UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

 

 

 

 

2014 REPORT ON ENFORCEMENT

Docket No. AD07-13-008

Prepared by Staff of the

Office of Enforcement

Federal Energy Regulatory Commission

Washington, D.C.

 

NOVEMBER 20, 2014 
The matters presented in this staff report do not necessarily represent the views

of the Federal Energy Regulatory Commission, its Chairman, or individual 

Commissioners, and are not binding on the Commission.
2014 Staff Report on Enforcement i

TABLE OF CONTENTS 

Table of Contents............................................................................................................................. i

Introduction......................................................................................................................................1

Office of Enforcement Priorities......................................................................................................2

DIVISION OF INVESTIGATIONS................................................................................................4

A. Overview....................................................................................................................................4

B. Significant Matters.....................................................................................................................5

1. Barclays Bank, PLC, Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith (Barclays 

and Traders)................................................................................................................................. 5

2. ISO-NE Day-Ahead Load Response Program (DALRP)............................................................ 5

3. BP America, Inc. and Affiliates (BP).......................................................................................... 6

C. Settlements.................................................................................................................................6

D. Self-Reports .............................................................................................................................12

1. Illustrative Self-Reports Closed with No Action..................................................................15

E. Investigations..........................................................................................................................21

1. Statistics on Investigations........................................................................................................ 21

2. Illustrative Investigations Closed with No Action..................................................................... 26

F. Enforcement Hotline................................................................................................................28

G. Other Matters...........................................................................................................................28

DIVISION OF AUDITS AND ACCOUNTING...........................................................................30

A. Overview..................................................................................................................................30

B. Compliance Reviews and Alerts..............................................................................................31

1. Compliance Reviews ........................................................................................................31

2. Compliance Alerts............................................................................................................32

C. Audit Matters...........................................................................................................................34

1. Formula Rates............................................................................................................................ 34

2. Transmission Incentives............................................................................................................ 35

3. Mergers & Acquisitions............................................................................................................. 36

4. Accounting and Reporting......................................................................................................... 37

5. Open Access Transmission Tariff ............................................................................................. 37

6. Market-Based Rates and Electric Quarterly Reports................................................................. 38

7. Capacity Markets and Demand Response ................................................................................. 38

8. Oversight of ERO Audited-Related Activities to Ensure Reliability of the Bulk-Electric 

 System ....................................................................................................................................... 38

9. No Audit Findings..................................................................................................................... 39
2014 Staff Report on Enforcement ii

D. Accounting Matters..................................................................................................................39

1. Requests for Approval of the Chief Accountant........................................................................ 40

2. Certificate Proceedings.............................................................................................................. 40

3. Merger and Acquisition Proceedings ........................................................................................ 41

4. Debt and Security Issuance Proceedings................................................................................... 41

5. Rate Proceedings....................................................................................................................... 41

6. Accounting Inquiries................................................................................................................. 42

7. International Financial Reporting Standards............................................................................. 42

8. Energy Storage Assets............................................................................................................... 43

9. Accounting Filing Statistics....................................................................................................... 43

DIVISION OF ENERGY MARKET OVERSIGHT.....................................................................44

A. Overview..................................................................................................................................44

B. Market Monitoring...................................................................................................................44

1. 2013 State of the Markets Report.............................................................................................. 44

2. Seasonal Market Assessments................................................................................................... 45

C. Outreach and Communication .................................................................................................45

1. Website...................................................................................................................................... 45

2. Snapshot Calls........................................................................................................................... 46

3. Domestic and Foreign Delegation Briefings............................................................................. 46

D. Forms Administration and Filing Compliance ........................................................................46

1. Electric Quarterly Reports......................................................................................................... 46

E. Agenda Items and Rulemakings ..............................................................................................47

1. Winter 2013-2014 Operations and Market Performance in RTOs and ISOs............................ 47

2. Gas-Electric Coordination ......................................................................................................... 48

DIVISION OF ANALYTICS AND SURVEILLANCE...............................................................49

A. Overview..................................................................................................................................49

B. Natural Gas Surveillance .........................................................................................................50

C. Electric Surveillance ................................................................................................................50

D. Analytics..................................................................................................................................51

Conclusion .....................................................................................................................................52

APPENDIX A: Office of Enforcement Organization Chart.........................................................53

APPENDIX B: FY2014 Civil Penalty Enforcement Actions.......................................................54

APPENDIX C: FY2014 Notices of Alleged Violations...............................................................56
2014 Staff Report on Enforcement 1

INTRODUCTION 

The staff of the Office of Enforcement (Enforcement) of the Federal Energy Regulatory 

Commission (Commission) is issuing this report as directed by the Commission in its Revised 

Policy Statement on Enforcement.1 This report informs the public and the regulated community 

of Enforcement’s activities during Fiscal Year 2014 (FY2014),2

including an overview of, and 

statistics reflecting, the activities of the four divisions within Enforcement: Division of 

Investigations (DOI), Division of Audits and Accounting (DAA), Division of Energy Market 

Oversight (Market Oversight), and Division of Analytics and Surveillance (DAS). 

Enforcement recognizes the importance of informing the public of the activities of 

Enforcement staff and prepares this report with that objective in mind. Because much of the

investigative work of Enforcement is non-public, most of the information the public receives 

about investigations comes from public Commission orders approving settlements, orders to 

show cause, publicly released staff reports, and notices of alleged violations. However, not all of 

Enforcement’s activities result in public actions by the Commission. As in previous years, the 

FY2014 report provides the public with more information regarding the nature of non-public 

Enforcement activities, such as self-reported violations and investigations that are closed without

public enforcement action. This report also highlights Enforcement’s work auditing 

jurisdictional companies, compiling and monitoring data from forms and reports submitted to the 

Commission by market participants, and performing surveillance and analysis of conduct in 

wholesale natural gas and electric markets.

 

1

Enforcement of Statutes, Regulations and Orders, 123 FERC ¶ 61,156, at P 12 (2008) (Revised Policy Statement). 

A current Enforcement organizational chart is attached as Appendix A to this report.

2

The Commission’s fiscal year begins October 1 and ends September 30 of the following year. FY2014, the subject 

of this report, began on October 1, 2013 and ended on September 30, 2014.
2014 Staff Report on Enforcement 2

OFFICE OF ENFORCEMENT PRIORITIES 

The Commission’s Strategic Plan announced its mission of assisting consumers in obtaining 

reliable, efficient, and sustainable energy services at a reasonable cost through appropriate 

regulatory and market means.3 The Strategic Plan identifies three primary goals to fulfill this 

mission: (1) ensuring that rates, terms, and conditions of jurisdictional services are just, 

reasonable, and not unduly discriminatory or preferential; (2) promoting the development of a 

safe, reliable, and efficient energy infrastructure that serves the public interest; and (3) 

facilitating organizational excellence through increased transparency, communication, and 

managing Commission resources and employees. To further those goals and assist the 

Commission in its obligation to oversee regulated markets, Enforcement’s four divisions gather 

information about market behavior, market participants, and market rules. The divisions 

continue to work to bring entities into compliance with applicable statutes, Commission rules, 

orders, regulations, and tariff provisions. 

Enforcement selected priorities for its four divisions. In FY2014, Enforcement continued to 

focus on matters involving:

• Fraud and market manipulation;

• Serious violations of the Reliability Standards;

• Anticompetitive conduct; and

• Conduct that threatens the transparency of regulated markets.

