FERC, CFTC, and State Energy Law Developments

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).[1] 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.

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On January 11, 2012, FERC issued an order approving a settlement relating to allegations that a Senior Vice President of North America Power Partners (NAPP) engaged in fraudulent conduct in violation of FERC’s prohibition against market manipulation and committed violations of the PJM Interconnection, LLC’s (PJM’s) Open Access Transmission Tariff (OATT).[1] Under the settlement, the officer was obligated to pay a civil penalty of $50,000 and is banned from participating in PJM’s Demand Response activities for two years. Further, the ban against the individual’s participation in PJM’s Demand Response activities also extends to any person or entity acting on his behalf or in which he has a financial interest. In the settlement, the officer did not admit or deny the allegations made By FERC’s Office of Enforcement.

On November 29, 2011, the Federal Energy Regulatory Commission approved a Stipulation and Consent Agreement between the Office of Enforcement (Enforcement) and Holyoke Gas and Electric Department (Holyoke) in which Holyoke stipulated that it failed to report to ISO New England, Inc. (ISO-NE) three planned outages of two of its generating units serving as ISO-NE capacity resources, as required under the ISO-NE tariff. Holyoke is a municipally owned utility located in Holyoke, Massachusetts, that owns and operates two dual-fuel peaking units, Cabot Unit 6 and Cabot Unit 8, both of which it registered as Installed Capacity Resources (ICAP) in ISO-NE’s capacity market. Under its tariff, ISO-NE pays Holyoke a monthly ICAP payment for each Cabot Unit. In return, Holyoke is required to offer the Cabot Units’ energy into ISO-NE energy markets and must notify ISO-NE of any outages of the Cabot Units. Holyoke must also schedule in advance any planned outages required for nonemergency maintenance, inspection, or repair. Additionally, each month Holyoke must submit General Availability Data (GADS Data) for the Cabot Units for the previous month.

On April 21, 2011, the Federal Energy Regulatory Commission (FERC) issued an Order Affirming Initial Decision and Ordering Payment of Civil Penalty in connection with an Administrative Law Judge’s (ALJ) Initial Decision that a natural gas trader for Amaranth, Brian Hunter, engaged in market manipulation, in violation of Section 4A of the Natural Gas Act (NGA) and Part 1c.1 of FERC’s regulations. The case focused on Hunter’s trading activities in natural gas futures contracts (NG Futures Contracts) on the New York Mercantile Exchange (NYMEX). FERC’s Order affirmed the Initial Decision of the ALJ and assessed a civil penalty against Mr. Hunter in the amount of $30 million. FERC’s Order represents the first fully litigated proceeding involving FERC’s enhanced authority to investigate allegations of and penalize instances of market manipulation, which FERC received following the enactment of the Energy Policy Act of 2005. Further, FERC’s Order likely sets the stage for subsequent legal challenges to FERC’s claimed jurisdiction.

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On April 21, 2011, the Federal Energy Regulatory Commission (FERC or Commission) issued a pair of Notices of Proposed Rulemaking (NOPR) designed to facilitate price transparency in markets for the sale and transmission of electric energy in interstate commerce and to enhance market monitoring capabilities.

On October 28, the Federal Energy Regulatory Commission (Commission) issued an order approving a $2.7 million settlement relating to allegations that North America Power Partners (NAPP) engaged in fraudulent conduct in violation of the Commission’s prohibition against market manipulation and committed multiple violations of the PJM Interconnection, LLC’s (PJM) Open Access Transmission Tariff (OATT). The Commission’s order resolves an Office of Enforcement investigation into NAPP’s conduct that occurred more than two years ago. NAPP did not admit or deny the allegations contained in the settlement with the Office of Enforcement.

The Office of Enforcement’s investigation stems from NAPP’s activities in PJM’s Demand Response Programs during 2007 and 2008. NAPP, a Curtailment Service Provider, acts as an agent for individual resources that seek to participate in PJM’s Demand Response Programs. In March 2008, PJM referred certain issues relating to NAPP’s participation in PJM’s Synchronized Reserve Market (SRM), Interruptible Load for Reliability Program (ILR), and the Interchange Energy Market (IEM) to the Office of Enforcement. Through the course of its investigation, the Office of Enforcement alleged the following:   Read more…