In this enforcement update, we cover:
- GDF SUEZ Energy Marketing settles with FERC for alleged market manipulation;
- Covanta Haverhill settles with FERC regarding ISO-NE generator operations;
- FERC delegates authority to its staff in absence of quorum;
- CFTC orders The Royal Bank of Scotland to pay $85 million for attempted manipulation of ISDAFIX benchmark;
- FERC and ETRACOM file reply briefs regarding scope of review in district court;
- FERC refers pipeline matter to Office of Enforcement for further investigation;
- Judge grants City Power request for discovery in district court proceeding;
- Judge in Silkman proceeding determines that “de novo review” under Federal Power Act means an ordinary civil action; and
- FERC answers TOTAL motion for leave to respond and response in FERC proceeding
GDF SUEZ Energy Marketing settles with FERC for alleged market manipulation. On February 1, FERC issued an order approving a settlement between GDF SUEZ Energy Marketing NA, Inc. (GSEMNA) and FERC’s Office of Enforcement, which resolves Enforcement’s investigation into whether GSEMNA violated the FERC’s anti-manipulation rule by improperly targeting and increasing its receipt of lost opportunity cost credits (LOCs) in the PJM market. Under the settlement, GSEMNA agreed to pay disgorgement of $40,800,000 to PJM and a civil penalty of $41,000,000 to the United States Treasury, and to be subject to monitoring that includes submission of an annual compliance monitoring report. GSEMNA neither admits nor denies the alleged violations.
According to the settlement, Enforcement determined that GSEMNA carried out its strategy to target and inflate LOCs—a payment to combustion turbine units that receive a day-ahead award and that PJM directs to reduce output or does not dispatch in the real-time market—by offering generation units into PJM’s day-ahead market with below-cost offers when it anticipated that PJM would not dispatch the units in the real-time market, seeking and obtaining LOCs when the discounted units were expected to otherwise be out of the money. Enforcement determined that GSEMNA’s offers did not reflect the price at which it wanted to generate power, but rather the price at which it could obtain a day-ahead award and then receive LOCs during periods when the discounted units likely could not have been operated profitably. Enforcement concluded that GSEMNA’s strategy of targeting and inflating LOCs was contrary to supply and demand fundamentals and impaired the functioning of the LOC provisions of the PJM market and PJM’s unit commitment process.
Covanta Haverhill settles with FERC related to unit operations investigation. On February 1, FERC approved a settlement between Covanta Haverhill Associates LP (Covanta) and FERC’s Office of Enforcement resolving Enforcement’s investigation into whether the Covanta failed to provide instantaneous metered power output data to ISO-NE, as was required by the ISO-NE Tariff, during the period September 1, 2007 through June 29, 2016. Under the settlement, Covanta neither admits nor denies the alleged violations, and it agrees to: (a) pay a civil penalty of $36,000 to the United States Treasury and (b) implement procedures to improve compliance, subject to monitoring via submission of semi-annual reports for at least two years.
According to the settlement, Covanta failed to provide to ISO-NE instantaneous metered data for its 45 MW waste-to-energy generator in Haverhill, MA, as was required by the ISO-NE Tariff, instead relying on its Local Control Center to provide this output data through its settlement system. Enforcement determined that by failing to provide instantaneous metered data through a Remote Terminal Unit, Covanta violated multiple provisions of the ISO-NE Tariff, as well as section 35.41(a) of FERC’s regulations related to unit operations. FERC Enforcement Staff previously issued a notice of alleged violations related to this investigation on January 23.
FERC issues order delegating further authority to staff in absence of quorum. As everyone knows, the departure of Norman Bay left FERC with only two commissioners – not enough to issue orders. So, on February 3, FERC issued an order delegating further authority to staff in absence of quorum, in light of Norman Bay’s last day. The order delegates to FERC’s staff further authority to act until the Commission again has a quorum, effective February 4. The order delegates the following actions to staff:
- Rate and other filings: The Director of the Office of Energy Market Regulation (OEMR) can: (a) accept and suspend rate filings, and make them effective subject to refund and further order of the Commission; or (b) accept and suspend them, make them effective subject to refund, and set them for hearing and settlement judge procedures. For initial rates or rate decreases submitted under section 205 of the Federal Power Act (FPA), for which suspension and refund protection are unavailable, FERC staff is delegated authority under section 206 to institute proceedings in order to protect the interests of customers.