Enforcement does not intend to change these priorities in FY2015. Conduct involving fraud 

and market manipulation poses a significant threat to the markets the Commission oversees. 

Such intentional misconduct undermines the Commission’s goal of ensuring provision of

efficient energy services at a reasonable cost because the losses imposed by fraud and 

manipulation are ultimately passed on to consumers. Similarly, anticompetitive conduct and 

conduct that threatens market transparency undermine confidence in the energy markets and 

harm consumers and competitors. Such conduct might also involve the violation of rules 

designed to limit market power or to ensure the efficient operation of regulated markets. 

Enforcement focuses its efforts on preventing and remedying misconduct involving the greatest 

harm to the public, where there may be significant gain to the violator or loss to the victims. 

The Reliability Standards established by the Electric Reliability Organization (ERO) and 

approved by the Commission protect the public interest by requiring a reliable and secure bulk

power system. This office enforces these standards and focuses primarily on violations resulting 

in actual harm, through the loss of load or other means. Enforcement also focuses on cases 

involving repeat violations of the Reliability Standards or violations that present a substantial 

risk to the bulk power system. In addition, the office enforces safety and environmental 

standards established by the Commission in order to promote the development of a safe, reliable, 

and efficient energy infrastructure with an emphasis on cases involving actual harm or a high 

risk of harm.

 

3

The Federal Energy Regulatory Commission, Strategic Plan FY 2014-2018 (Mar. 2014)), available at

http://www.ferc.gov/about/strat-docs/FY-2014-FY-2018-strat-plan.pdf.
2014 Staff Report on Enforcement 3

Enforcement continued its commitment to these priorities in FY2014. DOI staff opened 17

new investigations while bringing 15 pending investigations to closure with no action or

settlement. During FY2014, staff obtained a total of almost $25 million in civil penalties and 

disgorgement of approximately $4 million in unjust profits. In addition, all of these settlements 

included provisions requiring the subject to enhance its compliance programs, and periodically 

report back to Enforcement regarding the results of those compliance enhancements.

Staff from DAA reviewed the conduct of regulated entities through 19 financial and 

operational audits of public utilities and natural gas pipelines. DAA’s audits resulted in 162

recommendations for corrective action and directed refunds and recoveries totaling over 

$11.7 million.

Market Oversight continued its analysis of market fundamentals, including significant trends 

and developments, market structure and operations to identify market anomalies, flawed market 

rules, and potentially improper behavior by market participants. As in prior years, Market 

Oversight presented its annual State of the Markets report assessing significant events of the 

previous year, as well as its Winter Energy Market Assessment and Summer Energy Market and 

Reliability Assessment. Additionally, Market Oversight continued ensuring compliance with the 

Commission’s filing requirements for Electric Quarterly Reports (EQR) and various Commission 

financial forms. 

Finally, in FY2014, DAS reviewed numerous instances of potential misconduct and referred 

matters to DOI for investigation. The Commission also continued to enhance its ability to 

conduct surveillance of the natural gas and electric markets and to analyze individual market 

participant behavior by gaining access to the Commodity Futures Trading Commission’s (CFTC) 

Large Trader Report (LTR) data. In addition, DAS led an extensive review of the Polar Vortex 

events that occurred in January and February of 2014 to determine whether potentially 

manipulative trading behavior contributed to the high natural gas prices and elevated electricity 

costs. 
2014 Staff Report on Enforcement 4

DIVISION OF INVESTIGATIONS 

A. Overview

The Division of Investigations (DOI) conducts public and non-public investigations of 

possible violations of the statutes, regulations, rules, orders, and tariffs administered by the 

Commission. Investigations may begin from self-reports, tips, calls to the Enforcement Hotline, 

referrals from organized markets or their monitoring units, other agencies, other divisions in 

Enforcement, other offices within the Commission, or as a result of other investigations. In its 

investigations, DOI staff coordinates with other divisions in Enforcement and subject matter 

experts in other Commission offices as appropriate. Where staff finds violations of sufficient 

seriousness, staff reports its findings to the Commission and attempts to settle investigations for 

appropriate sanctions and future compliance improvements before recommending that the 

Commission initiate a public show cause proceeding.4 

The Commission continues to increase the transparency of Enforcement activities and 

promote consistency in Enforcement actions. In FY2014, the Director of Enforcement directed 

the Secretary to issue 9 notices of alleged violations involving conduct of 21 separate corporate 

entities and 6 individuals. The notices involved alleged violations of the Commission’s 

prohibition of market manipulation, tariffs, regulations, and Reliability Standards. The notices

identified investigation subjects and alleged violations with a concise description of the alleged 

wrongful conduct.5

In FY2014, DOI continued to focus on the enforcement of the Reliability Standards. 

Through Enforcement’s investigations, with the assistance of technical expertise from the Office 

of Electric Reliability (OER) and in conjunction with the investigative efforts of the North 

American Electric Reliability Corporation (NERC), the Commission addressed and resolved 

findings of numerous Reliability Standards violations.

Notably, during this fiscal year the Commission approved settlement of an investigation of a 

self-reported violation of the Commission’s Anti-Manipulation Rule, 18 C.F.R. § 1c.1 (2014), 

the first self-report of this kind to result in a Commission-approved settlement. Launched by a 

self-report by Direct Energy Services, LLC (Direct Energy), DOI and DAS investigated whether 

Direct Energy manipulated natural gas prices at three hubs in 2011 and 2012. Staff ultimately 

concluded that Direct Energy engaged in manipulation in May 2012 at Algonquin and Transco 

Zone 6 to benefit its related financial positions. Direct Energy stipulated to the facts (without 

admitting that it committed a violation), and agreed to pay a civil penalty of $20,000, to disgorge 

$31,935, and to continue implementing its existing compliance measures, which include periodic 

review of its employees’ trading conduct. Importantly, Direct Energy received a relatively small 

civil penalty and disgorgement payments due to its self-reporting, strong compliance program, 

quick action, and full cooperation with Enforcement’s investigation.

The Commission also approved settlements of reliability investigations of Arizona Public 

Service Company (APS) and Imperial Irrigation District (IID), respectively. The investigations 

arose out of a joint inquiry between the Commission and NERC into the September 2011 outage 

 

4

For a discussion of the processes by which Enforcement staff conducts and concludes investigations, see Revised 

Policy Statement, supra note 1.

5

See Appendix C to this report for a complete listing of the notices of alleged violations that Enforcement issued in 

FY2014.
2014 Staff Report on Enforcement 5

in Arizona, Southern California and Baja California, Mexico, that resulted in over 30,000 MWh 

of lost firm load and left approximately 2.7 million customers (5 million or more individuals) 

without power for up to 12 hours. APS and IID stipulated to the facts (without admitting 

violations of the Reliability Standards) and agreed to mitigation and compliance monitoring. 

APS agreed to a civil penalty of $3.25 million, $1.25 million to be invested in reliability 

enhancement measures beyond Reliability Standards requirements. IID agreed to a civil penalty 

of $12 million, $9 million to be invested in reliability enhancement measures. The Commission 

has also issued a Notice of Alleged Violations against the Western Electricity Coordinating 

Counsel, the California ISO, Southern California Edison Company6 and Western Area Power 

Authority-Desert Southwest Region in connection with the same outage.

