A recent advisory published by the Commodity Futures Trading Commission’s Division of Enforcement and comments of the division director have highlighted the CFTC’s attention toward investigating potential violations of the Commodity Exchange Act (CEA) that involve foreign corrupt practices. On March 6, CFTC Director of Enforcement James M. McDonald addressed this very issue in remarks before the ABA National Institute on White Collar Crime. At the same time, the division issued an Enforcement Advisory providing guidance on how the CFTC will treat instances of self-reporting and cooperation concerning CEA violations that also involve foreign corrupt practices.
The Federal Energy Regulatory Commission (FERC or the Commission) Office of Enforcement (OE) issued its 2018 Report on Enforcement on November 15. The report provides a review of OE’s activities during fiscal year 2018 (FY 2018), which begins October 1 and ends September 30 annually. Like last year, the report reveals likely areas of focus for FERC enforcement in the coming year, and provides guidance to the industry based on the wide variety of enforcement matters that are otherwise non-public by synthesizing some of the more disparate developments from audits, market surveillance, and other enforcement activities for the benefit of industry stakeholders.
Today, the Federal Energy Regulatory Commission (FERC) Office of Enforcement (OE) issued its 2017 Report on Enforcement. The report provides a review of OE’s activities during fiscal year 2017, which begins October 1 and ends September 30 annually, revealing likely areas of focus for FERC enforcement in the coming year.
The report indicates that even though FERC lacked a quorum for much of 2017, OE continued to focus on the same areas of market and operational risk that have traditionally captured its attention, which include (i) fraud and market manipulation; (ii) anticompetitive conduct; (iii) conduct that threatens transparency in regulated markets; and (iv) serious violations of mandatory reliability standards. OE does not anticipate that its priorities will change for fiscal year 2018. FERC also addresses its continued litigation of contested cases in federal courts. Additionally, similar to fiscal year 2016, the report indicates that the vast majority of alleged violations that come to OE’s attention are addressed informally through corrective actions voluntarily implemented by the subject of the investigation, without the need for a formal settlement. But this year, OE provides detailed examples of surveillance inquiries initiated by its Division of Analytics and Surveillance that are closed without referral to the US Department of Justice. Details on the topics in the 2017 Enforcement Report will be further described in a future LawFlash that will be posted as part of Morgan Lewis’s Power & Pipes energy law web postings. These issues will also be discussed in further detail during an upcoming webinar hosted by Morgan Lewis linked below.
This week, FERC submitted its annual financial report to the US Congress. Although part of the regular slate of voluminous reports sent up to Capitol Hill each year, FERC’s report often includes certain nuggets of information useful to the regulated community.
Buried in the report this year was a reminder that FERC—for the first time—has adjusted the civil monetary penalties that it may administer in response to violations of its rules.
As of July 16, 2016, the following civil monetary penalties apply:
- $1,193,970 per violation, per day for violations of any provision of Part II of the Federal Power Act (FPA) or FERC’s regulations and orders thereunder, including the electric market manipulation provisions of the FPA and mandatory reliability standards.
- $1,193,970 per violation, per day for violations of the Natural Gas Act or FERC’s implementing regulations and orders thereunder, including the natural gas market manipulation provisions.
- $1,193,970 per violation, per day for violations of the Natural Gas Policy Act or FERC’s implementing regulations and orders thereunder.
FERC’s various organic statutes contain a variety of other miscellaneous civil penalty provisions as well, all of which were raised.
These adjustments were formally implemented through Order No. 826 in response to the Federal Civil Penalties Inflation Adjustment Act of 2015 and were the first modifications to the significant civil penalty authority given to FERC in the Energy Policy Act of 2005. Under the law, FERC will be required to update its monetary penalty amounts every January 15.
On November 17, the Federal Energy Regulatory Commission (FERC) Office of Enforcement (OE) issued its 2016 Report on Enforcement. The report provides a review of OE’s activities during fiscal year 2016, revealing likely areas of focus for FERC enforcement in the coming year.
The report indicates OE’s continued focus on the same areas of market and operational risk that have traditionally captured its attention, although the targets of those investigations are contesting OE’s claims in the court system. The report also indicates that the vast majority of alleged violations that come to OE’s attention are addressed informally through corrective actions voluntarily implemented by the subject of the investigation, without the need for a formal settlement.
Read more about the FERC’s 2016 Report on Enforcement in our recent LawFlash. The report as well as accompanying FERC staff white papers that provide insight into OE’s views on emerging trends also will be discussed in further detail during an upcoming webinar hosted by Morgan Lewis
For the first time, a federal district judge has held that a review of a Federal Energy Regulatory Commission’s (FERC’s) order assessing civil penalties will be treated as an ordinary civil action that requires a full trial rather than a proceeding in which a federal judge only reviews an administrative record compiled by agency investigators. This is also the first federal court decision on how the de novo review standard set forth in Section 31(d)(3) of the Federal Power Act (FPA) should be applied when FERC enforcement targets elect federal court review of the facts and law at issue in an electricity market manipulation proceeding.
The court’s ruling provides important guidance to market participants in the electricity industry that can avail them of the de novo review option set forth in the FPA when targeted by FERC enforcement staff. Further, this ruling provides precedent that defendants should consider when developing their strategy for defending against FERC allegations brought under the FPA.
Read the full LawFlash: Federal Court Grants Full Civil Trial to FERC Enforcement Target
On November 2, the Federal Energy Regulatory Commission (FERC or the Commission) rejected challenges to its 2012 order on “simultaneous exchange transactions.” Under the order, affiliates may enter into simultaneous exchanges as long as they obtain prior approval from FERC and FERC finds that there are not attempts to circumvent transmission service regulation or concerns of affiliate abuse or separation of functions violations. FERC also provided key clarifications to its policy by explaining the types of transactions included within or excluded from the requirement of prior FERC approval.
Simultaneous exchange transactions occur when a pair of wholesale power transactions are simultaneously arranged (i.e., are part of the same negotiations) between the same two counterparties such that Party A sells an electricity product to Party B at one location and Party B sells a similar electricity product to Party A at a different location with both transactions having an overlapping delivery period. The simultaneous exchange is the overlapping portion (both in volume and delivery period) of these wholesale power transactions.
On November 19, 2012, FERC approved a stipulation and settlement agreement with Gila River Power, LLC, in which Gila River admitted to manipulating the California ISO (CAISO) electric market By arranging nonexistent wheeling transactions to artificially reduce congestion on an interface used as a critical import path to the CAISO market. FERC concluded that this behavior violated FERC’s prohibition on electric market manipulation and the prohibitions on the submission of inaccurate information in electric marketing activities in FERC’s market-based tariff regulations and the CAISO tariff.
On March 9, the Federal Energy Regulatory Commission (FERC or Commission) approved a Stipulation and Consent Agreement (Settlement) between FERC's Office of Enforcement (OE) and Constellation Energy Commodities Group (CCG). As set forth in the Settlement, CCG has agreed to pay a civil penalty of $135 million and to disgorge profits of $110 million, plus interest, to resolve an ongoing investigation into allegations that CCG violated FERC's prohibition of electric energy market manipulation. Additionally, CCG agreed that four of its employees at issue in the investigation would not hold any position involving physical or financial energy trading at CCG or any successor company at any time in the future.