- Extensions of time: FERC staff can extend the time for action on matters where it is permitted by statute.
- Waiver requests: The Director of OEMR can take appropriate action on uncontested filings under the FPA, Natural Gas Act and Interstate Commerce Act, seeking waivers of the terms and conditions of tariffs, rate schedules and service agreements, including waivers related to capacity release and capacity market rules.
- Uncontested settlements: The Director of OEMR has authority to accept settlements not contested by any party or participant, including Commission trial staff.
What wasn’t delegated to staff is the power to grant pipeline certificates.
CFTC orders The Royal Bank of Scotland to pay $85 million for attempted manipulation of ISDAFIX benchmark. Here’s another example of how electronic communications can offer regulators a trove of self-incrimination evidence.
On February 3, the CFTC issued an order settling charges against The Royal Bank of Scotland plc (RBS) for attempted manipulation of the U.S. Dollar ISDAFIX benchmark and requiring RBS to pay an $85 million civil monetary penalty. The CFTC’s order (its fourth penalty in a long-running investigation) finds that, beginning in January 2007 and continuing through March 2012, RBS attempted to manipulate the USD ISDAFIX, a global benchmark reference in a range of interest rate products. According to the order, RBS—through the acts of multiple traders—engaged in the unlawful conduct in order to benefit certain derivatives positions it held that were priced or valued off of the USD ISDAFIX benchmark. The CFTC also released a document containing examples, including a number of trader communications, of RBS’s alleged USD ISDAFIX misconduct.
The United Kingdom government owns 72% stake in RBS.
FERC and ETRACOM file reply briefs regarding scope of review in district court. On February 3, FERC and ETRACOM filed reply briefs regarding the scope of review in the U.S. District Court for the Eastern District of California in response to the initial briefs filed on January 23. FERC argues that under long-settled Ninth Circuit precedent, a district court is authorized by Rule 52(a) of the Federal Rules of Civil Procedure to follow the procedure that FERC proposes (i.e., deciding the case based on a non-deferential review of the administrative record). According to FERC, ETRACOM’s due process argument fails because the option for a hearing before a FERC administrative law judge satisfies all of ETRACOM’s claimed due process rights. Therefore, the addition of a purely voluntary second option of de novo district court review cannot possibly be unconstitutional.
On the other hand, ETRACOM argues that FERC’s brief ignores binding precedent from the Supreme Court and Ninth Circuit that speaks directly to this issue. ETRACOM points out that since the parties filed their opening briefs, a third federal court (the District of Maine in the Silkman case, discussed below) has now held that the Federal Rules of Civil Procedure apply to a FERC civil enforcement action brought under the FPA. According to ETRACOM, FERC’s arguments largely consist of mischaracterizations of relevant precedent, citations to and misstatements of irrelevant law, bald assertions made with no support, and ad hoc and irrelevant policy arguments.
FERC refers pipeline matter to Office of Enforcement for further investigation. On February 2, FERC granted Rover Pipeline LLC’s request for certificates of public convenience and necessity and Rover’s request for a blanket certificate under Part 284, Subpart G of FERC’s regulations, subject to conditions. However, because of Rover’s demolition of a house that was identified as eligible for listing in the National Register of Historic Places and within the visual area of potential effects of the project, FERC denied Rover’s request for a blanket certificate under Part 157, Subpart F of FERC’s regulations to perform certain routine construction activities and operations. FERC referred this issue to its Office of Enforcement.