Additionally, DOI work in FY2014 included obtaining multiple settlements resolving

investigations concerning manipulative conduct, submission to the Commission of inaccurate 

and misleading information, violations of the Standards of Conduct for transmission providers, 

violations of the Reliability Standards, violations of Open Access Transmission Tariff (OATT)

provisions, and violations of hydropower safety regulations. In addition to investigation-related 

work, DOI continued its rigorous analysis of self-reports, Enforcement Hotline calls, referrals, 

and other matters within the Commission. DOI staff continues to provide guidance and 

assistance as requested by other program offices on advisory matters.

B. Significant Matters

1. Barclays Bank, PLC, Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith

(Barclays and Traders)

On October 9, 2013, the Commission filed a petition in the United States District Court for 

the Eastern District of California (the court) to affirm the Commission’s assessment of civil 

penalties of $435 million against Barclays and of $18 million against the named Traders and to 

order disgorgement by Barclays of $34.9 million plus interest in unjust profits. Previously, on 

July 16, 2013, the Commission determined that Barclays and the Traders violated the 

Commission’s Anti-Manipulation Rule, 18 C.F.R. § 1c.2, by engaging in loss-generating trading 

of next-day, fixed-price physical electricity on the Intercontinental Exchange (ICE) with the 

intent to benefit financial swap positions at primary electricity trading points in the western 

United States. On December 16, 2013, Barclays and the Traders filed a motion to dismiss the 

Commission’s petition or alternatively to transfer it to the United States District Court for the 

Southern District of New York. The Commission filed an opposition to Barclays and the 

Traders’ motion on February 14, 2014, and Barclays and the Traders filed a reply brief on March 

21, 2014. The motion is pending before the court as of November 17, 2014.

2. ISO-NE Day-Ahead Load Response Program (DALRP)

Based on an Enforcement investigation of Lincoln Paper and Tissue LLC (Lincoln), 

Competitive Energy Services, LLC (CES), and Richard Silkman (the CES managing partner), on 

August 29, 2013, the Commission issued Orders Assessing Civil Penalties to Lincoln, CES, and 

Silkman,7 finding that the subjects fraudulently inflated load baselines and repeatedly offered 

 

6 After the fiscal year ended, on October 21, the Commission approved a settlement in which SCE agreed to a civil 

penalty of $650,000, with $250,000 to be paid in equal shares to the Treasury and NERC, and $400,000 to be 

invested in reliability enhancement measures.

7

Lincoln Paper and Tissue, LLC, 144 FERC ¶ 61,162 (2013) (order assessing civil penalty); Competitive Energy 

Services, LLC, 144 FERC ¶ 61,163 (2013) (order assessing civil penalty); Richard Silkman, 144 FERC ¶ 61,164 

(2013) (order assessing civil penalty). 
2014 Staff Report on Enforcement 6

load reductions at the minimum offer price in order to maintain the inflated baseline. 

Enforcement found that the scheme involved uneconomic energy purchases that served no 

legitimate purpose and were designed to increase Day Ahead Load Response Program (DALRP)

payments that would not have otherwise been obtained. The Commission determined that this 

scheme misled ISO-NE, inducing payments to these entities based on the inflated baselines for 

load reductions that never occurred. The Commission ordered all three respondents to pay civil 

penalties, and also ordered Lincoln and CES to pay disgorgement. None of the respondents paid 

the amounts assessed by the Commission. Staff filed two petitions in the United States District 

Court for the District of Massachusetts on December 2, 2013 seeking affirmance of the 

Commission’s orders. Currently pending in federal court are multiple motions to dismiss and a 

motion for judgment on the pleadings. All Respondents seek transfer to Maine if the cases are 

not dismissed. On July 18, 2014, staff participated in a motions hearing before Judge Douglas P. 

Woodlock in Springfield, Massachusetts. The hearing addressed motions to dismiss and for 

judgment on the pleadings filed by the Respondents in both cases and a motion to transfer filed 

by Silkman and CES. The motions are pending before the court as of November 17, 2014.

3. BP America, Inc. and Affiliates (BP)

On May 15, 2014, the Commission issued an order establishing a hearing before an 

Administrative Law Judge (ALJ) to determine whether certain trading by BP of next-day, fixedprice natural gas at the Houston Ship Channel violated the Commission’s anti-manipulation rule, 

18 C.F.R. § 1c.1. Enforcement alleges that such trading was uneconomic and part of a 

manipulative scheme to increase the value of BP’s financial position based on Houston Ship 

Channel natural gas prices. The order addressed BP’s answer to the Commission’s August 5, 

2013 order to show cause in this matter, denied BP’s motion to dismiss the proceeding, and 

found that there are issues of fact requiring a hearing before an ALJ. The order directed the ALJ 

to make findings with respect to subject matter jurisdiction, the allegations of manipulation, and 

factors relevant to a possible civil penalty. Staff filed its direct testimony on September 22, 2014 

and BP will file its reply testimony on January 6, 2015. The hearing before the ALJ is scheduled 

to commence on March 30, 2015, and the ALJ’s Initial Decision is scheduled for issuance on or 

before August 14. 

C. Settlements 

In FY2014, the Commission approved 8 settlement agreements between Enforcement and 9 

separate subjects to resolve pending investigations. The settlements assessed a total of almost

$25 million in civil penalties, disgorgement of approximately $4 million plus interest, and $1.7 

million in public safety enhancements by Erie Boulevard Hydropower, L.P. and Brookfield 

Power US Assets Management, LLC.

8

In five of the eight cases, subject compliance efforts 

warranted credit to reduce penalties. Since 2007, the total civil penalties assessed (excluding 

overturned and pending proceedings) amount to over $602 million and the total disgorgements 

amount to almost $300 million.9

 

8

A table of FY2014 Civil Penalty Enforcement Actions, both those resolved through settlement and those resolved 

through agency proceedings, is attached to this report as Appendix B.

9 This civil penalty number does not include the $30,000,000 assessed in Hunter and overturned on jurisdictional 

grounds by the U.S. Court of Appeals for the District of Columbia Circuit. It also does not include penalties 

proposed or assessed in the following currently pending matters: $28,000,000 in BP America Inc., et al.; 

$453,000,000 in Barclays Bank PLC, et al.; $5,000,000 assessed in Lincoln Paper and Tissue, LLC; $7,500,000 

assessed in Competitive Energy Services, LLC; or $1,250,000 assessed in Richard Silkman. The disgorgement
2014 Staff Report on Enforcement 7

Since the 2010 issuance of the Revised Penalty Guidelines,

10 almost every Commissionapproved settlement guided by the Penalty Guidelines has fallen within the established range.

An organization’s civil penalty can vary significantly depending on the amount of market harm

caused by the violation, the amount of unjust profits, an organization’s efforts to remedy the 

violation, and other culpability factors, such as senior-level involvement, prior history of 

violations, compliance programs, self-reporting of the violation, and cooperation with 

Enforcement’s investigation. For example, under the Penalty Guidelines, an organization’s 

culpability score can be reduced via favorable culpability factors to zero, lowering the base

penalty by as much as 95 percent.11 Because a number of factors can influence the civil penalty 

in each case, the amount of disgorgement of unjust profits (if any) often does not directly relate

to the amount of the civil penalty. 

In FY2014, the Commission approved settlement agreements (some involving multiple 

categories of violations) that resolved OATT violations by two entities, violations of Reliability 

Standards by two entities, violations of hydropower safety regulations by one entity, violations 

of Commission regulations regarding filings and facility merger/consolidation authorization by 

four affiliated entities, violations of prohibitions on submission of inaccurate information by one 

entity, and violations of the Commission’s regulations prohibiting manipulation in natural gas 

and electric markets by two entities.

