20 November 2015

Energy Enforcement Update

Recent developments:

  • FERC releases 2015 Report on Enforcement.
  • FERC terminates docket on proposed quarterly natural gas reporting.
  • FERC denies rehearing of Order No. 771 related to access to e-Tag data.
  • FERC requires reports on price formation in regional electric markets.
  • Parties seek rehearing of FERC market-based rate revisions.

FERC releases 2015 Report on Enforcement.  November 19, FERC’s Office of Enforcement released its Report on Enforcement.  Report shows continued focus on fraud and market manipulation, serious violations of mandatory Reliability Standards, and conduct that threatens the transparency of regulated market.  Some highlights of the Report include:

  • Division of Investigations:  During FY2015, staff opened 19 investigations, as compared to 17 investigations in FY2014.  Of the 19 investigations staff opened this fiscal year (some of which involve more than one type of potential violation or multiple subjects), 14 involve market manipulation, 4 involve violations of the market behavior rules, 7 involve tariff violations, 1 involves gas capacity releases, 1 involves violations of natural gas posting requirements, and 1 involves false statements to the Commission.  In addition, Staff closed 22 investigations in FY2015, compared with 15 in FY2014.  Of those 22 investigations, staff closed 6 through settlement and 16 either upon finding no violation or because staff concluded that the evidence was insufficient to support finding a violation.  The settlements assessed a total of approximately $26 million in civil penalties and disgorgement of nearly $1 million, and all of the settlements included reporting requirements and provisions requiring the subjects to enhance compliance programs.  In addition, FERC currently has pending, in federal district court and before an administrative law judge, actions seeking approximately $545 million in civil penalties and $42 million in unjust profits.  The Report also discusses a number of illustrative investigations and self-reports closed with no action, which are intended to provide guidance to the public while preserving the non-public nature of the investigations.
  • Division of Analytics and Surveillance:  Staff analyzed market and other data in more than 30 investigations and continued to perform and refine its market surveillance capabilities during FY2015.  According to a FERC report to Congress, FERC’s screening activities resulted in the opening of 4 investigations (3 relating to gas activities and 1 relating to electric activities).  FERC processes approximately 100 surveillance screen trips a week.  In addition, staff developed a Notice of Proposed Rulemaking regarding collection of connected entity data that, according to the Report, will enhance its screening and investigative activities and will reduce the number of informal inquiries that staff must make based on false surveillance screen trips, if adopted as a final rule.
  • Division of Audits and Accounting:  During FY2015, Staff reviewed the conduct of regulated entities through 22 financial and operational audits of public utilities and oil and natural gas pipelines, resulting in 360 recommendations for corrective action and refunds and recoveries totaling more than $26.3 million.
  • Division of Market Oversight:  Staff continued to analyze market fundamentals, including significant trends and developments, market structure and operations to identify market anomalies, and flawed market rules. As in prior years, staff presented its annual State of the Markets report and continued ensuring compliance with various Commission forms and reports, including filing requirements for Electric Quarterly Reports.

FERC terminates docket on proposed quarterly natural gas reporting.  November 17, FERC issued an order terminating its proposal for quarterly natural gas reporting in Docket No. RM13-1.  FERC’s proposal would have required quarterly reporting of every natural gas transaction within the Commission’s NGA jurisdiction that entails physical delivery for the next day (i.e., next day gas) or for the next month (i.e., next month gas).   In terminating the proceeding, FERC stated: “After gaining ongoing access to additional physical natural gas market data, we have determined that the NOI’s proposed reporting requirement is not necessary at this time.  Accordingly, we exercise our discretion to terminate this proceeding.”  FERC said it received 34 sets of comments, which raised a variety of concerns about the reporting requirement.

FERC denies rehearing of Order No. 771 related to access to e-Tag data.  November 19, FERC issued order on rehearing and clarification of Order No. 771, which approves availability of e-Tag information to Commission Staff in Docket No. RM11-12.  In December 2012, FERC issued Order No. 771 requiring e-Tag Authors (through their Agent Service) and Balancing Authorities (through their Authority Service) to take certain steps to ensure Commission access to the e-Tags for wholesale electricity market transactions.  In that order, the Commission found that access to complete e-Tag data will aid the Commission’s efforts to detect market manipulation and anti-competitive behavior, monitor the efficiency of the markets and better inform Commission policies.  Order No. 771 relied on the Commission’s anti-manipulation authority under FPA section 222, in conjunction with its investigative authority under FPA section 307(a), to gain Commission access to the e-Tag information.

Of particular interest, FERC’s order denied rehearing involving a challenge to FERC’s authority to obtain e-Tag data.  The challengers argued that, even if FPA sections 222 and 307(a) give the Commission the authority to obtain e-Tag data in connection with a Commission investigation of a violation of its regulations implementing section 222, Order No. 771 exceeds the Commission’s authority by requiring market participants to turn over information to the Commission on an ongoing basis without initiating an investigation of a statutory violation.  FERC rejected the argument that it may not conduct ongoing investigations, finding that this argument ignores the purposes for which Congress enacted the Energy Policy Act of 2005 and the tasks that Congress set forth for the Commission to accomplish, including the prevention of market manipulation in energy markets.  The Commission found that, without access to complete e-Tag data to help conduct surveillance and properly investigate interchange transactions,  it would be hampered in carrying out its statutory responsibilities to determine whether any entity has violated or is about to violate the anti-manipulation rule in FPA section 222.

FERC’s order also clarifies: (1) responsibilities of Balancing Authorities under the rule, (2) scope of the access to e-Tags to be provided to RTOs, ISOs, and MMUs, (3) confidentiality agreements that can be demanded of RTOs, ISOs, and MMUs before they are afforded access to e-Tags, (4) whether the access to e-Tags extended to RTOs, ISOs and MMUs should also be extended to Balancing Authorities, and (5) what is encompassed in a “complete e-Tag.”

FERC requires reports on price formation in regional electric markets.  November 19, FERC took another step to address price formation by directing regional grid operators to submit reports on price formation in their energy and ancillary services markets in Docket No. AD14-14.  Back in 2014, FERC initiated proceedings into price formation for energy and ancillary services in the regional wholesale markets to promote reliability, facilitate accurate and transparent pricing, and ensure that rates are just and reasonable.  On November 19, FERC announced that it will require that each RTO/ISO to file a report addressing five price formation issues: (1) pricing of fast-start resources, (2) commitments to manage multiple contingencies, (3) look-ahead modeling, (4) uplift allocation, and (5) transparency.  In addition to providing an update on current practices, including the status of any efforts to address each of the five issues, the reports must respond to specific questions contained in the order.   The reports are due within 75 days, and the public will have 30 days to comment on them.  FERC will use the reports and comments to determine what further action is appropriate.  FERC Docket No. AD14-14.

Parties seek rehearing of FERC market-based rate revisions.  November 16, a number of parties filed for rehearing of FERC’s October 16, 2015 order on refinements to its policies and procedures for market-based rate sellers in Docket No. RM14-14.  These parties seek rehearing of the requirement that market-based rate sellers submit corporate organizational charts showing all of their “affiliates” (as defined in the Commission’s regulations) in their applications for market-based rate authority, updated market power analyses, and change-in-status notices.  EEI requested that FERC stay the effectiveness of this organizational chart requirement pending issuance of an order on the merits of the requests for rehearing.

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