20 March 2016

Energy Enforcement Update

This week’s enforcement update covers filings in the ETRACOM show cause proceeding at FERC, FERC enforcement actions in federal court and FERC’s 2015 State of the Markets Report.

FERC Enforcement files reply to ETRACOM answer to Order to Show Cause.  On March 17, FERC’s Office of Enforcement (OE) staff filed its reply to the ETRACOM’s answer to FERC’s Order to Show Cause.  OE claims that ETRACOM’s arguments rest primarily on the post hoc analyses of its hired experts who have no firsthand knowledge of the facts.  According to OE, ETRACOM offers theoretical arguments about what might have been at different times or under different market conditions.  OE argues that its findings are grounded in the entire body of evidence, including the record of market data leading up to and through the end of May 2011, which shows that ETRACOM developed and implemented a manipulative strategy at New Melones in May 2011.

OE rejects ETRACOM’s argument that OE must prove the New Melones intertie was “well-functioning” as a pre-requisite to proving a claim for manipulation.  FERC has defined “fraud” to include “any action, transaction, or conspiracy for the purpose of impairing, obstructing or defeating a well-functioning market.”  OE construes the use of “well-functioning market” to refer to any FERC-jurisdictional market operating under a tariff that FERC has found to be just and reasonable.  OE rejects the notion that the “well-functioning market” language is a qualitative limit on the reach of the anti-manipulation rule to only those FERC-jurisdictional markets without flaws.

CAISO responds to ETRACOM’s motion for disclosure.  On March 17, CAISO filed a response to ETRACOM’s motion requesting FERC to require disclosure of certain materials and information related to CAISO market flaws and errors.  CAISO argues that ETRACOM requests wide-ranging, trial-type discovery of a third party in a proceeding in which ETRACOM has voluntarily elected to waive its opportunity for an administrative hearing.  As a result, there is no longer an appropriate forum for FERC to consider these third-party discovery requests, or for an ALJ to supervise a discovery process.  Therefore, CAISO argues that third-party discovery—to the extent it occurs—should proceed in the district court proceeding ETRACOM has elected to pursue in the event that FERC assesses a civil penalty.

Ninth Circuit dismisses Barclays’ appeal.  On March 8, the Ninth Circuit dismissed Barclays’ appeal of the district court’s scheduling order for lack of jurisdiction.  The Ninth Circuit ruled that the district court’s order challenged in the appeal is not a final decision and Barclays did not demonstrate that the collateral order doctrine applies.  The Ninth Circuit also ruled that Barclays did not demonstrate that the appeal warrants the extraordinary remedy of mandamus.

Earlier, the presiding district court judge, Judge Nunley, had denied Barclays’ motion for a stay of the district court proceedings pending the Ninth Circuit appeal.  On the de novo review issue, Judge Nunley ruled that his prior orders did not conclusively determine whether Barclays and the individuals have the right to a jury trial, to call witnesses, to offer evidence, to cross-examine FERC’s witnesses, or the right to discovery.

FERC Staff presents 2015 State of the Markets Report.  During FERC’s March 17 open meeting, the Office of Enforcement’s Division of Energy Market Oversight presented the 2015 State of the Markets Report.  The State of the Markets Report is an interesting look at trends in the gas and power markets.  On the gas side, Staff highlighted the following items:  (a) increased gas supply led to lower gas prices, and in turn, lower electricity prices; (b) declining oil and natural gas prices have put significant stress on producers; (c) U.S. exported LNG from the lower 48 for the first time in history on February 24, 2016; and (d) natural gas power generation exceeded that of coal in seven months during 2015.  For power, Staff highlighted the following:  (a) capacity markets in PJM and New England became larger revenue sources while the generation mix continues to change; (b) distributed energy resources continued to grow in capacity and energy markets; (c) SPP’s footprint expanded while LMPs declined; and (d) generation from renewables continued to set records nationwide, particularly from California and MISO.

Oral argument rescheduled in Powhatan/Chen case.  Judge M. Hannah Lauck of the Eastern District of Virginia rescheduled the oral argument on issues related to the de novo review procedures under Section 31(d) of the Federal Power Act.  The oral argument (previously scheduled for March 14) is now scheduled for April 18 at 2 p.m. in Richmond.

Groups call for establishment of FERC Office of Public Participation.  On March 7, a group of citizens and environmental groups headed by Public Citizen, Inc. asked FERC to initiate a rulemaking process to establish an “Office of Public Participation.”  According to the filing, language contained in the Public Utility Regulatory Policies Act of 1978 ordered this office created to assist persons proposing to intervene or participate in proceedings before FERC, as well as compensation for related costs.

The CFTC and EPA enter into MOU on renewable fuel and related markets.  On March 17, the CFTC and EPA entered into a Memorandum of Understanding (“MOU”) to address the sharing of information related to renewable fuel trading markets.  According to the MOU, “The Parties [EPA and CFTC] intend to coordinate, cooperate and share information, including PBI [Proprietary Business Information], in the possession of the EPA with regard to the RIN [Renewable Identification Number] and renewable fuels markets in connection with the respective regulatory and enforcement responsibilities of the Parties in a manner consistent with, and permitted by, the laws and requirements that govern the Parties.  The CFTC and EPA each acknowledge the other Participating Agency’s need for and interest in the information to be shared.  The CFTC, subject to the availability of appropriated funds and the agency’s budget priorities, will use the information to advise EPA on techniques that could be employed to minimize fraud, market abuses or other violations, and to conduct appropriate oversight in RIN and renewable fuel markets to aid EPA in successfully fulfilling the EPA’s statutory functions under Clean Air Act §211(o)(2)(A)(i).  Reviewing information on the RIN and renewable fuels markets provided by EPA will increase the CFTC’s understanding of the operation of and participants in those markets.

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