In an order issued late on November 14, 2012, FERC has taken the highly unusual step of suspending a trader's market based rate authority for six months because of false and inaccurate statements to the Commission and the California Independent System Operator (CAISO) in the course of a market manipulation investigation.
FERC said that the trader, J.P. Morgan Ventures Energy Corporation (Ventures), violated a regulation that requires sellers to provide accurate and factual information and prohibits them from submitting false or misleading information in their communications with the Commission, market monitors, and regional transmission organizations. Although the regulation provides an exception if the seller can show it used due diligence to ensure the truthfulness of its communications, FERC found that Ventures failed to meet the exception.
The case began with a CAISO investigation of Ventures for possible market manipulation in 2011. Ventures believed responses to CAISO information requests were voluntary, and maintained that position even after CAISO referred the matter to FERC's Office of Enforcement. Ventures subsequently filed three pleadings with FERC, including a complaint that it quickly withdrew, that were all predicated on its belief that cooperation with CAISO was voluntary and that Ventures was unaware that the Office of Enforcement was involved.
FERC's orders points to an e-mail chain showing that both its outside and inside counsel were aware that Enforcement had assumed the direction of the proceedings, and that critical assertions in Ventures' pleadings to FERC were predicated on false statements. FERC found that Ventures' had a duty to respond to information requests from CAISO and Enforcement, had no good faith belief that its responses were voluntary, and failed to document the diligence steps undertaken by Ventures and its counsel to ensure that statements in its pleadings were accurate. FERC said that the "due diligence" exception in the regulations is not met merely by hiring a reputable law firm, and does not depend on the respondent's mindset or belief that it has been honest with the regulator.
FERC's order suspends Ventures' market-based rate trading authority for six months starting on April 1, 2013, but allows Ventures to participate in markets as a "price taker," meaning that it can participate in markets only by scheduling quantities of energy without an associated price or specifying a zero price in the offer. Ventures also can file to establish cost-based rates for its power sales. FERC delayed the sanction because Ventures controls certain generating assets, and FERC wanted to allow CAISO to arrange replacement supplies so as not to cause reliability problems.
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