Federal energy regulators have approved a stipulation and consent agreement under which two companies admit violations of the Federal Power Act and regulations prohibiting energy market manipulation.
The case involves Berkshire Power Company LLC (Berkshire), and Power Plant Management Services LLC. Berkshire owns an approximately 245 MW natural gas-fired, combined-cycle generating facility in Agawam, Massachusetts. Berkshire hired PPMS to provide project management and administrative services at the plant.
According to Federal Energy Regulatory Commission documents, at the direction of a general manager hired by PPMS, "Berkshire Power engaged in a fraudulent scheme to perform unreported maintenance work and to conceal that work and associated maintenance outages from ISO-NE." The documents allege that individuals at the plant scheduled maintenance work for times when the plant was unlikely to be dispatched, and then failed to notify ISO-NE about the work or the associated Plant unavailability. In at least six instances, this led to representations to ISO New England dispatchers that the plant was starting up or was able to start up when it was, in fact, unavailable due to ongoing maintenance or other technical problems.
The Commission's Office of Enforcement initiated its investigation in June 2014, following a referral from the United States Attorney’s Office for the District of Massachusetts. Following fact-finding, Enforcement concluded that Berkshire and PPMS violated section 222 of the Federal Power Act and the Commission’s Anti-Manipulation Rule by concealing its maintenance work and associated outages from ISO-NE. That rule prohibits any entity from using a fraudulent device, scheme, or artifice, or engaging in any act, practice, or course of business that operates or would operate as a fraud; with the requisite scienter; in connection with a transaction subject to the jurisdiction of the Commission.
Enforcement also concluded that Berkshire violated Commission regulations by violating provisions of the ISO-NE tariff requiring it to schedule and disclose plant maintenance and to accurately report on plant availability, and by making false and misleading representations to ISO-NE. Finally, Enforcement concluded that Berkshire violated Commission-approved reliability standards by withholding information regarding its planned maintenance outages and plant capabilities and availability.
According to the order, the Office of Enforcement, Berkshire, and PPMS have resolved the matter by a stipulation and consent agreement. Under that deal, Berkshire and PPMS stipulate to the facts, admit the violations set out in the Agreement, and agree to pay a civil penalty of $2,000,000 to the United States Treasury. Berkshire agrees to pay to ISO-NE disgorgement of $1,012,563, plus interest.
Berkshire further agrees to pay a civil penalty of $30,000 to the United States Treasury for its violations of the Reliability Standards.
In its March 30, 2016 order accepting that settlement, the Commission noted Enforcement's consideration of the factors in the Revised Policy Statement on Penalty Guidelines. Factors cited here as supporting "the appropriate remedy" include "that both companies cooperated fully and comprehensively throughout the investigation, both accepted responsibility for their violations, and neither has a prior history of violations." The order notes that the remedy also reflects that neither company had an effective compliance program in place during the relevant period, and that a high-level employee at the plant directed the scheme.
The order directs Berkshire and PPMS to make the disgorgement and civil penalty payments as required by the Agreement within ten business days of its Effective Date. ISO-NE was directed to allocate the disgorgement funds pro rata to network load during the applicable period. The order also directs Berkshire and PPMS to comply with the provisions in the Agreement also requiring them to implement procedures to improve compliance going forward, subject to monitoring via submission of semi-annual reports for at least one year.
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Showing posts with label disgorgement. Show all posts
Showing posts with label disgorgement. Show all posts
FERC 2015 Report on Enforcement
Monday, November 23, 2015
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.
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.
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