Staff of FERC's Office of Enforcement (OE) sought to recover more than $567 million in civil penalties and $45 million in disgorgement through litigation work in Fiscal Year 2016. The most significant shift in the nature of the Division of Investigations (DOI) work during the year was the amount of time spent litigating in federal District Court, OE officials said Thursday.
"OE’s priorities have not changed over the past few years," OE's Todd Hettenbach told the Federal Energy Regulatory Commission. "We have focused, and will continue to focus, on four distinct areas: fraud and market manipulation; serious violations of the reliability standards; anticompetitive conduct; and conduct that threatens transparency in regulated markets.
OE's general approach toward its work addressing those four priorities also has largely stayed the same. Among other things, DOI opened 17 new investigations in fiscal year (FY) 2016. Of those 17 new investigations, 12 involve potential market manipulation. It closed 11 investigations, with about half closed because staff concluded that the evidence was insufficient to support a finding of a violation and the other half closed through settlement. The settlements addressed market manipulation, violations of Commission-approved reliability standards, and tariff violations."
In its 2016 Report on Enforcement, released Thursday, OE said staff in FY2016 negotiated settlements for almost $12.25 million in civil penalties and disgorgement of nearly $5.7 million in unjust profits. "These settlements also included provisions requiring the subjects to enhance their compliance programs and periodically report back to Enforcement regarding the results of those compliance enhancements," according to the report. Since 2007, the total payable, non-pending civil penalties assessed by FERC amounts to approximately $641 million, and total disgorgements amount to slightly over $401 million.
At the same time, audits and accounting staff reviewed the conduct of regulated entities through 14 audits of oil pipeline, public utility and natural gas companies, resulting in 214 recommendations for corrective action and directing refunds and recoveries totaling $5.3 million. And analytics and surveillance staff worked on more than 40 investigations and reviewed numerous instances of potential misconduct, with some reviews resulting in referrals to Investigations.
Simultaneous with the release of the report, OE released a pair of white papers providing insights into OE staff's views and emerging trends related to market manipulation. A white paper on Effective Energy Trading Compliance Practices provides guidance to entities regarding best practices within their own organizations to help prevent and detect market manipulation and other violations, OE said. A second white paper, on Anti-Market Manipulation Enforcement Efforts Ten Years After EPACT 2005 (the Energy Policy Act of 2005), summarizes recent FERC and federal court case law regarding development of the FERC's anti-manipulation doctrine and identifies factors staff considers when deciding whether to pursue or close allegations of manipulation.
"The annual report, as well as the white papers, are intended to de-mystify the enforcement process and the law, and to provide transparency as well as guidance to industry, and so I would in particular encourage industry to examine and study the compliance white paper, which...contains examples of best practices, but also practices to avoid," said FERC Chairman Norman Bay.
OE doesn't intend to change its priorities in FY2017, according to the report.
"Conduct involving fraud and market manipulation poses a significant threat to the markets the Commission oversees. 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. Such conduct might also involve the violation of rules designed to limit market power or to ensure the efficient operation of regulated markets. Enforcement focuses on preventing and remedying misconduct involving the greatest harm to the public, where there may be significant gain to the violator or loss to the victims.”
It was the 10th annual Report on Enforcement.