 

 

 

number does not include amounts ordered in the same pending matters: $34,900,000 ordered in Barclays; $379.016 

ordered in Lincoln Paper; or $166,841 ordered in Competitive Energy Services.

10 Revised Policy Statement on Penalty Guidelines, 132 FERC ¶ 61,216 (2010) (Revised Penalty Guidelines). 

11 Revised Penalty Guidelines, 132 FERC ¶ 61,216 at P109. 

Types of Violations Settled, FY2014

Merger/Consolidation

Authorization

Hydro

OATT/Tariff

Market Manipulation and/or

False Statements

Reliability
2014 Staff Report on Enforcement 8

Types of Violations Settled, FY2012

Natural Gas Transportation

OATT/Tariff

Reliability Standards

Market Manipulation and/or

False and Misleading

Statements

 

 

 

 

Types of Violations Settled, FY2013

Natural Gas Transportation

OATT/Tariff

Reliability Standards

Market Manipulation and/or False and

Misleading Statements

Market Based Rate Violation

Hydro Licensing
2014 Staff Report on Enforcement 9

 

 

 

Types of Violations Settled, FY2011

Natural Gas Transportation

OATT/Tariff

Reliability Standards

Market Manipulation and/or False

Statements

Market Based Rate Violation

Violation of Commission Order

Types of Violations Settled, FY2010

Natural Gas

Transportation

OATT/Tariff

Reliability Standards
2014 Staff Report on Enforcement 10

A number of FY2014 settlement agreements are summarized below: 

Constellation Energy Commodities Group, Docket No. IN13-17-000. On October 18, 2013, the 

Commission approved a settlement between Enforcement and Constellation Energy 

Commodities Group (CECG), resolving a pending investigation of CECG’s wheeling-through 

transactions in the California Independent System Operator (CAISO) market. CAISO’s market 

monitor referred the trades, believing they were improperly designated as wheel-through 

transactions because they did not include a generation resource or load outside of the CAISO. 

CECG and Exelon Corporation (then recently merged) stipulated to the facts and admitted that 

the trade designations violated the requirement in 18 C.F.R. § 35.41(b) of truth and accuracy to

the Commission and its ISOs. CECG and Exelon also admitted to violations of a similar CAISO 

tariff provision and agreed to pay a $500,000 civil penalty, disgorge $145,928 of unjust profits, 

and submit to compliance monitoring. The Commission’s order noted the importance of candor 

and accuracy during investigations based on two CECG misrepresentations to staff that CAISO

would be willing to see the investigation close without imposing a penalty. These 

misrepresentations cost CECG and Exelon credit for cooperation in their penalty calculation. 

Erie Boulevard Hydropower, L.P., Docket No. IN13-12-000. On January 15, 2014, the 

Commission issued an order approving settlement between Enforcement and Erie Boulevard 

Hydropower, L.P. (Erie), resolving an investigation into deaths of two fisherman on September 

28, 2010 at Erie’s Varick development in Oswego, New York. Staff determined after a referral 

by the Commission’s Dam Safety Office that Erie violated numerous provisions of the 

Commission’s Part 12 regulations regarding safety of water power projects and project works. 

Erie failed to timely repair or replace a safety camera at Varick’s powerhouse and staggeredheight flashboards, and also to file required information on these safety issues. Erie also failed, 

among other things, to provide adequate training to the remote system operator (on duty the day 

of the deaths) on Varick’s fishermen Alert System or public safety. Erie and Brookfield Power 

US Assets Management, LLC stipulated to the facts, neither admitted nor denied they constituted 

violations of Part 12, and agreed to a civil penalty of $4,000,000 and to budget $1,700,000 for 

public safety enhancements at their U.S. hydroelectric projects, as well as other compliance 

measures.

Arizona-Southern California Outage (Arizona Public Service Company), Docket No. 

IN14-6-000. On July 7, 2014, the Commission issued an order approving the settlement of a 

reliability investigation of Arizona Public Service Company (APS). The investigation arose out 

of a joint FERC/NERC inquiry into the September 8, 2011 outage in Arizona, Southern 

California and Baja California, Mexico that caused over 30,000 MWh of lost firm load. In the 

settlement, APS stipulated to the facts, neither admitted nor denied violations of four 

Requirements of two Reliability Standards, and agreed to a civil penalty of $3,250,000, with 

$2,000,000 to be paid in equal shares to the Treasury and NERC, and a $1,250,000 investment in 

reliability enhancement measures beyond Reliability Standards requirements (including the 

installation of additional transmission system monitoring equipment). APS also agreed to 

mitigation and compliance monitoring.

Arizona-Southern California Outage (Imperial Irrigation District), Docket No. 

IN14-7-000. On August 7, 2014, the Commission issued an order approving the settlement of a 

reliability investigation of Imperial Irrigation District (IID). The investigation arose out of a 

joint FERC/NERC inquiry into the September 8, 2011 outage in Arizona, Southern California 

and Baja California, Mexico that caused over 30,000 MWh of lost firm load. In the settlement, 

IID stipulated to the facts, neither admitted nor denied violations of ten Requirements of four 

Reliability Standards, and agreed to a civil penalty of $12,000,000, with $3,000,000 to be paid in 

equal shares to the Treasury and NERC, and a $9,000,000 investment in reliability enhancement 

measures beyond Reliability Standards requirements (utility-scale energy storage facilities). IID 
2014 Staff Report on Enforcement 11

also agreed to mitigation and compliance monitoring.

Louis Dreyfus Energy Services L.P., Docket No. IN12-6-000. On February 7, 2014, the 

Commission approved a settlement between Enforcement, Louis Dreyfus, and one of its traders, 

Xu Cheng. The settlement resolved a formal investigation in which Enforcement concluded that 

Louis Dreyfus violated the Commission’s Anti-Manipulation Rule when it made certain virtual 

trades in the Midcontinent Independent System Operator, Inc. (MISO) market from November 

2009 through February 2010 that increased the value of its nearby financial transmission rights

(FTRs). Specifically, Enforcement found that Louis Dreyfus engaged in market manipulation at 

Velva (a node representing a North Dakota wind farm) by placing virtual demands to create 

artificial congestion, thus enhancing the value of its nearby FTR positions. Under the terms of 

the settlement, Louis Dreyfus stipulated to the facts, neither admitted nor denied that they 

constituted a violation, and agreed to disgorge $3,334,000 in unjust earnings, plus interest, and 

pay a civil penalty of $4,072,257. Cheng, who had previously crafted and described the 

manipulative scheme in his doctoral dissertation, agreed to pay a civil penalty of $310,000. In 

addition, Louis Dreyfus prohibited Cheng from virtual trading on behalf of the company 

anywhere in the United States and agreed that he would not be permitted to resume such trading 

for at least two years. 

International Transmission Company, et al., Docket No. IN14-2-000. On March 11, 2014, the 

Commission approved a settlement resolving Enforcement’s investigation of International 

Transmission Co. and its subsidiaries Michigan Electric Transmission Co., LLC, ITC Midwest, 

LLC, and ITC Great Plains, LLC (the ITC Companies) for violations of the Federal Power Act

(FPA) and Commission regulations. Specifically, Enforcement found that the ITC Companies 

violated Section 203(a)(1)(B) of the FPA and Part 33 of the Commission’s regulations, 18 C.F.R. 

