During the past few months, there have been a number of important developments concerning FERC enforcement matters. FERC Enforcement staff is involved in four cases that are currently in litigation either before a FERC administrative law judge or in Federal district court. This is the easily the most cases that FERC Enforcement has had in court at any one time. In addition, FERC has three other cases in the order to show cause stage and it appears that all three may also end up in federal court. There are a number of consequences from this unprecedented amount of enforcement litigation. First, market participants should get some clarity from the courts on the reach of the FERC anti-manipulation rule. These are the first court challenges on the rule. Second, FERC enforcement investigations have slowed considerably. While FERC has significant resources devoted to enforcement, FERC did not staff that division expecting this many simultaneous court actions. Absent a considerable influx of staff, FERC investigations will take longer to resolve. (more…)
WE KNOW ENERGY®
Robert E. Pease
David Poe and Seth Lucia
On January 30, 2015, the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) took the highly unusual step of amending an earlier opinion and issuing a statement to further explain its rejection as untimely of an appeal filed by property owners in response to FERC’s issuance of a new 30-year hydroelectric license to Alabama Power Company. Although the D.C. Circuit amended its prior opinion and issued an explanatory statement, it nevertheless denied en banc review of its earlier decision.
Previously, on September 26, 2014, the D.C. Circuit issued an opinion holding that a petition for review by the Smith Lake Improvement and Stakeholder Association was filed too late with the Court. Under Section 313(b) of the Federal Power Act, an aggrieved party wishing to appeal a final FERC order has 60 days from the date of the order being appealed to seek court review. (more…)
The filing deadline for FERC-566, the Annual Report of a Utility’s 20 Largest Customers, is coming up on January 31, 2015. Under this annual filing requirement, public utilities are required to prepare and publish a list that includes any company, firm, or organization that is one of the 20 largest retail purchasers of electric energy purchased (for purposes other than resale) from the public utility during any one of the three preceding calendar years. Even if no retail sales were made, under the regulations, public utilities are currently required to submit a brief filing notifying the Commission of that fact. This requirement is codified in the Federal Energy Regulatory Commission’s (“FERC” or “Commission”) regulations at 18 C.F.R. Part 46. (more…)
Robert E. Pease and Catherine McCarthy
The Federal Energy Regulatory Commission’s (FERC’s) Office of Enforcement (Enforcement) recently released its annual report on enforcement activities for 2014. As is typical, Enforcement identified its primary concerns as detecting and deterring fraud and manipulation in its markets and ensuring the safety and reliability of the grid. Enforcement also released statistics on its 2014 settlements ($25 million in civil penalties, $4 million in disgorgement) but those statistics concern cases that began years earlier and shed little light on what market participants should expect in 2015. In order to predict what we are likely to see in 2015, and the potential risks that companies may face from Enforcement actions, it is helpful to examine the currently pending cases and to understand the most recent internal changes within Enforcement. Also relevant to predicting what market participants can expect in 2015 are the following: the reach of FERC’s manipulation authority is being challenged in the courts, the Department of Energy’s Inspector General (IG) is examining FERC’s enforcement process and FERC will have a new Chairman and head of Enforcement in 2015. The current pending cases and these developments shed more light on what to expect in 2015 than the statistics FERC released concerning 2014.
In 2014, market participants, for the first time, showed a willingness to challenge Enforcement actions instead of settling. Five companies have refused to pay assessed civil penalties and settle thereby causing Enforcement to go to Federal court or to an administrative law judge to enforce the penalty and manipulation claims. These cases present the first court challenges to the reach of FERC’s anti-manipulation authority. We should expect more challenges in 2015 because another company has publicly vowed to challenge FERC should FERC proceed with a charge of manipulation. However, unless and until the courts narrow Enforcement’s reach, we should expect that Enforcement will continue to be aggressive in its prosecutions. (more…)
Robert E. Pease
On December 30,2014, the Commission approved four Stipulation and Consent Agreements (Agreements) between the Office of Enforcement (Enforcement) and Twin Cities Power – Canada, Ltd., Twin Cities Energy, LLC, and Twin Cities Power, LLC (collectively, Twin Cities), and Jason F. Vaccaro, Allan Cho, and Gaurav Sharma (collectively, the Traders). Enforcement accused Twin Cities and the Traders of violating the Commission’s anti-manipulation rule by manipulating electricity prices in the Midcontinent Independent System Operator, Inc. (MISO) from January 2010 through January 2011 in order to benefit their related financial positions. Twin Cities admitted the violations and agreed to pay a civil penalty of $2,500,000 and disgorgement of $978,186 plus interest. Twin Cities will also implement measures designed to ensure compliance in the future, including submitting compliance reports for four years.
The Traders neither admit nor deny the violations and agreed to pay the following civil penalties: Jason Vaccaro, $400,000, Allan Cho, $275,000, Gaurav Sharma, $75,000. Additionally, the Traders agreed to physical trading bans as follows: Jason Vaccaro for five years, Allan Cho for four years, Gaurav Sharma for four years. The Traders will also implement measures designed to ensure compliance in the future, including submitting compliance reports. (more…)
Ty Johnson and Kirstin Gibbs
At its November 20, 2014 meeting, FERC issued a policy proposal to facilitate the recovery of the costs associated with improving pipeline safety and reducing emissions. Recognizing the fact that several pipeline safety and environmental initiatives will be facing the natural gas industry in the coming months, FERC suggests that pipelines and customers could work together to develop a tracker (e.g., a surcharge on base rates) that recovers those costs associated with pipeline safety and environmental compliance. Because a modernization and safety tracker could be developed faster than establishing a cost recovery mechanism through the traditional rate case process, FERC reasons that pipelines may be incentivized to undertake the upgrades. (more…)