports/2015/11-19-15-enforcement.pdf.

Footnotes

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.

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.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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