Part 33, by acquiring certain Commission-jurisdictional transmission assets without prior 

Commission approval on 20 occasions during the period 2005 to 2011. Enforcement also found 

that the ITC Companies violated Section 205 of the FPA and Part 35 of the Commission’s 

regulations by failing in 174 instances to timely file certain Commission-jurisdictional 

documents between 2003 and 2011. The ITC Companies stipulated to the facts, admitted their 

violations, agreed to pay a civil penalty of $750,000 and to make compliance reporting.

Indianapolis Power and Light Company, Docket No. IN14-12-000. On July 3, 2014, the 

Commission approved a settlement resolving Enforcement’s investigation of Indianapolis Power 

and Light Company (IPL) for violating MISO tariff provisions requiring that capacity offers 

from generation resources “reflect the actual known physical capabilities and characteristics” of 

the resource on which the offer is based. IPL stipulated to the facts and admitted that it violated 

MISO’s tariff by failing to adjust real time offers for its Petersburg 2 generating unit during two 

days in 2012, when the unit’s capability fell below IPL’s offered levels. IPL agreed to pay a 

civil penalty of $32,500 and to disgorge $301,000 to MISO (occasioned by IPL’s receipt of DayAhead Margin Assurance Payments for which it was ineligible and avoidance of Revenue 

Sufficiency Guarantee charges). IPL also agreed to a one-year compliance plan. As noted in the 

Commission’s order, a factor considered in IPL’s penalty assessment was its accepting 

responsibility for its actions.

Direct Energy Services, LLC, Docket No. IN14-22-000. On August 11, 2014, the Commission 

approved a settlement resolving Enforcement’s investigation of whether Direct Energy violated 

the Commission’s Anti-Manipulation Rule, 18 C.F.R. § 1c.1 (2014), by manipulating natural gas 

prices at three hubs in 2011 and 2012. Enforcement concluded that Direct Energy engaged in 

manipulation in May 2012 at Algonquin and Transco Zone 6 to benefit its related financial 

positions. Specifically, Direct Energy lowered prices at Algonquin and Transco Zone 6 by 

buying next-day physical index gas and selling comparable volumes of fixed-price gas, losing

money and, in the process, lowering the Gas Daily index. Simultaneously, Direct Energy held 
2014 Staff Report on Enforcement 12

financial positions that benefited from this lowered Gas Daily index. Direct Energy stipulated 

and agreed to the facts but neither admitted nor denied that it violated 18 C.F.R. § 1c.1, agreed to 

pay a $20,000 civil penalty, to disgorge $31,935, to continuing existing compliance measures, 

and to compliance monitoring. The Commission’s order notes that Direct Energy’s strong 

compliance program led to a self-report of what Enforcement determined to be market 

manipulation. Moreover, Direct Energy’s quick action due to its strong compliance program and 

its cooperation with Enforcement’s investigation resulted in relatively small civil penalty and 

disgorgement payments.

D. Self-Reports 

From issuance of the first Policy Statement on Enforcement in 200512 through the end of 

FY2014, staff has received a total of 667 self-reports. Of those, 566 have been reviewed and 

closed without action; 61 have been converted to an investigation. 

In FY2014, staff received 73 new self-reports and closed 70 self-reports, including some 

pending from fiscal years 2009 and 2011. As of the end of FY2014, 40 self-reports received 

then and in prior fiscal years remained pending. Staff received self-reports from a variety of 

market participants, including power marketers, electric utilities, natural gas companies, wind 

and solar energy companies, refining companies, and RTO/ISOs. The Penalty Guidelines 

emphasize the importance of self-reporting, providing credit that significantly mitigates a penalty 

when a self-report is made.

13 An example of this credit resulting in a lower penalty is the Direct 

Energy settlement, discussed above. Staff continues to encourage the submission of self-reports

and views self-reports as evidence of a company’s commitment to compliance.

 

12Enforcement of Statutes, Regulations and Orders, 113 FERC ¶ 61,068 (2005) (2005 Policy Statement). 

13 Revised Policy Statement on Penalty Guidelines, 132 FERC ¶ 61,216, at P 127 (2010).

0

20

40

60

80

100

Closed in Fiscal Year

with No Action

Converted to a

Preliminary

Investigation, Closed

in Fiscal Year with No

Action

Pending a Review at

Fiscal Year End

Converted to a

Preliminary

Investigation,

Pending Review at

Fiscal Year End

Converted to an

Investigation, Settled

at Fiscal Year End

Number of Self-Reports

Disposition

Self-Report Dispositions at End of Fiscal Year 

FY2012 - FY2014

FY2014

FY2013

FY2012
2014 Staff Report on Enforcement 13

The following charts depict the types of violations for which staff received self-reports from 

FY2010 through FY2014. In FY2014, Tariff/OATT violations accounted for a significant 

portion of self-reports received. 

0

5

10

15

20

25

Number of Self-Reports

Type of Violation

Self-Reports Closed in FY2014 by Type of Violation

0

5

10

15

20

25

30

35

40

Number of Self-Reports

Type of Violation

Self-Reports Closed in FY2013 by Type of Violation
2014 Staff Report on Enforcement 14

 

0

5

10

15

20

25

30

35

Number of Self-Reports

Type of Violation

Self-Reports Closed in FY2012 by Type of Violation

0

5

10

15

20

25

30

35

40

Number of Self-Reports

Type of Violation

Self-Reports Closed in FY2011 by Type of Violation
2014 Staff Report on Enforcement 15

1. Illustrative Self-Reports Closed with No Action 

In a continuing effort to promote transparency while encouraging the compliance efforts of 

regulated entities, Enforcement presents the following illustrations summarizing some of the 

self-reports that DOI staff closed in FY2014 upon review and without conversion to 

investigation. One of the various factors staff considered in closing the following self-reports

was the absence of significant harm to the market. These summaries are intended to provide 

guidance to the public and to regulated entities as to why staff chose not to pursue an 

investigation or enforcement action, while preserving the non-public nature of the self-reports.

RTO/ISO Violation. An RTO/ISO violated its tariff when a control room employee 

inadvertently emailed confidential generator information to an individual outside the company 

who had a similar name to the RTO/ISO intended recipient. The RTO/ISO promptly contacted 

the unintended recipient and instructed him to delete the email without opening it. No harm 

resulted from this inadvertent disclosure. In response to this occurrence, the ISO/RTO made 

changes to its default email settings to reduce the likelihood of a future similar incident. Thus, 

staff closed this matter without further action.

RTO/ISO Violation. An RTO/ISO self-reported that it potentially violated its tariff by disclosing 

to NERC data and information about market participants that entered projects in the 

interconnection queue. The RTO/ISO’s tariff indicated that the name of project sponsors should 

remain confidential until a Large Generator Interconnection Agreement is signed, even though 

project data is not otherwise confidential. Upon discovering this disclosure, the RTO/ISO 

requested that NERC remove the information from its website, to which NERC agreed. The 

RTO/ISO updated its internal procedures to ensure prevention of future such violations. Thus, 

staff closed this matter without further action.

0

5

10

15

20

25

30

35

Number of Self-Reports

Type of Violation

Self-Reports Closed in FY2010 by Type of Violation
2014 Staff Report on Enforcement 16

Certificate Violation. A utility company self-reported its failure to obtain appropriate certificate 

exemptions for a small portion of intrastate pipeline facilities crossing state lines. The company 

discovered the omission during its preparation to sell the facilities. To resolve the issue, the 

company filed with the Commission a request for a Limited Jurisdiction Blanket Certificate to 

exempt the facilities from Commission jurisdiction while the sale was pending. The purchaser 

filed for a NGA Section 7(f) exemption to exempt the facilities from Commission jurisdiction 

after the sale. Staff closed the matter without action because the violation was unintentional.

