On November 21, 2019, FERC’s Office of Enforcement (“OE”) released its thirteenth annual Report on Enforcement (“Report”) to provide an update about its activities during the last fiscal year (i.e., 12-months ending September 30, 2019; hereinafter “FY2019”). The Report provides an overview of, and statistics reflecting, the activities of OE’s Divisions of Investigations (“DOI”), Division of Audits and Accounting (“DAA”), Division of Analytics and Surveillance (“DAS”), and Division of Energy Market Oversight (“DEMO”).
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On September 19, 2019, one Independent and four Democratic Senators wrote a letter to FERC which expressed concerns over recent actions taken by FERC and which directed a series of questions to FERC regarding the “apparent erosion” of FERC’s role in preventing fraud and manipulation in U.S. energy and financial markets (see October 3, 2019 edition of the WER). The concerns expressed by the senators related to (i) the decline in the number of civil penalty actions initiated by FERC; (ii) the closing of FERC’s Division of Energy Market Oversight (“DEMO”), and (iii) FERC’s ending its policy on issuing Notices of Alleged Violations (“NAVs”) regarding investigations.
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On November 1, 2019 FERC approved a Stipulation and Consent Agreement between its Office of Enforcement (“OE”), the regional reliability entity Texas Reliability Entity, Inc. (“Texas RE”), the North American Electric Reliability Corporation (“NERC”), and Calpine Corporation (“Calpine”), related to Calpine’s alleged violations of NERC reliability standards governing maintenance and testing of batteries and other protection systems, as well as provisions of the California Independent System Operator Corporation (“CAISO”) Tariff requiring entities to report planned and unplanned generator outages. As part of the settlement, Calpine neither admitted nor denied the alleged violations, but agreed to pay civil penalties of $375,000 to Texas RE and $25,000 to the United States Treasury, and to undergo compliance monitoring.
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On October 25, 2019, FERC found that Vitol, Inc. (“Vitol”) and one of its traders, Federico Corteggiano, violated the Federal Power Act (“FPA”) and FERC’s rules prohibiting energy market manipulation by importing power at a loss from October 28 through November 1, 2013, at the border of the California Independent System Operator Corporation’s (“CAISO”) wholesale electric market in order to relieve transmission congestion and to benefit Vitol’s congestion revenue rights (“CRRs”) sourced at that location. The order follows an investigation into Vitol’s and Corteggiano’s trading practices that was initiated in 2014 by FERC’s Office of Enforcement. In July 2019, following the completion of Enforcement Staff’s investigation, FERC issued an order directing Vitol and Corteggiano to show cause why they should not be assessed Enforcement Staff’s recommended civil penalties of $6 million and $800,000 respectively, and directing Vitol to show cause why it should not disgorge $1,227,143 in unjust profits. FERC’s October 25 order affirmed Enforcement Staff’s conclusion that Vitol and Corteggiano engaged in market manipulation, and ordered Vitol to disgorge $1,227,143 in unjust profits. However, FERC significantly reduced Vitol’s civil penalty to $1.5 million and increased Corteggiano’s civil penalty to $1 million after concluding that Corteggiano was primarily responsible for the manipulative conduct.
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On September 19, 2019, one Independent and four Democratic U.S. Senators wrote a letter to FERC asking for an explanation of three actions the Senators believed showed an “apparent erosion” of the “vital role” FERC plays in preventing fraud and manipulation in U.S. energy markets and financial markets: (1) the decline in FERC-initiated civil penalty actions and the abrupt termination of non-public investigations without explanation; (2) the elimination of the Division of Energy Market Oversight (“DEMO”); and (3) the rescission of its policy on issuing Notices of Alleged Violations (“NAVs”) for investigations. Those Senators were Maria Cantwell (D-WA), Dianne Feinstein (D-CA), Ron Wyden (D-OR), Edward Markey (D-MA), and Angus King (I-ME).

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On August 27, 2019, FERC staff and the North American Electric Reliability Corporation (“NERC”) staff (collectively, “Staff”) jointly issued a white paper on Notices of Penalty (“NOP”) for violating Critical Infrastructure Protection (“CIP”) Reliability Standards, which details requirements for Bulk Power System cyber security.  Staff elected to draft the white paper in response to the increase in Freedom of Information Act (“FOIA”) requests for the disclosure of non-public information in CIP NOPs, such as the identity of the CIP violator.  The overarching objective of the proposal is to provide increased transparency, while protecting sensitive security information that could jeopardize the Bulk Power System if made public.  If approved, the proposal will not have a retroactive effect on pending matters, or CIP NOPs already filed with the Commission.

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On July 19, 2019, FERC largely denied four complaints filed in May and June of 2015 (“2015 Complaints”) concerning the results of the Midcontinent Independent System Operator, Inc.’s (“MISO”) 2015/16 Planning Resource Auction (“2015/16 Auction”) for Local Resource Zone 4 (“Zone 4”).  In relevant part, FERC: (1) found that the results of the 2015/16 Auction for Zone 4 were just and reasonable; and (2) denied requests to hold an evidentiary hearing to resolve issues related to the 2015/16 Auction.  Specifically, FERC found no evidence in the record indicating that certain Auction offers violated the MISO Tariff, and the resulting Zone 4 auction-clearing price was just and reasonable.
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On June 26, 2019, the U.S. District Court of Maine (“District Court”) denied a motion for leave to file an interlocutory appeal to the U.S. Court of Appeals for the First Circuit (“First Circuit”) ultimately concerning whether FERC’s enforcement action against Competitive Energy, LLC and its managing member Richard Silkman (collectively, “Respondents”) was time-barred.  The District Court previously denied two motions for summary judgment, relying on the First Circuit’s decision in United States v. Meyer (“Meyer”), which held that a FERC enforcement action accrues when FERC assesses a penalty, and therefore was not barred.  Respondents argued that the District Court should not have followed the First Circuit’s decision in Meyer because two subsequent United States Supreme Court (“Supreme Court”) decisions—Kokesh v. SEC (“Kokesh”) and Gabelli v. SEC (“Gabelli”)—have overruled Meyer.  In denying the motion for interlocutory appeal, the District Court held that whether Meyer continues to be good law does not present a “controlling question of law as to which there is a substantial ground for difference of opinion.” 
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On June 7, 2019, Judge Dennis Montali of the U.S. Bankruptcy Court of the Northern District of California San Francisco Division found that FERC’s finding that it had concurrent jurisdiction with the U.S. bankruptcy court over wholesale power agreements was “unenforceable in bankruptcy court and of no force on the parties before it.” Judge Montali further noted that if necessary, the U.S. bankruptcy court will “enjoin FERC from perpetuating its attempt to exercise power it wholly lacks.” At issue, on review by the bankruptcy court, was whether, pursuant to 28 U.S.C. 2201, the bankruptcy court has exclusive jurisdiction over Pacific Gas & Electric Company’s and Pacific Gas & Electric Corporation’s (collectively “Debtors”) right to reject a power purchase agreement (“PPA”) under Section 365 of the Bankruptcy Code, and whether FERC has concurrent jurisdiction to grant or deny PG&E’s rejection of any PPAs.

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On May 16, 2019, FERC rescinded its policy of issuing public Notices of Alleged Violations (“NAV”) after a subject of an investigation has had an opportunity to respond to Office of Enforcement (“OE”) staff’s preliminary findings (“NAV Policy”).  FERC found that the NAV Policy no longer struck an appropriate balance between the benefit of added transparency and the potential negative impacts that the loss of confidentiality may cause to investigative subjects.
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