04 December 2015

Energy Enforcement Update

This week’s developments on the FERC enforcement front, and the latest on energy legislation in Congress.

FERC moves to affirm civil penalties assessed against Barclays; Barclays files in support of its discovery motion; Ninth Circuit orders Barclays to show cause why its appeal should not be dismissed. On December 2, FERC filed a motion for an order affirming the civil penalties assessed against Barclays.  In the motion, FERC argues that the administrative record filed by FERC provides the court with all the facts and legal arguments needed to conduct its de novo review and affirm FERC’s assessed penalties in full.  According to FERC’s motion, the Order Assessing Civil Penalties, trade data and communications demonstrate that Barclays and its traders “engaged in a brazen, sustained, and massive manipulation of western electricity markets” in violation of FERC’s anti-manipulation rule.  Thus, FERC requests that the court affirm the assessed penalties of $435 million against Barclays, $15 million against Connelly, and $1 million each against Brin, Levine, and Smith.

Barclays has 60 days to file an opposition to FERC’s motion, and then FERC may file a reply within 21 days of Barclays’ opposition.  Judge Nunley will review these filings to determine whether penalties shall be affirmed, vacated, or modified, and whether the record FERC submitted must be supplemented or alternative means of fact-finding performed in order to make this determination.

On December 3, Barclays filed a reply in support of its motion for an order granting leave to take limited discovery.  According to the reply, FERC’s arguments in its opposition only underscores why limited discovery is essential to Barclays’ ability to fully and fairly oppose FERC’s motion to affirm.  Barclays argues that it was afforded no opportunity to take discovery, much less have a hearing before an independent trier of fact, prior to FERC’s Order Assessing Civil Penalties.  Barclays’ discovery requests seek documents and communications from FERC regarding the investigative file, as well as trading data from the Intercontinental Exchange, Inc. (the exchange on which FERC alleges that the manipulative trading took place).  Barclays requests that the court adjourn the deadline for opposing FERC’s motion by 90 days to allow Barclays to secure factual responses to its limited discovery.

And today, Judge Nunley ordered that Barclays’ discovery motion is submitted without oral argument, which vacated the hearing set for December 10.  According to Judge Nunley’s order, if the court determines oral argument is necessary, it will be scheduled at a later date.

In addition, on December 3, the Ninth Circuit issued a notice requiring Barclays to show cause, within 21 days, why Barclays’ appeal should not be dismissed for lack of jurisdiction.  According to the Ninth Circuit, it appears that the district court’s order challenged in Barclays’ appeal did not dispose of the action as to all claims and all parties, and thus may not be ripe for review.  arclays and the individual respondents are appealing Judge Nunley’s October 2 scheduling order bifurcating the proceeding and his related October 28 order denying Barclays’ motion for clarification.

Hearing set on Maxim Power motion to dismiss.  Today, Judge Mastroianni of the U.S. District Court for the District of Massachusetts, who is presiding over FERC’s action against Maxim Power, rescheduled the hearing on Maxim Power’s motion to dismiss.  The hearing is now scheduled for December 17 at 2 PM at Franklin Courtroom in Springfield, Massachusetts.

Comprehensive energy bill passes in the U.S. House of Representatives.  On December 3, the U.S. House of Representatives passed H.R. 8 (the North American Energy Security and Infrastructure Act of 2015), a comprehensive energy policy bill.  Of note, the bill would establish a FERC “Office of Compliance Assistance and Public Participation.”  Among other things, the Director of this new office would be responsible for “providing entities subject to regulation by the Commission the opportunity to obtain timely guidance for compliance with Commission rules and orders.”  As part of this mission, the Director would issue reports and guidance to the Commission and to entities subject to regulation by the Commission regarding market practices and improvements in Commission monitoring of market practices.  The Director would also promote improved compliance with Commission rules and orders “through outreach, publications, and, where appropriate, direct communication with entities regulated by the Commission.”

This provision could result in FERC having an affirmative duty to provide ex ante trade advice. At the very least, such reports and guidance may provide more fair notice to market participants about what FERC deems to be legitimate and illegitimate market practices.

The chances for final enactment of a comprehensive energy policy statute remain unclear, as the House bill faces a veto threat from President Obama.  The Senate is expected to take up its own comprehensive energy policy bill (the Energy Policy Modernization Act) early next year.  The Senate version of the bill does not currently contain a similar provision establishing an Office of Compliance within FERC.


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