Federal Energy Regulatory Commission Chairman Neil Chatterjee said the agency's work to guard against market manipulation remains robust even as a new FERC staff report showed a drop in fiscal 2019 penalties compared with the annual average since 2007.
On Nov. 21, staff with FERC's Office of Enforcement released their 13th annual report on the office's enforcement activity. Among other key takeaways, the Office of Enforcement opened 12 new investigations in fiscal year 2019 and closed 14 investigations without further action, down from 24 newly opened investigations and 23 closed investigations in fiscal year 2018.
In fiscal year 2019, the commission approved two settlement agreements between the Office of Enforcement and energy market subjects that totaled more than $14 million, including $7.4 million in civil penalties and $7.0 million in disgorgements. That figure is compared with $783.4 million in civil penalties and about $518 million in disgorgements since 2007, for annual averages of $65.3 million and $43.2 million, respectively.
The types of violations settled has also shifted. In fiscal year 2019, only about half of the violations settled were for market manipulation and/or false statements, a smaller portion than in fiscal years 2016 through 2018, when most settlements stemmed from market manipulation or false statements, according to charts in the Nov. 21 report.
The decline in civil penalties has alarmed some lawmakers on Capitol Hill, prompting a group of mostly Democratic lawmakers to seek more information from FERC on its enforcement efforts.
During a press briefing following FERC's Nov. 21 open meeting where the staff report was discussed, Chatterjee pushed back on "speculation that the commission is lagging in enforcement." The comments came after Chatterjee told the senators earlier in November that annual average civil penalties vary year to year and have dropped in part because FERC's surveillance and enforcement programs have become more effective.
"I reject any suggestion that FERC's enforcement program is anything short of robust," he said at the Nov. 21 briefing. "Our focus and priority continues to be addressing market manipulation and protecting our markets."
Chatterjee pointed to three cases that the commission is currently litigating in federal court that total about $85 million plus interest in penalties and disgorgements. Those matters, which were highlighted in the new FERC staff report, include a lawsuit (FERC v. Silkman, et al., 1:16-cv-00205) over August 2013 commission orders (FERC dockets IN12-12 and IN12-13) that determined that Competitive Energy Services LLC and its managing partner violated FERC's anti-manipulation rule by engaging in a scheme related to ISO New England's day-ahead load response program.
Another FERC enforcement action pending in a U.S. district court is FERC v. Powhatan Energy Fund LLC, et al., (3:15-cv-00452), which addresses civil penalties against Powhatan and others for engaging in fraudulent up-to congestion trades in the PJM Interconnection (FERC docket IN15-3). The third pending case is FERC v. Coaltrain Energy L.P, et al., (2:16-cv-00732) regarding penalties against Coaltrain Energy and its owners for fraudulent up-to congestion trades in PJM (FERC docket IN16-4).
Turning to surveillance work, FERC staff reviewed about 7,629 natural gas market power screen trips and 369,230 trips for electricity market screens in fiscal year 2019, only six of which resulted in referrals for investigation. On the audit side, the Office of Enforcement completed 11 audits that resulted in $161.2 million in total refunds and recoveries for consumers.