On November 20, the Federal Energy Regulatory Commission’s (FERC) Office of Enforcement issued its Report on Enforcement, detailing its activities in 2014. These activities continued to focus on three areas:
- Fraud and market manipulation
- Serious violations of mandatory Reliability Standards
- Conduct that threatens the transparency of regulated markets
The report also includes an overview of, and statistics reflecting, the activities of the four divisions within Enforcement: Division of Investigations (DOI), Division of Audits and Accounting (DAA), Division of Energy Market Oversight (Market Oversight), and Division of Analytics and Surveillance (DAS).
Investigations and Settlements
According to the report:
- DOI opened 17 new investigations
- DOI closed 15 pending investigations with no action or settlement
- In FY2014, DOI obtained a total of almost $25 million in civil penalties and disgorgement of approximately $4 million in unjust profits
- 9 Notices of Alleged Violations were issued in 2014, involving conduct of 21 separate corporate entities and 6 individuals. The notices involved alleged violations of the Commission’s prohibition of market manipulation, tariffs, regulations, and Reliability Standards.
DOI asserted that all of the settlements included provisions requiring the subject to enhance its compliance programs, and periodically report back with the results of those compliance enhancements.It’s important to note that we have seen DOI staff demonstrate a significant focus on compliance, so we recommend that companies carefully monitor this area of their business.
DOI staff reported that the Commission approved the first settlement of an investigation of a self-reported violation of the Commission’s Anti-Manipulation Rule. Launched by a self-report by Direct Energy Services, LLC, DOI and DAS investigated whether Direct Energy manipulated natural gas prices at three hubs in 2011 and 2012. In this precedent-setting investigation, Direct Energy received a relatively small civil penalty and disgorgement payments due to its self-reporting, strong compliance program, quick action, and full cooperation with the investigation.
The Commission also approved settlements of reliability investigations of Arizona Public Service Company and Imperial Irrigation District, which arose out of a joint inquiry between the Commission and NERC into a September 2011 outage in Arizona, Southern California and Baja California, Mexico. The Commission has also issued a Notice of Alleged Violations against the Western Electricity Coordinating Counsel, the California ISO, Southern California Edison Company and Western Area Power Authority-Desert Southwest Region for the same outage.
Settlements by the Numbers
The Commission approved eight settlement agreements between Enforcement and nine separate subjects, assessing a total of almost $25 million in civil penalties, and disgorgement of approximately $4 million plus interest. In five of the eight cases, the companies’ compliance efforts warranted credit to reduce penalties. Since 2007, the total civil penalties assessed (excluding overturned and pending proceedings) amount to over $602 million and the total disgorgements amount to almost $300 million.
In FY2014, staff received 73 new self-reports and closed 70 self-reports, including some pending from prior years. As of the end of FY2014, 40 self-reports from the current and prior fiscal years remained pending. Twenty-seven illustrative self-reports were closed with no action, but are summarized in the report to promote transparency and encourage compliance efforts.
Enforcement Coordination with Other Offices
Investigations staff also assisted other offices in the Commission with various matters, including:
- Gas-Electric Coordination Issues. DOI staff participated on the Gas-Electric coordination team, including work on the final rule issued by the Commission in November 2013 and the rehearing order issued in June 2014.
- Polar Vortex Review. DOI staff assisted DAS with an in-depth review of the Polar Vortex events that occurred in January and February 2014 to determine whether manipulative trading behavior contributed to high natural gas prices and elevated electricity costs that arose during that time
- PJM Up-to Congestion Issues. DOI staff has been working with other offices in the Commission to analyze issues raised in Docket Nos. ER13-1654-000 and EL14-37-000 regarding PJM’s treatment of Up-to Congestion, including how it compares and contrasts with PJM’s treatment of virtual supply and virtual demand. DOI staff also assisted with planning a technical conference on these issues, scheduled to occur in early 2015.
Audits, Market Oversight, and Surveillance
The report also detailed the work and accomplishments of DAA, DAS, and Market Oversight. Staff from DAA reviewed the conduct of regulated entities through 19 financial and operational audits of public utilities and natural gas pipelines. DAA’s audits resulted in 162 recommendations for corrective action and directed refunds and recoveries totaling over $11.7 million. In FY2014, DAS reviewed numerous instances of potential misconduct and referred matters to DOI for investigation. Market Oversight continued its analysis of market fundamentals, including significant trends and developments, market structure and operations to identify market anomalies, flawed market rules, and potentially improper behavior by market participants.