The regulated community can always learn of potential compliance pitfalls by watching where FERC has concentrated its enforcement and investigative resources. The following is a summary of an important December 17, 2009 FERC report on its enforcement activities.

Division of Investigations

This fiscal year, the FERC Division of Investigations (DOI) focused on enforcement of reliability standards, including the publicly disclosed investigation into the February 2008 Florida blackout. The event, which originated on the Florida Power and Light Company (FPL) system, led to the loss of 22 transmission lines, 4,300 MW of generation, and 3,650 MW of customer service or load. In September 2009, NERC and FPL agreed to a $25-million settlement, which, among other things, required FPL to undertake numerous specific reliability-enhancement measures, including enhancing its compliance program and training and certification requirements for operating employees.

Illustrative Self-Reports Closed With No Further Action

  • Transmission service practices. A public utility company violated its Open Access Transmission Tariff (OATT) and Business Practices. DOI closed the matter with no further action because the company was acting in the interest of reliability by serving customers who would have been stranded and because the violations were limited in volume, self-reported/corrected and resulted in no harm to the market.
  • Disclosure of transmission information. A natural gas transmission company, whose employee inadvertently sent an e-mail with a non-public capacity posting to a marketing affiliate employee, quickly recognized the mistake and took action to correct it. DOI closed the matter with no further action because it concluded that the incident was inadvertent, the company immediately took steps to prevent further occurrences, and there was no harm or unjust profits.
  • Filing of jurisdictional transmission agreements. A public utility company identified several jurisdictional transmission and interconnection agreements that the company had failed to file with FERC under section 205 of the FPA. DOI staff closed the matter with no further action because there was no harm to the market; no evidence of fraud or intent to avoid compliance with FERC's regulations; and the company quickly conducted an internal investigation, self-reported the violations, and voluntarily adopted a satisfactory compliance program.
  • Misuse of Natural Gas Policy Act Section 311 facility. A company with limited pipeline operations failed to file an application to authorize service through its compressor station. The company self-reported its failure to file the application and also filed a certification application. DOI closed the matter with no further action because some documents indicated that at least some services rendered through the compressor station met the “on behalf of” requirement and because FERC granted the requested certificate authority.

Illustrative Self-Reports Converted to Investigations but Closed With No Action

  • Tariff violation. An electric utility company self-reported that it failed to convert a one-year experimental study review process to permanent status. DOI staff conducted an investigation but subsequently closed the matter with no further action because FERC granted a tariff waiver submitted by the company and retroactively approved the studies that were erroneously completed while the review process was not FERC-approved.
  • Posting violations and oversubscription of firm capacity. Company A submitted a self-report to DOI staff acknowledging that it participated as a replacement shipper in certain capacity release transactions. Company B, the releasing shipper in these transactions, also submitted a self-report to DOI staff. DOI closed the matter with no further action after concluding that the violations did not result in unjust profits or harm to the market and because both companies put adequate compliance measures in place to ensure that no other similar violations would occur in the future.

Illustrative Investigations Closed With No Action

  • False or misleading communication to RTO. DOI closed the matter with no further action after concluding that, while a communication from an electric company to an ISO that provided a specified capacity commitment turned out to be inaccurate, the company had good reason to believe that its communication was correct when made.
  • Federal Power Act (FPA) Section 203 violation. DOI closed the matter with no sanctions after determining that an electric company's failure to make timely filings pursuant to Section 203 of the FPA was corrected, presented no demonstrable financial harm to the market, and generated no unjust profits.
  • Flipping violations. A natural gas company self-reported two sets of flipping transactions. DOI closed the investigation with no sanctions because the company acted proactively after the violations were uncovered, and the total volume transported by the replacement shippers through the flipping releases was approximately two-thirds of a billion-cubic-feet.

Most Notable Audits in FY2009

  • Southern Star Central Gas Pipeline, Inc. The Southern Star audit found noncompliance with respect to filing with FERC contracts with material deviations. As a result of this noncompliance, DOI developed a list of frequently asked questions to address contracts containing material deviations from the forms of service agreement in pipeline's tariffs to help jurisdictional companies and industry officials to comply with FERC's requirements.
  • Southwest Power Pool Regional Transmission Organization. The Division of Audits (DA) discovered some weaknesses with certain aspects to Southwest Power Pool's compliance with its OATT, standards of conduct, and administrative policies for travel. As a result of the weaknesses, the Commission required Southwest Power Pool to adopt corrective measures to strengthen and develop its policies and procedures for notifying customers and market participants of tariff-related problems, market participant audits, travel, board member selection, and nonmonetary gratuities.
  • New York Independent System Operator (NYISO). In the NYISO audit, DA staff addressed concerns about the independence of NYISO's internal Market Monitoring Unit (MMU), due to its reporting relationship and responsiveness to NYISO's CEO. This audit also disclosed that NYISO failed to consistently notify FERC and market participants, on a timely basis, when NYISO discovered tariff-related problems. FERC required NYISO to address independence concerns with the MMU as well as the problems with NYISO not timely notifying market participants and FERC of tariff-related problems.

Division of Financial Regulation (DFR) Significant matters

  • Annual Report on Natural Gas Transactions. DFR staff focused on providing guidance to assist the gas industry in complying with FERC's requirements established in Order 704 on Transparency Provisions of Section 203 of the NGA and developed a list of frequently asked questions regarding Form No. 552 to provide details on reporting requirements, fixed price trades, energy management agreements, exchange for physical transactions, cash-outs, unprocessed gas, pre-bidweek transactions, and take-or-release contracts.
  • Quarterly reporting requirements for intrastate natural gas companies. In August 2006, FERC issued a notice requesting comments on proposed standardized electronic information collection on contract-reporting requirements to be used by NGPA Section 311 and Hinshaw pipelines. As a result of this rulemaking, DFR developed a new form that is intended to capture the data and make it easily accessible to the public with the information presented in a clear and transparent manner.