FERC, CFTC, and State Energy Law Developments

On November 19, 2012, FERC approved a stipulation and settlement agreement with Gila River Power, LLC, in which Gila River admitted to manipulating the California ISO (CAISO) electric market By arranging nonexistent wheeling transactions to artificially reduce congestion on an interface used as a critical import path to the CAISO market. FERC concluded that this behavior violated FERC’s prohibition on electric market manipulation and the prohibitions on the submission of inaccurate information in electric marketing activities in FERC’s market-based tariff regulations and the CAISO tariff.

On March 9, the Federal Energy Regulatory Commission (FERC or Commission) approved a Stipulation and Consent Agreement (Settlement) between FERC's Office of Enforcement (OE) and Constellation Energy Commodities Group (CCG).[1] As set forth in the Settlement, CCG has agreed to pay a civil penalty of $135 million and to disgorge profits of $110 million, plus interest, to resolve an ongoing investigation into allegations that CCG violated FERC's prohibition of electric energy market manipulation. Additionally, CCG agreed that four of its employees at issue in the investigation would not hold any position involving physical or financial energy trading at CCG or any successor company at any time in the future.

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On January 11, 2012, FERC issued an order approving a settlement relating to allegations that a Senior Vice President of North America Power Partners (NAPP) engaged in fraudulent conduct in violation of FERC’s prohibition against market manipulation and committed violations of the PJM Interconnection, LLC’s (PJM’s) Open Access Transmission Tariff (OATT).[1] Under the settlement, the officer was obligated to pay a civil penalty of $50,000 and is banned from participating in PJM’s Demand Response activities for two years. Further, the ban against the individual’s participation in PJM’s Demand Response activities also extends to any person or entity acting on his behalf or in which he has a financial interest. In the settlement, the officer did not admit or deny the allegations made By FERC’s Office of Enforcement.

On November 29, 2011, the Federal Energy Regulatory Commission approved a Stipulation and Consent Agreement between the Office of Enforcement (Enforcement) and Holyoke Gas and Electric Department (Holyoke) in which Holyoke stipulated that it failed to report to ISO New England, Inc. (ISO-NE) three planned outages of two of its generating units serving as ISO-NE capacity resources, as required under the ISO-NE tariff. Holyoke is a municipally owned utility located in Holyoke, Massachusetts, that owns and operates two dual-fuel peaking units, Cabot Unit 6 and Cabot Unit 8, both of which it registered as Installed Capacity Resources (ICAP) in ISO-NE’s capacity market. Under its tariff, ISO-NE pays Holyoke a monthly ICAP payment for each Cabot Unit. In return, Holyoke is required to offer the Cabot Units’ energy into ISO-NE energy markets and must notify ISO-NE of any outages of the Cabot Units. Holyoke must also schedule in advance any planned outages required for nonemergency maintenance, inspection, or repair. Additionally, each month Holyoke must submit General Availability Data (GADS Data) for the Cabot Units for the previous month.

On April 21, 2011, the Federal Energy Regulatory Commission (FERC) issued an Order Affirming Initial Decision and Ordering Payment of Civil Penalty in connection with an Administrative Law Judge’s (ALJ) Initial Decision that a natural gas trader for Amaranth, Brian Hunter, engaged in market manipulation, in violation of Section 4A of the Natural Gas Act (NGA) and Part 1c.1 of FERC’s regulations. The case focused on Hunter’s trading activities in natural gas futures contracts (NG Futures Contracts) on the New York Mercantile Exchange (NYMEX). FERC’s Order affirmed the Initial Decision of the ALJ and assessed a civil penalty against Mr. Hunter in the amount of $30 million. FERC’s Order represents the first fully litigated proceeding involving FERC’s enhanced authority to investigate allegations of and penalize instances of market manipulation, which FERC received following the enactment of the Energy Policy Act of 2005. Further, FERC’s Order likely sets the stage for subsequent legal challenges to FERC’s claimed jurisdiction.

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On April 21, 2011, the Federal Energy Regulatory Commission (FERC or Commission) issued a pair of Notices of Proposed Rulemaking (NOPR) designed to facilitate price transparency in markets for the sale and transmission of electric energy in interstate commerce and to enhance market monitoring capabilities.

On October 28, the Federal Energy Regulatory Commission (Commission) issued an order approving a $2.7 million settlement relating to allegations that North America Power Partners (NAPP) engaged in fraudulent conduct in violation of the Commission’s prohibition against market manipulation and committed multiple violations of the PJM Interconnection, LLC’s (PJM) Open Access Transmission Tariff (OATT). The Commission’s order resolves an Office of Enforcement investigation into NAPP’s conduct that occurred more than two years ago. NAPP did not admit or deny the allegations contained in the settlement with the Office of Enforcement.

The Office of Enforcement’s investigation stems from NAPP’s activities in PJM’s Demand Response Programs during 2007 and 2008. NAPP, a Curtailment Service Provider, acts as an agent for individual resources that seek to participate in PJM’s Demand Response Programs. In March 2008, PJM referred certain issues relating to NAPP’s participation in PJM’s Synchronized Reserve Market (SRM), Interruptible Load for Reliability Program (ILR), and the Interchange Energy Market (IEM) to the Office of Enforcement. Through the course of its investigation, the Office of Enforcement alleged the following:   Read more…

Ten years ago, “transparency” within the natural gas markets was largely an ignored concept. The general public gave little thought to whether natural gas markets were transparent and federal regulators assumed that there was no issue to address.

In the wake of Enron’s demise, however, questions surrounding the transparency of natural gas markets were thrust into the headlines of major media outlets and to the forefront of the Federal Energy Regulatory Commission’s attention.

Consequently, since the turn of the century, a paradigm shift has evolved as FERC has undertaken a conscious effort to mandate additional transparency in the natural gas markets.
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On January 22, the Federal Energy Regulatory Commission (FERC) issued an Initial Decision determining that a former hedge fund trader violated FERC’s Anti-Manipulation Rule. The decision, issued By Administrative Law Judge (ALJ) Carmen A. Cintron, is a major step in concluding a lengthy, ongoing investigation initiated By FERC in July 2007. Read more…

On August 6, the Federal Trade Commission (FTC) issued a Final Rule prohibiting market manipulation in the petroleum industry. Under the terms of the Final Rule, persons that engage in fraud or deceit in wholesale petroleum markets or omit material information that is likely to distort petroleum markets are subject to significant civil penalties. In issuing the Final Rule, the FTC joins the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission in regulating market manipulation in the energy industry.

The issuance of the Final Rule concludes a two-year process that was authorized By Title VIII of the Energy Independence and Security Act (EISA) of 2007. Under EISA, the FTC is authorized to issue any rule or regulation that prohibits any person from engaging in manipulative or deceptive behavior in connection with the purchase or sale of crude oil, gasoline, or petroleum distillates at wholesale. Accordingly, the FTC’s Final Order prohibits any person from (a) knowingly engaging in any act that operates as a fraud or deceit upon any person; and (b) intentionally failing to state a material fact that renders a statement made By that person misleading if the omission distorts or is likely to distort market conditions. In practice, paragraph (i) of the Final Rule prohibits fraudulent or deceptive overt conduct while paragraph (ii) of the Final Rule prohibits material omissions that are likely to distort market conditions.  Read more…