Lot of developments in enforcement this week, including a new FERC enforcement settlement plus related criminal charges by the United States and Massachusetts. We also cover the Fifth Circuit’s denial of a private right of action in the GDF Suez case (remember the pending SPP exemptive relief application), filings in the Powhatan/Chen, Maxim Power and Barclays proceedings in federal district court, and the ETRACOM proceeding at FERC.
FERC settles enforcement case against Berkshire Power Company and Power Plant Management Services. On March 30, FERC issued an order approving a settlement agreement between FERC’s Office of Enforcement, Berkshire Power Company LLC, and Power Plant Management Services LLC (“PPMS”). The settlement resolves an investigation into whether Berkshire and PPMS violated FERC’s anti-manipulation rule and market behavior rule prohibiting false communications, as well as the ISO-NE Tariff and certain FERC-approved Reliability Standards, by concealing plant maintenance and associated outages from ISO-NE between January 2008 and March 2011. Under the settlement agreement, Berkshire and PPMS admitted the violations and agreed to pay a civil penalty of $2 million and to implement enhanced compliance measures. Berkshire also agreed to pay disgorgement of $1,012,563, plus interest, to ISO-NE. For violations of the Reliability Standards, Berkshire agreed to pay an additional civil penalty of $30,000.
According to the settlement agreement, Berkshire (at the direction of the plant’s Projects General Manager) engaged in a fraudulent scheme to perform unreported maintenance work at its generating facility in Agawam, Massachusetts and to conceal that work and associated maintenance outages from ISO-NE. Individuals at Berkshire’s plant scheduled maintenance work for times when the plant was unlikely to be dispatched and then failed to notify ISO-NE about the work or the associated plant unavailability. The Projects General Manager continued this scheme even after a third party plant manager confronted him and informed him that his actions likely were illegal. As a result, Berkshire failed to report at least 16 separate periods of significant maintenance-related outages between January 2008 and March 2011, when the Projects General Manager was removed from his position.
Enforcement concluded that the Projects General Manager’s explicit instructions directing employees at the plant to tell ISO-NE that Berkshire had tried to start when it had not and his continued efforts to conceal maintenance and associated outages from ISO-NE after being confronted by the third party company plant manager demonstrates the intent to engage in a scheme to defraud ISO-NE. Enforcement also determined that Berkshire, through the plant operators and Projects General Manager, made false and misleading representations regarding their purported efforts to start the plant, as well as false and misleading statements in the Generating Availability Data System reports that Berkshire submitted to ISO-NE. In addition, Enforcement concluded that Berkshire violated applicable provisions of the ISO-NE Tariff requiring it to schedule and disclose plant maintenance and to accurately report on plant availability. Finally, Enforcement determined that Berkshire violated the Reliability Standards by withholding information regarding its planned maintenance outages, plant capabilities and availability.
Berkshire and PPMS also agreed to plead guilty to criminal charges for tampering with emissions equipment and submitting false information to both environmental and energy regulators. On March 30, United States Attorney Carmen M. Ortiz and Massachusetts Attorney General Maura Healey announced the resolution following a joint federal and state investigation into allegations that the Berkshire power plant tampered with its air pollution monitoring equipment and falsely reported data to environmental and energy regulators regarding its emissions levels and its availability to produce power. Among other penalties, PPMS agreed to plead guilty to charges that it violated the Federal Power Act, the first ever criminal charges under this statute, for making false statements to ISO-NE regarding the plant’s availability to produce power. According to U.S. Attorney Carmen Ortiz, “The comprehensive resolution, including the first ever criminal charges for false statements to the Federal Energy Regulatory Commission, demonstrates the seriousness with which we take conduct which undermines environmental compliance and the fair regulation of energy markets.”
Under the terms of the plea agreements, Berkshire and PPMS agreed to pay a total of $4.25 million related to the criminal charges. PPMS will pay $500,000 in criminal fines for the Clean Air Act and Federal Power Act violations. The criminal fines are in addition to the civil penalties and disgorgement in the FERC settlement.