According to the order, “Our review of the record for this project shows that Commission staff identified the Stoneman House as an issue of concern early-on during the pre-filing process. Seemingly acknowledging this, Rover committed to developing a solution that would avoid the adverse effect on this structure. Nonetheless, despite staff’s concern, Rover’s commitment, and staff’s recommendations in the final EIS, Rover demolished the structure with no prior notice or forewarning. Therefore, in addition to the continued consultation required under the NHPA, we have referred this matter to the Office of Enforcement, for further investigation and action, as appropriate.”
Judge grants City Power request for discovery. On January 30, Judge Bates of the U.S. District Court for the District of Columbia issued an order granting City Power’s request for discovery. The order allows City Power to proceed with discovery related both FERC’s market manipulation and market behavior claims against City Power, in compliance with the ordinary limits set out in the Federal Rules of Civil Procedure. Judge Bates ruled that City Power still has not had a “full opportunity” for discovery, and what discovery took place at the administrative level was “distinctly one-sided.” However, Judge Bates denied City Power’s request for discovery regarding FERC’s jurisdiction over the UTC products at issue because the court has already concluded that FERC had jurisdiction over City Power’s trades.
In addition, Judge Bates denied, without prejudice, FERC’s motion for summary judgment. According to the order, FERC may renew its motion after the completion of discovery and in accordance with a schedule to be set by the court. Judge Bates ordered the parties to file a proposed scheduling order by March 2 and scheduled a status conference for March 8.
On February 2, Barclays filed a copy of Judge Bates’ order in its case with FERC the U.S. District Court for the Eastern District of California, as supplemental authority for its position regarding discovery and de novo review. On February 1, Powhatan made a similar filing in its case with FERC the U.S. District Court for the Eastern District of Virginia.
Judge in Silkman proceeding determines “de novo review” means an ordinary civil action. On January 26, Judge John A. Woodcock, Jr. of U.S. District Court for the District of Maine issued an order regarding the procedures applicable to FERC’s petition against Richard Silkman and Silkman’s firm Competitive Energy Services. According to Judge Woodcock, “After considering the compelling arguments and authorities both parties bring to bear on the issue, the Court has resisted the temptation to make a grand pronouncement about the scope of de novo review under § 823b(d)(3) and instead concludes, based on the specific circumstances of this case, that it will treat this matter as an ordinary civil action subject to the Federal Rules of Civil Procedure.” Judge Woodcock declined to constrict the court’s de novo review to the existing administrative record compiled by FERC; rather, Judge Woodcock found it appropriate, given the particular circumstances of this case, to expand the scope of its de novo review and treat this case as an ordinary civil action governed by the Federal Rules.
According to the order, the court will tailor discovery as needed to promote an efficient resolution to the case. Judge Woodcock ordered the parties to develop a discovery plan for the court’s approval that balances the respondents’ need for discovery with the goals of avoiding duplicative efforts. The discovery plan is due by February 9.
On January 30, Barclays filed a copy of Judge Woodcock’s order in its case with FERC the U.S. District Court for the Eastern District of California, as supplemental authority for its position regarding discovery and de novo review. On February 1, Powhatan made a similar filing in its case with FERC the U.S. District Court for the Eastern District of Virginia. On February 3, FERC filed a response to Powhatan, emphasizing Judge Woodcock’s language that “the Court has resisted the temptation to make a grand pronouncement about the scope of de novo review under § 823b(d)(3)” and that the decision was “based on the specific circumstances of this case.”
FERC answers TOTAL motion for leave to respond and response in FERC proceeding. On January 27, FERC Enforcement Staff filed an answer to TOTAL’s motion for leave to respond and response to FERC Enforcement Staff’s reply in the FERC proceeding in Docket No. IN12-17. Enforcement Staff asks FERC to deny the motion because the proposed response was not ordered by FERC in the Order to Show Cause, is not permitted by FERC’s Rules of Practice and Procedure, and was filed nearly four months after Enforcement Staff filed its reply. In addition, Enforcement Staff argues that TOTAL’s proposed response is repetitive of arguments raised in their Answer to the Order to Show Cause. Enforcement Staff also argues that TOTAL’s filing misstates and misconstrues Enforcement Staff’s arguments and positions.