Item A-3 | Report | News Release
Good morning Chairman Glick and Commissioners.
Today, the Office of Enforcement (OE) is releasing its sixteenth 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). I am joined by my colleagues Kurt Jacobs from DAA and Gareth Jones from DAS.
As noted in the Report, OE’s enforcement priorities in FY2022 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.
The Report summarizes audit findings and settlements which were approved by the Commission and are publicly available on e-Library. In addition, the Report discusses public litigation filings, both before federal courts and Commission ALJs. 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 additionally 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 also provides a summary of Enforcement staff’s continued work on the joint reliability inquiry concerning the February 2021 cold weather event in which OE staff participated. After filing its preliminary findings and recommendations on September 23, 2021, the inquiry team issued its final report on November 16, 2021. Since the final report’s issuance, Enforcement staff has worked to ensure that the report’s recommendations, which are aimed at helping to prevent similar future events, are being implemented.
The Division of Audits and Accounting has included in the Report 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 FY2022, 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, 427 proceedings involving various accounting matters, and in the administration of the Commission’s financial reporting filing requirements and programs, including Electric Quarterly Reports (EQRs) and various other forms.
The Division of Analytics and Surveillance provides in the Report a comprehensive review of its surveillance program and describes how it analyzed transactional and market data in FY2022 to detect potential manipulation, anticompetitive behavior, and other anomalous activities in the energy markets.
In FY2022, the Commission approved eleven settlement agreements resolving investigations and litigated matters. Eight of these settlement agreements between Enforcement and investigative subjects resolved seven pending investigations. The settled investigations involved claims of market manipulation, tariff violations, misrepresentations prohibited by the Commission’s Duty of Candor rule, and violations of the Interstate Commerce Act. These settlements totaled approximately $55.54 million, which included approximately $23.59 million in civil penalties and disgorgement of approximately $31.95 million. The Commission approved three additional settlements that resolved two federal district court litigation matters for approximately $1,975,000 in disgorgement.
In FY2022, DOI staff opened 21 new investigations and brought seven 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 there was either no violation, there was insufficient evidence to conclude that a violation had occurred, or that a violation should not be subject to sanctions. DOI also closed 126 self-reports without further action, closed three MMU referrals without opening full investigations, and resolved 236 calls made to the Commission’s Enforcement Hotline. In addition, in FY2022, DOI continued to litigate four cases on the Commission’s behalf in federal district court, including the two in which settlements were approved within the same fiscal year.
In FY2022, the Division of Audits and Accounting completed 12 audits of public utility, natural gas, oil pipeline, and regional transmission organization companies covering a wide array of topics. The audits resulted in 51 findings of noncompliance and 258 recommendations for corrective action and directed $158 million in refunds and other recoveries. Additionally, DAA acted through the Chief Accountant’s delegated authority or advised on 427 proceedings, including acting on 211 accounting filings requesting approval of a proposed accounting treatment or financial reporting matter, and assisting with 216 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 over 3,000 entities each quarter as to timeliness and, through automated validations, accuracy of data. DAA held one technical conference to conduct outreach with the filing community and discuss potential system improvements and enhancements. Furthermore, DAA oversaw the Commission’s eForms Refresh Project that implemented adoption of XBRL 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 FY2022 involved assessing the Commission’s receipt of approximately 2,600 financial reporting form submittals.
Finally, in FY2022, 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 16,766 screen trips for review by DAS staff, who conducted 26 additional in-depth inquiries into specific trading behavior. On the electric side, each month during FY2022, 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 32 instances of market behavior that required further analysis. DAS staff made two surveillance-related referrals to DOI during the fiscal year.
During FY2022, DAS also worked with DOI on approximately 50 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.
Lastly, DAS conducts analytical reviews of wholesale electric market-based rate transactions to detect the potential exercise of market power. DAS staff routinely analyzed the combined results of 25 statistical indicators to detect potential instances of the exercise of market power within 59 geographic regions or market hubs. During FY2022, DAS staff reviewed over 2.5 million market-based rate transactions filed through the Commission’s EQRs by all market-based rate holders selling wholesale energy in the bilateral markets.
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.