By Michael Brooks

FERC’s Office of Enforcement opened 27 investigations in fiscal year 2017, 10 more than the year before, according to its 11th annual report released last week.

The report includes for the first time examples of surveillance inquiries that did not lead to investigations.

In a presentation to the commission Thursday, Enforcement staff said the brief summaries of several instances in which the office’s Division of Analytics and Surveillance (DAS) contacted market participants about potential violations were included in the report in response to requests by several regulated entities. They are similar to the examples the Division of Investigations (DOI) has provided on investigations closed without action in past reports. (See Market Manipulation Cases Dominate FERC Enforcement.)

“OE anticipates that regulated entities can leverage the example surveillance inquiries to achieve a better understanding of when and why DAS makes inquiry calls, the principles and evaluations used by DAS in making a determination to refer an inquiry to DOI and transactional behavioral patterns that were not deemed by DAS to be problematic or potential violations,” Enforcement’s John Miller told the commission.

The report masks the identities of the market participants and the markets in which the incidences occur. In one example, DAS flagged large, loss-making increment offers (INCs) at an RTO hub made by a market participant who held a leveraged financial transmission rights path sourced at the hub.

“The market participant explained that the observed INCs covered a period of a planned outage, and that the virtual position shifted a non-leveraged real-time position to the day-ahead market where the market participant hedged commodity risk,” the report said. “After verifying the relevant information, the inquiry was closed with no referral to DOI.”

DAS’ computerized triggers produced more than 300,000 alerts on RTO and bilateral trades, only 31 of which resulted in inquiries. Of those, four resulted in referrals to DOI.

The report also included examples of and statistics on violations that were self-reported. The Office of Enforcement received 80 self-reports last fiscal year, most of which were made by RTOs/ISOs. Most of these were minor violations resulting from human or software error. The examples were included to “emphasize the importance of self-reporting by providing credit that can significantly mitigate penalties if a self-report was made,” the report said. “Staff continues to encourage the submission of self-reports, and views self-reports as showing a company’s commitment to compliance.”

Of the 27 investigations opened last year, 15 involve potential market manipulation, 16 involve potential tariff violations, four involve potential violations of a FERC order and two involve potential violations of a FERC filing requirement.

Staff closed 16 investigations, 11 without further action because of lack of evidence. One of these was into bidding behavior in ISO-NE’s eighth Forward Capacity Auction in 2014, the results of which stood because of a tie vote of the commission. Commissioners Tony Clark and Norman Bay had voted to throw out the results. (See FERC Commissioners at Odds over ISO-NE Capacity Auction.)

The other five were closed through commission-approved settlements that resulted in more than $51 million in civil penalties. The largest of these, $41 million, was paid by GDF SUEZ Energy Marketing for offering generation below cost to capture make-whole payments in PJM. GDF also disgorged $40.8 million in unjust profits to the RTO. (See GDF SUEZ to Pay $82M in PJM Market Manipulation Settlement.)

The settlements also included $2.7 million assessed on K. Stephen Tsingas and $9 million on his company, City Power Marketing, for making risk-free up-to-congestion trades to profit off PJM line-loss rebates. However, the company is defunct, and FERC agreed not to pursue Tsingas for the additional amount. (See Trader Agrees to Pay $2.7M in Win for FERC.)

They did not include the $105 million Barclays Bank recently paid to settle claims it manipulated the Western markets a decade ago, which occurred after the end of FY 2017. FERC had originally sought $470 million. (See FERC Settlement Cuts Barclays Market Manipulation Fine.)

Asked by reporters on Thursday why FERC agreed to such a steep cut, FERC Chairman Neil Chatterjee said he wanted to avoid years of litigation. “My priority was to get the disgorgement money back to those that have been harmed and deter similar conduct in the future,” he said. He noted that the $70 million civil penalty against the bank was the third largest the commission had ever levied. Barclays also disgorged $35 million to states’ low-income home energy assistance programs.