Price Reporting Violation. A public utility self-reported its failure to fully comply with price

reporting requirements under 18 C.F.R. § 284.403, which requires, in part, that Sellers who 

report transactions to natural gas index publishers provide accurate and factual information. 

Specifically, the company failed to timely report certain daily and Bid-week trades to price index 

publishers but since cured the deficiency. Staff agreed with the company’s characterization of 

harm from these violations as immaterial and unintentional because the volumes were minimal 

compared to the liquidity of the hubs at which the transactions occurred. To avoid recurrence, 

the company enhanced its processes for capturing all trades and their reporting to index 

publishers. Staff closed this matter without further action because the violations were 

inadvertent (due to process gaps and human error) and caused no harm to market participants.

Market Behavior Rule Violation. An electric energy provider reported that it made improper 

power sales under a reserve sharing group (RSG) sales agreement. Unbeknownst to the 

reporting company, reserve sales on two occasions were made to a counter-party that failed to 

renew its RSG membership, thereby violating the filed RSG agreement. Upon discovering the 

issue, the reporting company notified its counter-party, which immediately took action to remedy 

the situation. The oversight by the counter-party involved a small number of improper 

transactions with minimal financial impact, but caused no negative third-party impact. Thus, 

staff closed the self-report without further action.

Failure to Obtain Market-Based Rate Authority and Regulatory Filing Violations. A wind 

energy company self-reported that several public utility and qualifying facility (QF) subsidiaries 

failed to comply with FPA § 205 and/or various Commission filing requirements. The violations 

included: 1) inadvertent sales without Market-Based Rate (MBR) authority, 2) MBR tariffs 

inconsistent with conditions in Commission Orders accepting them, 3) failure to file or erroneous 

EQRs, 4) failure to file Form 566 reports identifying the 20 largest electricity purchasers, 5) 

failure to file Form 556 re-certifications reflecting changes in QF upstream ownership, 6) failure 

to report entity reports of transactions to publishers of price indices, and 7) failure to provide or 

update corporate contact information. The subsidiaries cured the violations, including by 

refunding unauthorized sales. To ensure future compliance, the company appointed two 

experienced senior management compliance individuals, engaged an experienced law firm to 

centralize FERC compliance work, established formal corporate compliance and timely filing 

goals, and implemented a deadline tracking procedure. Though the violations were widespread, 

staff closed the matter because they were promptly and effectively cured. The company 

significantly improved its processes and procedures. 
2014 Staff Report on Enforcement 17

Failure to Obtain Market-Based Rate Authority. Four utilities engaged in wholesale balancing 

transactions without FPA § 205 MBR authority. The parent company that owned the four 

utilities self-reported the violations when it discovered the unauthorized sales during a corporate 

restructuring. The utilities filed their requests for MBR authorization promptly upon discovering 

the deficiencies, and the Commission granted the requests and directed the utilities to submit 

refund reports for the unauthorized sales. The refund reports demonstrated that all sales occurred 

at a loss and the utilities did not receive any profits from their balancing transactions. Staff 

closed the self-report because the violation was unintentional, the utilities promptly self-reported, 

and the utilities have taken steps under new management to prevent recurrence of these 

violations. 

 

Failure to Obtain Market-Based Rate Authority. A refining and marketing company selfreported unauthorized market based sales from a newly-acquired qualifying facility (QF) 

pursuant to a power sales contract predating that QF’s acquisition. The contract relied on the 

seller’s corporate MBR authority, which remained with the seller when the reporting company 

acquired the QF assets. The company attributed its unauthorized sales to controls on its access 

to information that prevented conducting customary due diligence at the time of QF purchase. 

After discovering that it had no MBR authority, the company self-reported and filed a late MBR 

application. The Commission granted the company’s MBR request but denied the requested 

retroactive effective date, instead ordering refunds of the difference between cost-based rates and 

market-based rates. Staff closed the self-report without further action because unauthorized 

power sales were limited, the company provided a plausible reason for error, the company 

quickly self-reported the matter and filed and obtained MBR authorization, and made appropriate 

refunds.

Regulatory Filing Violation. A company notified Staff that it failed to submit correct EQRs on 

behalf of five of its subsidiaries for the previous two reporting years. Staff reviewed the 

submittals and found that only one of the reports was correct. Staff then reviewed EQR 

submittals, or lack thereof, for five additional subsidiaries that the company failed to mentioned 

in the written report. Working with Market Oversight, DOI found that submittals for several of 

the additional subsidiaries required corrections, from as early as 2005. After working with the 

company for over two years and concluding that all subsidiaries have now substantially complied 

with the Commission’s EQR requirements and are capable of submitting future correct 

EQRs, Staff closed the matter without further action.

 

Regulatory Filing Violation. A pipeline failed to make a prior notice filing with the Commission 

before operating a new gas delivery point, as required by 18 C.F.R. § 157.211(a)(2). Upon 

learning of the violation, the pipeline immediately shut down the delivery point. The pipeline 

offered to credit a portion of the customer’s gas purchases from the customer’s prior source of 

gas, and also agreed to not operate the delivery point until fulfilling its regulatory 

obligations. After the pipeline submitted its new delivery point application, the Commission 

approved the application. The pipeline also implemented enhanced controls and procedures to 

prevent similar future violations. DOI staff closed the self-report without action because the 

violation was isolated and inadvertent, recurrence of the violation is unlikely, and the company 

quickly remedied the violation upon its discovery. 

 
2014 Staff Report on Enforcement 18

Regulatory Filing Violations. Pursuant to Commission authorization, a parent company acquired 

a generator with market-based rate authorization in 2008. In 2013, during due diligence for 

possible sale of the generator, the company discovered that the generator had failed to file a 

triennial market update by 2010 as required by Order No. 607 and FPA section 205. During its 

internal investigation, the parent company also discovered that for several other generators 

acquired during 2008 and 2009, it carried forward incorrect regional and category designations in 

their respective triennial updates. The companies promptly filed corrections and triennial 

updates in the appropriate proceedings, which the Commission accepted. The parent company 

modified its compliance processes. Staff closed the matter because the violations were selfreported and promptly remedied.

Regulatory Filing and Tariff Violations. Following an internal review of processes, an interstate 

pipeline self-reported its failure to file five negotiated rate contracts with the Commission. As 

required by NGA Section 4(c), 18 C.F.R. § 154.1(d), and the pipeline’s tariff, the pipeline is 

required to file negotiated rate agreements with the Commission prior to their effective date. The 

pipeline explained that the omission was inadvertent and no market harm occurred because it 

disclosed the existence of these agreements on its Internet Website as required by 18 C.F.R. § 

284.13. The Commission accepted the agreements filed by the pipeline in September 2013. 

Staff closed this matter because the pipeline reinforced its procedures to ensure future timely 

filing of negotiated rates contracts with the Commission.

Regulatory Filing Violation. In December 2013, a wind project self-reported that in 2011 it had 

amended a 1997 bi-lateral Commission-approved power purchase agreement without filing it 

with the Commission for prior approval as required by section 205 of the FPA. The Commission 

approved the agreement after it had been filed, but noted that future filings should be made on a 

timely basis. Because the rates do not go into effect until 2016, there was no harm to the market. 

The company modified its compliance processes and procedures to avoid such violations in the 

future. Because the violation was isolated and inadvertent, the matter was closed without 

additional enforcement action. 

