18 January 2018

Energy Enforcement Update

Our first enforcement update for 2018 covers:

  • FERC terminates DOE NOPR proceeding on grid resilience and initiates new proceeding;
  • FERC increases maximum civil penalties for violations;
  • TOTAL files petition for writ of certiorari in Supreme Court;
  • FERC loses again – Judge rules Powhatan and Chen are entitled to a de novo trial in district court;
  • Judge denies Silkman and CES objection to magistrate’s discovery rulings in district court; and
  • ERCOT proposes rule revisions to protect its jurisdictional independence from FERC.

FERC terminates DOE NOPR proceeding on grid resilience and initiates new proceeding.  On January 8, FERC issued an order that terminated the proceeding it initiated to consider the Department of Energy’s September 29 proposal on grid reliability and resilience pricing (Docket No. RM18-1-000).  In the order, FERC found that neither the proposed rule nor the record in the proceeding satisfied the threshold statutory requirement of demonstrating that the RTO/ISO tariffs are unjust and unreasonable.  According to FERC, the record does not demonstrate the outcome of the proposed rule—which would have allowed all eligible resources to receive a cost-of-service rate regardless of need or cost to the system—to be just and reasonable.  Commissioners LaFleur, Chatterjee, and Glick each issued a concurring statement.  As part of the order, FERC initiated a new proceeding (Docket No. AD18-7-000) to examine the resilience issues in the RTOs/ISOs.  FERC directed each RTO/ISO to provide responses to FERC on certain resilience issues and concerns identified in FERC’s order within 60 days.  Interested entities may submit reply comments within 30 days of the due date of the RTO/ISO submissions.

FERC increases maximum civil penalties for violations.  On January 8, FERC issued a final rule to amend its regulations governing the maximum civil monetary penalties assessable for violations of statutes, rules, and orders within FERC’s jurisdiction, which is required by the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended most recently by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.  The new adjusted maximum civil penalty for many Federal Power Act and Natural Gas Act violations, including manipulation violations, has increased to $1,238,271 per violation, per day (up from $1,213,503 per violation, per day).

TOTAL files petition for writ of certiorari in Supreme Court.  On January 5, Petitioners TOTAL Gas & Power North America, Inc. (TOTAL), Aaron Trent Hall, and Therese Nguyen Tran filed a petition for writ of certiorari in the U.S. Supreme Court.  The Petitioners seek Supreme Court review of the judgment of the U.S. Court of Appeals for the Fifth Circuit dismissing TOTAL’s declaratory judgment action against FERC.  As we previously reported, TOTAL brought its action in federal court after FERC commenced enforcement proceedings.  TOTAL argued that FERC was precluded from adjudicating violations or imposing penalties under the Natural Gas Act because those activities are vested exclusively in federal district courts.  According to Petitioners, an entity cannot be forced to defend claims for civil liability and penalties in an ultra vires agency proceeding, when “exclusive jurisdiction” of those claims lies in federal district court.  Petitioners argue that this issue presents a ripe case or controversy under Article III of the Constitution and the Declaratory Judgment Act as to the proper forum for adjudication.

Judge rules that Powhatan and Chen are entitled to a de novo trial in district court.  On December 28, Judge M. Hannah Lauck of the U.S. District Court for the Eastern District of Virginia issued an order determining that the defendants in FERC’s case against Powhatan Energy Fund and Alan Chen are entitled to a de novo trial in district court.  The order arose out of briefing to address respondents’ right to de novo review under the Federal Power Act (FPA).  Consistent with the rulings in five other district courts, Judge Lauck concluded that the terms of FPA section 31(d)(3)(B) are “unambiguous on their face” and establish that “[r]espondents are entitled to a trial de novo in the district court in which the Federal Rules of Civil Procedure and the Federal Rules of Evidence will apply.”  In reaching this holding, Judge Lauck noted that denying “access to a truly adversarial proceeding, including the use of compulsory process and the ability to subpoena information and witnesses, would likely violate due process.”  Accordingly, the Court established a briefing schedule for the proceeding, pursuant to the Federal Rules of Civil Procedure and Federal Rules of Evidence, which requires, in part, that FERC refile its complaint or file an amended complaint within 30 days of the date of the issuance of the order.

Judge denies Silkman and CES objection to magistrate’s discovery rulings in district court.  On December 26, Judge John A. Woodcock, Jr. denied the partial objection filed by Richard Silkman and Competitive Energy Services, LLC (CES) to the magistrate’s ruling on discovery issues in the U.S. District Court for the District of Maine.  As we previously reported, Silkman and CES objected to the denial of their request for documents regarding FERC’s decision not to pursue an enforcement action against other individuals or entities.  In denying the motion, Judge Woodcock reasoned that it is not clear how FERC’s thought processes with respect to decisions not to take enforcement action against supposedly equally or more culpable entities would relate in any cognizable way to CES and Silkman’s defense.  Judge Woodcock was not convinced the agency’s enforcement decisions against a third party would be relevant to its enforcement decision against CES and Silkman.

ERCOT proposes rule revisions to protect its jurisdictional independence from FERC.  On December 21, in reaction to a directive by the Public Utility Commission of Texas (PUCT), ERCOT posted Nodal Protocol Revision Request 861, to “clarify” its authority to protect the jurisdictional status quo of ERCOT and others operating in ERCOT with respect to regulation by FERC.  At the PUCT’s December 14, 2017 meeting, the Commissioners (in particular, PUCT Chair DeAnn Walker) directed ERCOT to clarify its rules to prohibit transactions over transmission facilities into Mexico that could jeopardize ERCOT’s jurisdictional independence from FERC.  Chair Walker’s concern is expressed in two memoranda dated November 16 and December 13, which describe planned transmission projects in Arizona and California that could create the opportunity for transactions between ERCOT and other control areas located in the United States.  In particular: (1) the Nogales Transmission project – a proposed HVDC interconnection between Arizona and Mexico; and (2) an HVDC line linking the Baja California with Mexico’s national grid.  In response to this directive, proposed NPRR 861 states that ERCOT shall take any action and shall direct any ERCOT market participant to take any action that ERCOT deems necessary to ensure that any entity in ERCOT that is not a “public utility” under the FPA – including ERCOT – does not become such a public utility.  ERCOT’s authority would include the ability to order the disconnection of transmission facilities connecting ERCOT to another control area (including through Mexico), as well as to deny or curtail e-Tags over such Direct Current (DC) lines.  NPRR 861 provides that ERCOT will give notice of any action by posting an operations message to ERCOT’s Market Information System (MIS) and by issuing a Market Notice.  NPRR 861 remains under consideration, but ERCOT has requested Board approval by February 2018.  Thus far, ERCOT’s Wholesale Markets (WMS) and Reliability and Operations Subcommittees, as well as PUCT Staff, have filed in support of NPRR 861.  The transmission projects that could facilitate transactions that could potentially impair ERCOT’s jurisdictional independence – and thus trigger action by ERCOT under proposed NPRR 861 – are not expected to become operational until approximately 2021.

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