Docket No. AD07-13-015
Item A-3
News Release | Report
Good morning Chairman Glick and Commissioners.
Today, the Office of Enforcement (OE) is releasing its fifteenth Annual Report on Enforcement. As in previous years, OE staff prepared this report to provide information about OE’s activities over the last fiscal year. The Report discusses the activities performed by OE’s Divisions of Investigations (DOI), Audits and Accounting (DAA), and Analytics and Surveillance (DAS) during the last fiscal year. I am joined by my colleagues Katie Walsh from DOI, Kurt Jacobs from DAA, and Mike DeLiso from DAS.
As noted in the Report, OE’s enforcement priorities in FY2021 focused on five distinct areas: (1) fraud and market manipulation; (2) serious violations of the Reliability Standards; (3) anticompetitive conduct; (4) threats to the nation’s energy infrastructure and associated impacts on the environment and surrounding communities; and (5) conduct that threatens transparency in regulated markets. While OE dealt with the impacts from the pandemic in FY2021, it continued to fulfill its duties to protect the energy markets and the public interest, while also providing flexibilities to regulated entities.
The Report summarizes audits, litigation filings, and settlements which were approved by the Commission. These resources are also publicly available on e-Library. OE’s Report also includes a discussion of non-public activities, including summaries of investigations and self-reports that were closed without further action by DOI. The Report also includes illustrative examples of the market monitor referrals received by OE that staff reviewed and closed without opening an investigation. These summaries can be helpful to companies seeking to comply with the Commission’s regulations and orders.
To maintain confidentiality, the companies and individuals whose conduct was under review in these matters are not identified in these summaries.
The Report provides a summary of the joint reliability inquiry concerning the February 2021 cold weather event in which OE staff, including individuals from DOI, participated. The inquiry team filed its preliminary findings and recommendations on September 23, 2021 and issued its final report on November 16, 2021. The report also provides an overview of DAS’s ongoing review of natural gas and electricity market activity during the February 2021 cold weather event to determine if any market participants engaged in market manipulation or other violations.
The Division of Audits and Accounting has included illustrative compliance alerts that cover nearly a dozen distinct areas where there have been consistent concerns or noncompliance of significant impact. To assist jurisdictional entities in gaining a better understanding of a particular topic, docket number(s) of one or more recent audit reports or Commission orders dealing with the various topics are provided in the Report so that jurisdictional entities may review the more recent findings related to a particular topic area. The Report also gives a description of the audits completed in FY2021, which summarizes staff’s findings of noncompliance and provides context for audits that resulted in refunds and recoveries. Additionally, the Report summarizes DAA’s role in deciding certain accounting matters under delegated authority, and advising the Commission in, 432 proceedings involving various accounting matters, and in the administration of the Commission’s Electric Quarterly Report (EQR) and various financial reporting form filing requirements and programs.
The Division of Analytics and Surveillance provides a comprehensive review of its surveillance program and describes how it analyzed transactional and market data in FY2021 to detect potential manipulation, anticompetitive behavior, and other anomalous activities in the energy markets. Additionally, this section of the Report includes details about DAS’s processes and practices related to reviewing market monitor referrals and data management.
In FY2021, the Commission approved eight settlement agreements between Enforcement and subjects to resolve pending investigative matters. The settled investigations involved claims of market manipulation, tariff violations, misrepresentations prohibited by the Commission’s Duty of Candor rule, violations of a Commission order, and violations of the Natural Gas Act. The settlements totaled approximately $6.4 million, which included approximately $4.6 million in civil penalties and disgorgement of approximately $1.8 million. The Commission also approved a settlement of one federal district court litigation matter for approximately $1.5 million in civil penalties and disgorgement, and just two weeks ago approved a settlement against some defendants in another federal district court litigation matter for $600,000 in disgorgement. In FY2021, DOI staff opened 12 new investigations and brought four pending investigations to closure with no action. The new investigations are focused on, among other things, potential market manipulation, potential tariff violations, and potential misrepresentations prohibited by the Commission’s Duty of Candor rule. The investigations that staff closed with no action included matters in which staff found no violation, or staff found that there was not enough evidence to conclude that a violation had occurred. DOI also closed 113 self-reports without further action, closed three MMU referrals without opening full investigations, and resolved 168 calls made to the Commission’s Enforcement Hotline. In addition, DOI continued to litigate four cases on the Commission’s behalf in federal district court, including the two in which settlements were approved.
