The Federal Energy Regulatory Commission (FERC or the Commission) Office of Enforcement (OE) issued its 2020 Report on Enforcement on November 19. The report provides a review of OE’s activities during fiscal year 2020 (FY 2020), covering October 1, 2019, through September 30, 2020. At bottom, FERC opened and closed significantly fewer investigations this year as compared to the past three, likely due to the ongoing coronavirus (COVID-19) pandemic.
The report reveals likely areas of focus for FERC enforcement in the coming year and provides guidance to the industry based on the wide variety of enforcement matters that are otherwise nonpublic by synthesizing some of the more disparate developments from audits, market surveillance, and other enforcement activities for the benefit of industry stakeholders.
The pandemic shaped FERC’s enforcement activities during the period. In response to the pandemic, FERC announced in April 2020 that it would exercise prosecutorial discretion and assist regulated entities in managing enforcement- and compliance-related burdens for the duration of the pandemic. As the 2020 Report notes, some of these accommodations included suspending new audits until August 2020, postponing contacting entities regarding surveillance inquiries except for those involving market behavior that pose significant risk of market harm, and allowing entities to delay for 60 days the submission of self-reports of inadvertent errors that resulted in no significant harm.
FERC’s enforcement priorities during FY 2020 focused on fraud and market manipulation, serious violations of the Commission-approved North American Electric Reliability Corporation (NERC) Reliability Standards, anticompetitive conduct, and conduct that threatens the transparency of regulated markets. OE explained that its activities and objectives are consistent with FERC’s FY 2018-2022 Strategic Plan, which “sets forth a mission to account for significant changes in energy supply due to a number of factors, such as the increased availability of domestic natural gas and the emergence and growth of new energy technologies.”
In FY 2020, OE opened six new investigations, resolved eight ongoing investigations without further action, and negotiated three settlements totaling more than $550,000 in penalties and disgorgement. OE also completed 10 audits of regulated entities, finding 51 instances of noncompliance and issuing 199 corrective action recommendations, and directing nearly $100 million in refunds and other recoveries. OE also initiated 26 natural gas surveillance inquiries and 39 electric surveillance inquiries, five of which resulted in referrals for investigation, all related to electric transactions.
The report details FERC’s continued efforts in federal courts to actively litigate enforcement matters that were pending during FY 2020. At the end of FY 2020, four enforcement actions remain pending in federal court, constituting nearly $90 million in asserted penalties and disgorgement. Among these is one case file in FY 2020 against Vitol Inc. and Federico Corteggiano in the Eastern District of California, where FERC seeks to enforce a nearly $3 million penalty and disgorgement order for violations of FERC’s Anti-Manipulation Rule.
Additionally, FERC achieved success on a procedural challenge raised by an enforcement subject. In FERC v. Powhatan Energy Fund, LLC, FERC convinced the US Court of Appeals for the Fourth Circuit that when an alleged violator decides to pursue adjudication in court, FERC’s claim accrues, and thus the statute of limitations commences, when the alleged violator fails to pay within 60 days the amount set forth in FERC’s Penalty Assessment Order, and not when the underlying violation occurs. In addition to the litigated cases, two proceedings are pending before the Commission. Both are from prior years and both have arisen under the Natural Gas Act. The Commission also approved three settlement agreements, collecting more than $550,000 in penalties and disgorgements in investigations concerning FERC’s market behavior rules, the ISO-NE Tariff, the CAISO Tariff, and a NERC Reliability Standard.
FERC received 126 new self-reports in FY 2020, the majority from ISOs and RTOs. As in previous years, the FY 2020 Report indicates that FERC resolves informally the vast majority of alleged violations without findings or through corrective actions voluntarily implemented by the subject of the investigation, and without the need for a formal settlement.
FERC’s six new investigations involved six alleged market manipulation violations, six alleged tariff violations, and four alleged misrepresentations in violation of the market behavior rules. Likely the result of the pandemic, FERC opened half as many investigations in FY 2020 as in FY 2019. FERC also closed 11 investigations, six due to a lack of evidence, two where FERC found a violation but opted not to pursue sanction, and three by settlement. In the previous three years, by contrast, FERC closed two to four times as many investigations.
In sum, despite the effects of the pandemic, FERC OE continued to conduct investigations, albeit at a slower rate, and to pursue alleged violations in both administrative and judicial forums. FERC’s enforcement trends and priorities may change however next year, both as the pandemic is expected to subside and due to a likely change in makeup and leadership of the Commission.