Regulatory Filing Violation. Following an internal review, an electric utility self-reported its 

failure to file FERC Form 715 for reporting years 2012 and 2013. FERC Form 715, which is due 

by April 1 of each year, describes the filing entity’s transmission system and planning. The 

utility regularly coordinated with regional organizations responsible for and/or overseeing 

transmission networks. Although some of those organizations would have indirectly accounted 

in their 2012 and 2013 filings for the self-reporting utility’s facilities, the Form 715 information 

at issue still should have been included more formally in the utility’s own filing. Staff closed the 

matter after the utility submitted the missing filings and implemented processes to prevent such 

future oversights.

Regulatory Filing Violation. A parent company with multiple utility subsidiaries failed to file 

Form No. 561 (Annual report of interlocking positions) for certain officers who retired and only 

served during part of a calendar year, as required by 18 C.F.R. §§ 46.4 and 46.6 (although the 

company did correctly file notices of change for the officers as required by 18 C.F.R. § 45.5(b)). 

The company also incorrectly filed certain FERC Form No. 561s by enclosing relevant 

information in footnotes instead of in the correct lines on the form. After an internal compliance 

audit, the company disclosed the violations and made curative filings. DOI staff closed this 

matter because it confirmed that no undue affiliate preferences or other harm occurred to the 

market as a result of the company’s filing failures and that the company had instituted 

compliance measures to prevent future recurrence of this type of violation. 

 
2014 Staff Report on Enforcement 19

Regulatory Filing Violation. A gas producing company reported that it failed to file its four 

required EQRs for calendar year 2013. The company learned of this failure in June 2014 after a 

FERC EQR team contacted them. The company explained that the employee responsible for 

making these EQR filings in prior years had left the firm, and that it inadvertently overlooked 

appointing a replacement. Staff confirmed that the company since filed all required EQR’s and 

is current in its obligations. Staff closed this matter because the error was inadvertent, corrected, 

and did not result in any financial loss or gain.

 

Qualifying Facility Violations. The owner of two small generation QFs self-reported that it 

failed to self-certify their status to the Commission as required by 18 C.F.R. § 292.203(a)(3), a 

requirement before claiming the benefits of QF status. As a result of the owner’s failure to 

certify, its jurisdictional sales of power violated § 205 of the FPA because the facilities were not 

QF-exempt and did not otherwise receive market based sales authorization from the 

Commission. Staff closed the self-report with no action because the owner’s failure to certify 

was inadvertent, it promptly self-reported the matter to staff, subsequently adopted compliance 

measures to prevent future recurrence, and because the company made refund payments 

consistent with Commission precedent for unauthorized sales of power.

 

Qualifying Facility Violation. A solar photovoltaic generation facility self-reported violation of 

FPA section 205 due to its failure to self-certify as a QF before making wholesale power sales. 

Although 18 C.F.R. § 292.601 affords an exemption from section 205 for small QFs like the 

company (i.e., under 20MW), the Commission’s regulations require owners of such QFs to either 

file a notice of self-certification or apply for a Commission certification in order to obtain QF 

status pursuant to 18 C.F.R § 292.207. To remedy this violation, the company submitted to the 

Commission a Form 556 to certify the facility as a QF, refunded its customer time value refunds 

amounting $10,847.99, and investigated the circumstances leading to the violation. Going 

forward, the company implemented measures to formalize its regulatory compliance program, 

including developing a written compliance policy and retaining FERC counsel. Staff closed this 

self-report because the violation was isolated and inadvertent, and the company made refund 

payments consistent with Commission precedent for unauthorized sales of power.

Tariff/OATT Violation. In April 2011, an electric company that previously received a waiver of 

the requirement to file an OATT self-reported that it received a request for transmission and 

interconnection service triggering the requirement to file an OATT within 60 days. The 

company was approximately 6 months late in filing the OATT. The company claimed that it 

initiated an interconnection study after receiving the request, which would have been required 

had it timely filed the OATT. The company further represented that it had since implemented 

procedures to avoid recurrence of this type of violation. Staff kept the self-report open until the 

pending OATT proceeding was fully resolved, and then closed it. 

 

Tariff/OATT Violation. A public utility self-reported its failure to fully comply with certain 

Interconnection Agreement (IA) timelines for submitting final accounting reports to customers, 

violating 18 C.F.R. § 35.1(e). This regulation, in part, prohibits a public utility from imposing 

any practice that differs from the rate schedule on file with the Commission. By sending final 

accounting reports outside of the timelines set in certain IAs, the public utility imposed a practice 

that differed from the rate schedule on file. Staff closed this self-report without sanctions 

because the violations were inadvertent (resulted from human error caused by a poorly 

implemented change in process). Further, where the a final accounting report was late and a 

refund due to an Interconnection Customer, the public utility added interest at the FERC rate to 

compensate for the delay. The company updated its procedures so future recurrence of the 

violation is unlikely. 

 
2014 Staff Report on Enforcement 20

Tariff/OATT Violation. An RTO/ISO self-reported that incorrect software code in its 

settlements system caused overpayment of various generating units for their dispatch to offer 

real-time energy for reliability reasons, thereby violating the RTO/ISO’s tariff. Because the 

violation was inadvertent and limited to two very unusual scenarios for generators, and because 

the RTO/ISO quickly implemented a manual screen for the issue as well as a permanent software 

correction to prevent recurrence, staff closed the matter with no action.

 

Tariff/OATT Violation. A public utility inadvertently omitted the text of its small generator 

interconnection procedures and small generator agreement as an attachment to the OATT it filed 

with the Commission in 2010. Inclusion of these pro forma documents was required by the 

Commission in 2006, but delayed until conclusion of the Commission’s electronic tariff filing 

rulemaking. When that event occurred some four years later, the public utility inadvertently 

failed to make the appropriate filing. Because the Division of Audits was already examining 

tariff compliance by the public utility, this matter was included in the audit and closed as a selfreport. 

 

Tariff/OATT Violation. An interstate pipeline self-reported that it violated the General Terms 

and Conditions of its transportation tariff by purchasing natural gas for its own operational 

purposes (to maintain a minimum system pressure) at a receipt point not authorized by the tariff 

for such a purpose. The pipeline nevertheless solicited competitive bids for the operational gas 

purchase, and otherwise complied with its tariff. Staff closed the matter without action because 

the violation was inadvertent, minor, and technical, and because the violation did not result in 

monetary benefit.

 

Tariff/OATT Violation. A pipeline’s tariff required it to post notification of “suspense gas” 

(e.g., unscheduled gas delivered to a delivery point), after which the recipient of the suspense gas 

would have 60 days to either (a) inform the pipeline of the agreement to which the gas should be 

allocated or (b) pay a specified amount for the gas. The pipeline reported that it failed to post 

suspense gas for several months during which a recipient repeatedly received suspense gas, 

effectively depriving the recipient the opportunity to timely advise the pipeline of the agreement 

to which it should allocate the gas. Staff closed this matter without action because the pipeline 

(a) did not charge the recipient for the gas, (b) properly accounted for the gas in its books as 

required by the Commission’s regulations, and (c) implemented a procedure to reduce greatly the 

likelihood of a future similar mistake. 

 

Shipper-Must-Have-Title Violation. An independent oil and natural gas exploration and 

production company self-reported that it violated the Shipper-Must-Have-Title Requirement 

when one of its subsidiaries over an eleven day period transported 151,800 MMBtus of natural 

gas titled to another subsidiary. The company reported that the violation resulted from an 

inadvertent administrative error. Staff closed the matter with no action because the violation was 

inadvertent, of limited duration, and the company quickly took corrective action and provided 

Staff notice of the violation.

