On November 17, 2011, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) released the 2011 Report on Enforcement (the “Report”).  The Report is prepared annually by staff of the Office of Enforcement (“OE”).  For FY2011, OE focused on matters which involve: (1) fraud and market manipulation; (2) serious violations of reliability standards; (3) anticompetitive conduct; and (4) conduct that threatens the transparency of the regulated markets.  The Report details “significant matters” undertaken by the OE, the Division of Investigations (“DOI”) and the Division of Audits (“DA”).  

In FY2011, DOI led a task force to examine the cause of widespread electricity and gas outages in Texas and the Southwest in February 2011.  Also in FY2011, the Commission issued an order confirming and clarifying its policy regarding issuance of public notices of alleged violations, stated in a December 17, 2009 order. (See December 18, 2009 edition of the WER).  The Commission affirmed the benefits of the public notice.  In April 2011, the Commission affirmed an Initial Decision assessing a $30 million civil penalty against trader Brian Hunter, formerly of Amaranth Advisors L.L.C.  (See April 25, 2011 edition of the WER).  In May 2011, the Commission agreed with an Initial Decision finding that a third-party complainant failed to establish violations of the anti-manipulation rule against ISO-New England, Inc. and others related to their capacity imports.  Rehearing of the Brian Hunter and ISO-New England, Inc. cases is pending before the Commission.  In June 2011, the Commission found that Moussa I. Kourouma submitted misleading information and omitted material facts concerning his ownership of Quntum Energy, LLC to the Commission and a Regional Transmission Organization.  Overall, the Commission approved nine settlement agreements entered into by OE, totaling $2.9 million and disgorgement of $2.75 million, plus interest.  In FY2011, the largest type of violations were found in the Open Access Transmission Tariff/Tariff category, compared to FY2010, which found Natural Gas Transportation with the highest level of violations.

DOI opened and closed roughly the same amount of investigations as in FY2010.  OE opened 12 investigations that were not self-reported and 2 inquiries.  DOI closed 19 pending investigations in settlement.  In FY2011, the Enforcement Hotline received 161 Hotline calls and inquiries, and 2 calls were turned into preliminary investigations.  The DA completed 72 audits in FY2011, 16 of which were conducted with the Office of Electric Reliability as reliability oversight audits.

In the Report, the Division of Energy Market Oversight (“Market Oversight”) highlighted a decision on October 24, 2011 by the U.S. Court of Appeals for the Fifth Circuit (“5th Circuit”), which vacated FERC’s Order No. 720 rulemaking concerning information reporting by intrastate pipelines.  Market Oversight indicated that the data provided from Order No. 720 helped OE assess factors leading to power outages in the Southwest after the gas well “freeze-offs” in February 2011.  The Report states that the effect of the 5th Circuit’s decision is to “diminish significantly transparency in the interstate natural gas market.”

The Report indicates that DOI will focus on keeping markets “transparent and competitive” and “ensuring the reliability of the Bulk-Power System.”  The DA will work with entities to improve compliance, and Market oversight will examine and monitor the “structure and operation of natural gas and electric markets.”

 A copy of the Report is available here.