With Case Backlog Cleared, Chatterjee Highlights Accomplishments, FERC Enforcement Report

Neil Chatterjee

Presiding over the November 16 open meeting with a new chairman waiting in the wings, FERC Chairman Neil Chatterjee reflected on his stint wielding the gavel and accomplishments over the past three months.

The latter part of that time has been dominated by the notice of proposed rulemaking (NOPR) from Energy Secretary Rick Perry to have the Commission address improved compensation for coal and nuclear generation units. Chatterjee addressed the NOPR (RM18-1) during the meeting and speaking with reporters after the meeting, mentioning his preference for the Commission to adopt some interim measure to support coal and nuclear plants at risk of retirement and tie that step with a longer-term solution to be worked out later.

FERC is facing a December 11 deadline for initial action on the NOPR, and Chatterjee said the Commission cannot afford to wait for Kevin McIntyre and Richard Glick to be sworn in to work on a response to the Department of Energy. He expressed confidence that McIntyre and Glick will get up to speed quickly upon taking their seats at FERC, and that he will try and persuade commissioners to support an interim measure to improve compensation for coal and nuclear plants in organized wholesale markets.

“I am optimistic that I will be able to persuade a majority of my colleagues to follow this course,” he said.

The Senate on November 2 confirmed McIntyre and Glick to join the Commission, but President Trump has not signed their paperwork and documents for them to be sworn in. Chatterjee said he has not heard when that will take place, but he expects McIntyre, who has been designated by the White House to be chairman upon arriving, to preside over the next open meeting at FERC.

Chatterjee said it was a privilege to lead the Commission following an extended period without a quorum, hosting former commissioners and staff for the Commission’s 40th anniversary celebration, and working with staff and fellow commissioners to get through a backlog of cases. Including matters voted on at the meeting, FERC will have issued 344 orders, none of which would have not been possible if Commissioner Cheryl LaFleur – who was the sole commissioner during the six months without a quorum – and FERC staff had not prioritized matters and prepared cases for action once Chatterjee and Commissioner Robert Powelson arrived in early August, Chatterjee said.

“I’m proud to report that by the end of the month, we will be through the backlog of cases that had piled up during the no-quorum period. It is an impressive accomplishment and one that we should all be proud of,” he said.

The lone item for discussion at the meeting was the annual FERC staff report on enforcement and investigations from the Office of Enforcement (OE) covering fiscal year 2017. The report details FERC staff’s analysis of energy trading activities, violations of market rules, anticompetitive conduct, and the financial penalties stemming from investigations and settlements. It covers activities from the Division of Investigations, the Division of Energy Market Oversight, the Division of Analytics and Surveillance, and the Division of Audits and Accounting.

Because the report covers actions during the fiscal year, it does not include a November 7 settlement with Barclays Bank PLC and several defendants, which resulted in the company paying a civil penalty of $70 million and disgorgement of $35 million stemming from FERC’s investigation (IN08-8) of Barclays’ power trading activities.[1]

The financial penalties in the agreement were much less than the initial figure of nearly $500 million in the case, but it resolved an investigation that started in 2007 and had the potential for addition litigation, Chatterjee said during the media briefing. “My priority was to get the disgorgement money back to those that had been harmed and to deter similar conduct,” he said, noting that the settlement represented the third-largest civil penalty FERC has ever levied against a company.

Chatterjee also commented that he hopes to address federal court directives on the proper scope of de novo reviews within FERC’s enforcement activities, noting that courts have rejected FERC’s interpretation of those reviews five times. “We need to work on a path forward that’s legally defensible,” Chatterjee said, declining to provide details on what form that effort would take because he has not consulted with other commissioners.

During the meeting, FERC staffer Maxwell Multer of OE described the activities and noted that the report for the first time included examples of market surveillance inquiries conducted by the Division of Analytics and Surveillance that did not result in a referral to the Division of Investigations. The information was included at the request of energy companies, who have asked for more transparency from FERC so that they have a better sense of what raises red flags that might prompt an investigation, added John Miller of OE. The identity of the companies involved in the surveillance inquiries that did not result in investigations is not provided in the report.

FERC’s Division of Investigations opened 27 new investigations in FY2017, Multer said. “The division closed 16 investigations, with more than two-thirds closed because staff concluded that the evidence was insufficient to support a finding of a violation. Five matters closed through settlement, with expected recoveries of more than $51 million in civil penalties and $42 million in disgorgement of unjust profits,” he said.

The report also includes information from audits that detail areas of deficiency at companies that have been observed in audits conducted over the past year, Multer said. FERC staff completed 11 audits of public utility, oil pipeline, and natural gas companies, with findings of market reporting and transparency deficiencies. Those audits resulted in 301 recommendations for corrective action and directed refunds and recoveries totaling $13.3 million, Multer said.

The report provides companies and the public with information on non-public enforcement activities, such as self-reported violations, and it mentions FERC staff leading a technical conference during the summer that examined reduced reporting of transaction data for natural gas price indices.

Chatterjee mentioned the large number of self-reported violations in the report and asked how FERC staff encourages self-reporting by companies. The companies that self-report receive credit that can lead to reduced penalties in cases where a penalty is deemed appropriate, and the number of self-reported violations may be an indication of more robust compliance programs within the energy industry, Multer said. FERC staff hopes the information is useful to companies and show that self-reporting can often lead to a case being resolved without an investigation, he said.

The lack of a quorum at FERC did not have much of an impact on OE activities over the past year, Multer added. “While there were a few matters that had to wait for a quorum, such as settlement agreements that had been reached between OE and certain entities under investigation, OE’s work during the year was largely unaffected,” he said.

By Tom Tiernan TTiernan@fosterreport.com

[1]   For a past story, see, Barclays Bank Agrees to Pay $105 Million to Settle Electric Market Manipulation Allegations, FR No. 3173, pp. 25-27.

 

 

This article appears as published in The Foster Report No. 3174, issued November 17, 2017

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