In FY2021, the Division of Audits and Accounting completed 12 audits of public utility, natural gas, and oil pipeline companies covering a wide array of topics. The audits resulted in 64 findings of noncompliance and 250 recommendations for corrective action and directed $18.5 million in refunds and other recoveries. Additionally, DAA acted through the Chief Accountant’s delegated authority or advised on 432 proceedings, including acting on 145 accounting filings requesting approval of a proposed accounting treatment or financial reporting matter, and assisting with 287 rate, pipeline certificate, merger and acquisition, facility purchase and sale, and debt and security issuance proceedings before the Commission. These proceedings included requests for declaratory orders, natural gas certificate applications, merger and acquisition applications, electric and natural gas rate filings, applications for issuance of securities, and requests for accounting approvals. In many of these cases, DAA served in an advisory role, identifying and analyzing the accounting implications of those requests. DAA also assessed EQR submittals received from nearly 2,900 entities each quarter as to timeliness and, through automated validations, accuracy and reliability of data. DAA held two EQR user group meetings to conduct outreach with the filing community and discuss potential system improvements and enhancements. Additionally, DAA oversaw the Commission’s eForms Refresh Project that implemented adoption of XBLR as the standard for filing multiple Commission financial reporting forms. DAA also administered and oversaw compliance with the requirements of FERC Form Nos. 1, 1-F, 2, 2-A, 3-Q (gas and electric), 6, 6-Q, 60, and FERC-61, which in FY2021 involved assessing the Commission’s receipt of approximately 2,600 financial reporting form submittals.
Finally, in FY2021, the Division of Analytics and Surveillance continued monitoring for potential market manipulation and other anomalous activities in the markets. Natural gas surveillance screens produced approximately 13,603 screen trips for review by DAS staff, who conducted 34 additional in-depth inquiries into specific trading behavior. On the electric side, each month during FY2021, DAS ran and reviewed 96 electric surveillance screens, as well as monthly, hourly and intra-hour sub-screens, and reports for over 41,000 hub and pricing nodes within the six ISOs/RTOs. This surveillance activity identified 31 instances of market behavior that required further analysis. DAS staff made a total of four surveillance-related referrals to DOI during the fiscal year.
As part of these surveillance activities, DAS has also been conducting an examination of wholesale natural gas and electricity market activity during the February cold weather event to determine if any market participants engaged in market manipulation or other violations. DAS analyzed public and non-public market and trade data from the natural gas and electricity markets and financial positions data, evaluated tips received through the Commission’s Enforcement Hotline regarding potentially improper market participant behavior, and met with industry participants, public interest groups, state representatives, and other federal authorities, as appropriate. As a result of DAS’s examination of market activity during the cold weather event, DAS conducted 14 related inquiries into natural gas and electricity market participant behavior and referred two matters for investigation by DOI. As of the end of FY2021, this examination remains ongoing and DAS may refer additional matters to DOI as new information comes to light.
During FY2021, DAS also worked with DOI on approximately 40 investigations involving allegations of manipulation in the Commission-jurisdictional natural gas and electricity markets, or violations of tariff provisions. In these efforts, DAS: (1) provided analytical and data-based assessments of market activity related to ongoing investigations; (2) supported DOI in its fact-finding; and (3) calculated the amount of unjust profits and market harm resulting from alleged violations to assist with determining a civil penalty recommendation under the Commission’s Penalty Guidelines. DAS’s work in these areas informs the structure and substance of investigative fact-finding, settlement discussions, and Commission actions.
In addition, DAS conducts analytical reviews of wholesale electric market-based rate transactions to detect the potential exercise of market power. Staff routinely analyzed the combined results of 25 statistical indicators to detect potential instances of the exercise of market power within 63 geographic regions or market hubs. During FY2021, DAS staff reviewed over 2.6 million market-based rate transactions filed through the Commission’s EQRs by 184 sellers of wholesale energy.
Copies of OE’s Annual Report are now available on the Commission’s website. This concludes the presentation. My colleagues and I will be happy to take any questions you may have. Thank you.