Fifth Circuit denies rehearing of private action appeal against GDF Suez. On March 25, the Fifth Circuit denied rehearing of an appeal involving private parties’ claims against GDF Suez Energy North America Inc., agreeing with a lower court that the CFTC’s ISO/RTO Final Order cut off private parties’ right to sue over GDF Suez’s alleged energy market manipulation in Texas. In denying rehearing, the Fifth Circuit stated that it did not rely on the Final Order in holding that GDF Suez’s conduct was permitted. Instead, the Fifth Circuit held that the private party plaintiffs could not maintain a private right of action, regardless of the legality of GDF Suez’s conduct, because the RTO/ISO Final Order did not include Section 22 of the Commodity Exchange Act, 7 U.S.C. § 25 (which provides for a private right of action), as a listed exception to its blanket exemption.
Powhatan/Chen and Maxim Power file motions for leave to file supplemental material. On March 23, counsel for Powhatan/Chen filed a motion for leave to file supplemental material in the pending proceeding before Judge M. Hannah Lauck of the Eastern District of Virginia. The supplemental material is a brief that FERC filed with the United States Court of Appeals for the Fifth Circuit in 2009 discussing the procedures under Section 31(d)(3) of the Federal Power Act involving the de novo district court review procedures. In that brief, FERC states that Section 31(d)(3) “requires the immediate assessment of a civil penalty without additional agency procedures.” According to Powhatan/Chen, FERC’s acknowledgment to the Fifth Circuit—that the Federal Power Act leaves no room for any extra-statutory agency process—contradicts FERC’s arguments to the court that the statute authorizes FERC to conduct an “adversarial proceeding” that supplants the need for adjudication in federal district court.
On March 25, counsel for Maxim Power made a similar filing, noting FERC’s prior brief, in its pending proceeding in the U.S. District Court for the District of Massachusetts. According to Maxim Power, FERC’s prior brief in the case before the Fifth Circuit confirms that Section 31(d)(3) does not authorize FERC to preside over any “adversarial proceeding,” much less one that would then reduce litigation in federal district court to a summary proceeding in which defendants forego the rights ordinarily afforded to all civil litigants in federal district court.
On March 29, FERC filed its opposition to the supplemental material in the Powhatan/Chen case. FERC argues that this material is not “newly discovered,” as Chen’s counsel was the attorney who argued the prior case before the Fifth Circuit. FERC also asserts that its position in that brief accords with FERC’s position in the Powhatan/Chen case, namely that the Commission must adjudicate the violation in the first instance and that the district court’s role is to review the facts and law underlying that adjudication. FERC filed a similar opposition in the Maxim Power case on March 31.
FERC Enforcement files reply to ETRACOM motion for discovery. On March 21, FERC’s Office of Enforcement staff filed its reply to ETRACOM’s motion requesting FERC to require disclosure of certain materials and information related to CAISO market flaws and errors. Enforcement opposes ETRACOM’s request on the grounds that the information sought is irrelevant, overly broad, unduly burdensome and seeks confidential and proprietary commercial information that is not relevant to any of the claims or defenses in this case. According to Enforcement, ETRACOM’s motion is “nothing but a fishing expedition to gather irrelevant information upon which to buttress its attempt to misdirect blame for its own manipulative conduct.”
FERC Enforcement files reply to Barclays opposition to motion to affirm civil penalties. On March 18, FERC Enforcement staff filed its reply to Barclays and the traders’ oppositions to Enforcement’s motion to affirm the civil penalty assessment. In the reply, Enforcement argues that the defendants cannot provide a credible explanation for their trading or communications. Rather than addressing the three-part scheme alleged, the defendants focus their defenses on an overly-narrow examination of the scheme’s third part—their trading in the dailies market. According to Enforcement, the defendants repeatedly argue that they needed to trade dailies to flatten their physical positions, but provide no explanation for why they built physical positions in the first instance, creating the later need to flatten them. Enforcement claims that the defendants’ scheme was manipulative because they built physical positions to enable them to trade dailies with the intent to change the ICE index to benefit their financial positions, not based on their view of supply and demand fundamentals.
Enforcement asserts that the defendants’ oppositions contain new factual and expert declarations, as well as numerous factual and legal arguments, that were never submitted to FERC. According to Enforcement, the defendants offer no explanation why they could not, or did not, submit this information during the FERC assessment proceeding. Thus, Enforcement requests that the court reject this material and hold that the defendants waived all facts and legal arguments that they could have—but chose not to—present to FERC.
On March 30, Judge Nunley issued a minute order vacating the hearing set for April 21. On the court’s own motion, FERC’s motion to affirm civil penalties is submitted. The court will provide notice to the parties if a hearing or additional action is required regarding FERC’s motion