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FERC Office of Enforcement to Remain Focused on Market Manipulation

FERC's Division of Investigations (DOI) entered into eight Commission-approved settlement agreements involving natural gas, electricity and hydropower during fiscal year 2014 (FY2014), assessing total civil penalties of about $25 million and disgorging more than $4 million in unjust profits and interest, according to a report released Thursday by the Office of Enforcement (OE).

In addition, OE's Division of Audits and Accounting completed 19 audits addressing financial and nonfinancial issues during FY 2014, generating 162 recommendations for corrective action and directing more than $11.7 million in refunds, according to OE's annual Report on Enforcement.

The report provides the public with information about FERC staff activities in FY2014, describing both public and nonpublic enforcement activities, including Commission-approved settlements, investigations and self-reports closed without enforcement action or sanctions.

The report "provides even more detail regarding matters DOI decided not to pursue and why, particularly in those matters involving potential market manipulation," said OE's Laura Swett. "For example, the section discussing self-reports closed with no action provides descriptions of more matters than prior annual reports. Similarly, the section illustrating investigations closed with no action describes all seven investigations Enforcement closed without action in fiscal year 2014."

The report also details audits, market oversight, surveillance and analysis performed by OE, Swett said.

"The priorities of our office have not changed in the past few years. We have and will continue to focus on four distinct areas -- matters involving fraud and market manipulation, serious violations of the Reliability Standards, anticompetitive conduct, and conduct that threatens transparency in FERC-regulated markets."

In one of its more high profile market manipulation cases, FERC last year ordered BP America Inc. and affiliates to show cause in a long-running case [IN13-15] involving the alleged gaming of the physical and financial markets at the Houston Ship Channel (HSC), and proposed a near-$29 million penalty for transactions taking place from mid-September 2008 through Nov. 30, 2008 (see Daily GPI,Aug. 6, 2013). BP, which has disputed the allegations and denied wrongdoing, is slated to file responsive testimony by Dec. 8, followed by FERC rebuttal and deposition of witnesses. A hearing is slated for March 2, with an initial decision by July 15.

Commissioners made it clear they intend to stay focused on market manipulation cases, and said their efforts have been enhanced by gaining access to the Commodity Futures Trading Commission's (CFTC) Large Trader Report data (see Daily GPIMarch 5Jan. 3).

"I want to commend the CFTC for this somewhat refreshing, new approach, compared to the combativeness that we faced with them several years earlier," said Commissioner Philip Moeller. "I certainly hope that will continue...We've clearly heard from at least the Senate, if not the rest of Congress, that these two agencies need to get together and resolve the jurisdictional blurriness between us."

Fraud and market manipulation pose "a significant threat to the markets the Commission oversees," according to the report. "Such intentional misconduct undermines the Commission's goal of ensuring provision of efficient energy services at a reasonable cost because the losses imposed by fraud and manipulation are ultimately passed on to consumers. Similarly, anticompetitive conduct and conduct that threatens market transparency undermine confidence in the energy markets and harm consumers and competitors."

FERC approved during FY2014 a settlement related to a self-reported violation of the Anti-Manipulation Rule by Direct Energy Services, "the first self-report of this kind to result in a Commission-approved settlement," Swett said. "Importantly, Direct Energy received a relatively small civil penalty and disgorgement payments due to its self-reporting, strong compliance program, quick action and full cooperation with Enforcement's investigation." 

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