2017 FERC Report on Enforcement

Federal regulators of U.S. energy markets and infrastructure described an increase in litigation activities in the most recent fiscal year. According to the eleventh annual Report on Enforcement issued by the Federal Energy Regulatory Commission’s Office of Enforcement, the office has five cases pending in various federal district courts.

The Commission is responsible for enforcing various laws and regulations affecting energy markets and infrastructure. On November 16, 2017, staff from its Office of Enforcement presented to the Commission on the office's activities in Fiscal Year 2017 (October 1, 2016 through September 30, 2017).

According to the 2017 Report on Enforcement, the office has maintained the previous year's enforcement priorities: (1) fraud and market manipulation; (2) serious violations of reliability standards; (3) anticompetitive conduct; and (4) conduct that threatens transparency in regulated markets.

As noted in the Commission press release announcing the 2017 enforcement report, "Conduct involving fraud and market manipulation poses a significant threat to the wholesale energy markets because it undermines FERC’s goal of ensuring efficient energy services at reasonable cost, and it erodes confidence in those markets to the detriment of consumers and competitors." The report notes that conduct which is anticompetitive or which threatens market transparency "undermine confidence in the energy markets and harm consumers and competitors." It also emphasizes the importance of compliance with reliability standards established by Electric Reliability Organization NERC.

The report describes activities by each division of the Office of Enforcement, including staff negotiation of five settlements that resulted in more than $51 million in civil penalties and disgorgement of more than $42 million in unjust profits. These settlements are in addition to the Commission’s November 7, 2017, settlement with Barclays Bank and three traders that requires Barclays to pay a $70 million penalty and disgorge $35 million in unjust profits.

While noting that at least one litigation matter has settled since the close of the fiscal year, the report states that Enforcement staff continues litigating five Federal Power Act matters in United States District Courts, along with two Order to Show Cause proceedings under the Natural Gas Act. According to the report, "In total, as of the end of FY2017, counting all pending federal court matters and the two NGA OSC proceedings before the Commission, staff sought to recover $806,865,000 in civil penalties and $53,987,678 in unjust profits through seven litigation proceedings."

Looking forward, the report emphasizes that in FY2018 the Office of Enforcement will continue to pursue these priorities.

FERC 2015 Report on Enforcement

The enforcement arm of the Federal Energy Regulatory Commission has released a report describing its enforcement activities in fiscal year 2015.

The 69-page 2015 FERC staff report on enforcement draws its organization from that of the Commission's Office of Enforcement.  The report presents public summaries of activity by each of the Office’s four divisions -- Investigations, Audits, Energy Market Oversight, and Analytics and Surveillance.  Of these, Investigations and Audits are the most likely to lead to penalties or other direct enforcement action, while Market Oversight and Analytics typically play more of a background role, supporting the Commission's investigations and audits.

According to the report, the Investigations division opened 19 new investigations in fiscal 2015, and closed 22 (through settlement or "no action").  Major settlements in fiscal 2015 focused on the major 2011 Southwest power outage, with the Commission concluding its multiyear investigation into that outage and its causes.  In all, staff obtained settlements resulting in almost $26.25 million in civil penalties and disgorgement of $1 million in unjust profits. All settlements included reporting requirements and provisions requiring the subjects to enhance compliance programs.

The FERC enforcement office's Audits division periodically checks the records of licensees and public utilities to evaluate their compliance with the statutes and regulations administered by the Commission.  It reportedly performed 22 financial and operational audits of public utilities and oil and natural gas pipelines.  The report states that these audits led to 360 recommendations for corrective action, and refunds and recoveries totaling more than $26.3 million.

Generally speaking, the annual staff enforcement report is a summary of what's already happened.  In other words, the enforcement activity described in the annual report has already occurred.  Much of that activity was public; any civil penalties or other remedies described in the report are generally imposed and documented in separate, preexisting proceedings.  The report does also provide summary level information on some non-public Enforcement activities, like self-reported violations or investigations closed without public enforcement action.

The enforcement report also provides an important look into how the Commission staff view their work -- the enforcement office's patterns, trends, and priorities, as expressed by the people doing the enforcing.  By following the Commission's enforcement activity throughout the year, and comparing that history to staff's view of the year, the enforcement office's points of emphasis come into focus.  As expected, in fiscal year 2015, these included fraud and market manipulation, serious violations of mandatory reliability standards, and conduct that the office found to threaten the transparency of regulated markets.

The Office of Enforcement's annual report can also be compared to previous reports dating back to at least 2007.  Compared to some recent years, fiscal 2015 saw a relatively lower total penalty amount resulting from enforcement action.  (Compare 2015's $26.3 million in penalties and $1 million in disgorgement, with 2013's over $304 million in civil penalties and disgorgement of almost $141 million in unjust profits.)

But experience has shown that there can be difficulty, or at least delay, affecting whether FERC will actually collect that money.  The report notes that in fiscal 2015, Enforcement filed three new petitions in federal district court to enforce earlier Commission orders assessing civil penalties.  Along with an anti-manipulation case tried in 2015 before a FERC Administrative Law Judge, the report notes that staff is waging district court and administrative litigation to recover over $500 million in civil penalties and disgorgement.