On September 19, 2019, one Independent and four Democratic Senators wrote a letter to FERC which expressed concerns over recent actions taken by FERC and which directed a series of questions to FERC regarding the “apparent erosion” of FERC’s role in preventing fraud and manipulation in U.S. energy and financial markets (see October 3, 2019 edition of the WER). The concerns expressed by the senators related to (i) the decline in the number of civil penalty actions initiated by FERC; (ii) the closing of FERC’s Division of Energy Market Oversight (“DEMO”), and (iii) FERC’s ending its policy on issuing Notices of Alleged Violations (“NAVs”) regarding investigations.
FERC Chairman Neil Chatterjee and Commissioners Bernard McNamee and Richard Glick each responded individually to the senators’ letter. On October 31, 2019, Chairman Chatterjee provided a response to each of the questions provided by the senators, with Chairman McNamee providing supplemental responses on two of the questions. Notably, Chairman Chatterjee stated that (i) he terminated two non-public investigations in Fiscal Year 2019 (“FY 2019”); (ii) his authority to terminate investigations is derived from the Department of Energy Organization Act; and (iii) the Division of Energy Market Oversight (“DEMO”) was closed to improve organizational efficiency, and all former DEMO functions and employees have been reassigned to other offices or divisions. On November 4, 2019, Commissioner Richard Glick also provided a letter, agreeing with the senators’ assessment of FERC’s waning commitment to preventing manipulation and proposing amendments to the Federal Power Act (“FPA”) to assist FERC in its enforcement duties.
In his letter, Chairman Chatterjee generally rejected the suggestion that FERC under his leadership has eased off enforcement targets. Chairman Chatterjee stated that the perceived reduction in civil penalty actions initiated by FERC is a result of the maturation and effectiveness of FERC’s enforcement program, and the reduction in civil penalties provided is due to FERC’s usage of early surveillance screens intended to detect and prevent market manipulation. With respect to the senators’ question regarding the authority of the Chairman to terminate investigations without a vote of the Commission, Chairman Chatterjee argued that Section 7171(c) of the Department of Energy Organization Act relating to the Chairman’s supervision of FERC personnel and distribution of business among personnel and administrative units of the Commission gives the chairman that authority. Chairman Chatterjee also affirmed that FERC may still open a market manipulation investigation even if the conduct does not technically violate a tariff provision.
Chairman Chatterjee then provided responses explaining FERC’s decision to close DEMO, stating that all Commissioners were aware of the closing of the division and that all functions currently performed by the division will continue to be performed by FERC staff in other divisions. In response to a question raised by the senators as to whether an effort had been made to inform Congress of the reorganization, Chairman Chatterjee stated that FERC viewed these changes as a minor realignment, and that briefings had been held for congressional staff since the reorganization was announced. Both Commissioners McNamee and Glick also responded to the senators’ questions regarding DEMO, emphasizing that they had both supported the decision to close DEMO and reassign its functions.
Finally, Chairman Chatterjee responded to questions relating to FERC’s recent rescission of the NAV policy. He stated that FERC did occasionally, during the decade the NAV policy was in place, publicly identify entities referred to the Office of Enforcement for further action without first allowing the entities to respond to preliminary findings. With regard to transparency, Chairman Chatterjee stated that the limited information contained in NAVs and other enforcement information is still available to market participants in FERC’s annual reports on enforcement, and that the Office of Enforcement staff often has non-public interactions with the independent market monitors overseeing independent system operators and regional transmission organizations, wherein FERC staff will identify entities who are currently being investigated.
In a separate letter, Commissioner Glick expressed concern that “the Commission’s commitment to preventing manipulation and penalizing bad behavior appears to be waning.” He stated that he does not believe that FERC is expeditiously pursuing some enforcement matters and that he is unaware of any prior instances where a Chairman, acting under his or her own authority, has terminated an enforcement proceeding against the Office of Enforcement’s recommendation. He also expressed concern regarding FERC’s decision to decline to finalize the “Connected Entities” rulemaking, which he stated would have provided more transparency to the relationships among market participants. Finally, Commissioner Glick suggested that certain amendments to the FPA could enhance FERC’s enforcement abilities. Specifically, he recommended that FERC be given authority to ban repeat violators of FERC’s rules and regulations from participating in FERC-jurisdictional markets, that clarification be provided that only the full Commission may terminate an enforcement proceeding, as opposed to solely the Chairman, and that FERC impose a “duty of candor” on market participants.
A copy of Chairman Chatterjee’s letter may be found here.
A copy of Commissioner McNamee’s letter may be found here.
A copy of Commissioner Glick’s letter may be found here.