Statement of Operating Conditions Violations. In March 2012 after an internal investigation, a 

local distribution company and Hinshaw pipeline self-reported its failure to comply with the 

cost-based rate provisions of its statement of operating conditions (SOC) under section 311 of 

the NGPA and 18 C.F.R. § 284.224. The company’s SOC authorized transporting gas at a costbased rate linked to a state-approved rate and transporting gas at a negotiated rate even though 

the Commission-approved blanket certificate did not authorize negotiated rates. During 2009-

2010, the company entered into two transactions above the cost-based rate and over-collected 

approximately $500 in revenues. The company promptly refunded the two customers and filed 

with the Commission to remove the negotiated rate provision from its SOC. Staff closed the 
2014 Staff Report on Enforcement 21

matter with no action because the company self-reported and promptly remedied the violations, 

which were not of sufficient gravity, scope or impact to warrant the imposition of sanctions.

Force Majeure. In September 2014, two interstate natural gas pipelines separately self-reported a 

31-hour outage on their respective electronic bulletin boards and nomination systems (EBB 

Systems) because of an unanticipated database failure. The outage caused the pipelines to 

violate various Commission and NAESB standards for posting requirements normally met by the 

EBB Systems. During the outage, the pipelines declared a force majeure emergency and 

communicated with customers by e-mail and telephone as well as extended nomination and other 

deadlines as permitted by their tariffs. No gas receipts or deliveries were interrupted or curtailed 

and no customer lost gas service because of the outage. Following the outage, the pipelines 

provided cross-training in key infrastructure areas, and enhanced their disaster recovery systems. 

Staff closed the matter because the violations were isolated, inadvertent, and outside the 

pipelines’ control; the pipelines quickly notified customers, expended efforts to ensure 

uninterrupted gas flow, and ensured no customers were harmed by the outage of their EBB 

Systems. The pipelines also implemented measures to prevent a recurrence of this type of event. 

E. Investigations 

During FY2014, DOI staff opened 17 investigations, as compared to 24 investigations in 

FY2013. Over half of these new investigations arose from referrals based on conduct observed 

through surveillance by the Division of Analytics and Surveillance or the RTO/ISO Market 

Monitoring Units. In FY2014, 15 pending investigations resulted in settlement or closure

without enforcement action. Enforcement also was active on an additional four matters

involving orders to show cause issued in prior fiscal years.

1. Statistics on Investigations

Of the 17 investigations staff opened this fiscal year, some of which involve more than one 

type of violation or multiple subjects, 9 involve market manipulation, 8 involve false statements 

to the Commission or an RTO/ISO, 11 involve tariff violations, and 1 involves Commission 

accounting standards and orders. 

Of the 15 investigations closed in FY2014, staff closed 8 via settlement and 7 either upon 

finding no violation or because staff concluded that the evidence was insufficient to support 

finding a violation. The Commission-approved settlements of investigations are summarized 

above in subsection C; investigations closed without enforcement action are discussed below in 

subsection E.2.

The following charts show the disposition of investigations that closed in fiscal years 2011

through 2014.
2014 Staff Report on Enforcement 22

 

 

Disposition of Investigations, FY2014

Closed - Finding of Violation/No

Sanctions

Closed - Insufficient Evidence or

No Violation

Settlement

Other

Disposition of Investigations, FY2013

Closed - Finding of Violation/No

Sanctions

Closed - Insufficient Evidence or

No Violation

Settlement

Proceeded to Order to Show Cause

Other
2014 Staff Report on Enforcement 23

 

 

 

 

Disposition of Investigations, FY2012

Closed - Finding of Violation/No

Sanctions

Closed - Insufficient Evidence or

No Violation

Settlement

Proceeded to Order to Show Cause

Disposition of Investigations, FY2011

Closed - Finding of Violation/No

Sanctions

Closed - Insufficient Evidence or

No Violation

Settlement

Proceeded to Order to Show

Cause

Other
2014 Staff Report on Enforcement 24

 

 

The following charts summarize the nature of the conduct at issue for those investigations 

that were closed without action in fiscal years 2011 through 2014.

Disposition of Investigations - All to Date, 

FY2007 - FY2014

Closed - Finding of

Violation/No Sanctions

Closed - Insufficient Evidence

or No Violation

Settlement

Proceeded to Order to Show

Cause

Other

0

0.5

1

1.5

2

2.5

3

3.5

Standards of

Conduct/Tariff Violation

Market Manipulation Market

Manipulation/Separation

of Functions

Market

Manipulation/Tariff

Violation

Types of Alleged Violation in Investigations Closed With 

No Action, FY2014
2014 Staff Report on Enforcement 25

0

1

2

3

4

5

6

Market

Manipulation/False

Statement &

OATT/Tariff

Market

Manipulation/False

Statement

Reliability Tariff/OATT MBR

Types of Alleged Violation in Investigations Closed With 

No Action, FY2013

0

1

2

3

4

5

6

7

8

Market Manipulation/False

Statement & OATT/Tariff

Market Manipulation/

False Statement

Reliability Tariff/OATT

Types of Alleged Violation in Investigations Closed With 

No Action, FY2012
2014 Staff Report on Enforcement 26

2. Illustrative Investigations Closed with No Action 

The following describes the 7 investigations Enforcement closed in FY2014 without action. 

Like the self-report illustrations, these are intended to provide guidance to the public while 

preserving the non-public nature of DOI’s investigations. 

Interstate Commerce Act and Pipeline Tariff Violations. Staff investigated a Hotline tip that oil 

pipeline affiliates of a company violated the Interstate Commerce Act (ICA) and various tariffs 

by curtailing or interrupting interstate common carrier service and demanding concessions from 

another party before resuming service. The tip also claimed that various affiliates stopped 

scheduled deliveries without explanation, violating ICA section 1(6) (prohibiting unjust and 

unreasonable practices by jurisdictional pipelines); section 3(1) (prohibiting discriminatory 

service cancellation); section 6(3) (prohibiting service interruptions based on conditions not 

contained in tariffs); section 6(1) (requiring compliance with tariffs); and also various affiliate 

tariffs. Staff deferred action until a parallel agency investigation closed without action. After 

meeting with the company, reviewing relevant materials and tariffs, and mediating a dispute 

involving the company, staff concluded that no violation occurred and closed the investigation.

Separation of Functions. Following an anonymous Hotline tip alleging potential tariff violations 

relating to a transmission outage, staff investigated a utility to determine whether it had 

committed either market manipulation or violated the Commission’s separation of functions 

requirement. At issue was the utility’s allowing marketing function employees to provide input 

on curtailments of power flowing into the utility’s system. After reviewing company 

communications, transactions, and audio recordings, staff determined that while the protocol for 

these curtailments was confusing, market function employees were not involved in curtailment 

decisions and that such curtailments were necessary from a reliability standpoint. Staff 

determined no violation occurred and closed the investigation.

0

1

2

3

4

5

6

Market

Manipulation/False

Statement

Hydropower Reliability Natural Gas

Transportation

Tariff/OATT

Types of Alleged Violation in Investigations Closed With 

No Action, FY2011
2014 Staff Report on Enforcement 27

Market Manipulation (Electricity). An RTO/ISO Market Monitor reported that an entity and 

affiliate engaged in market manipulation when they obtained Congestion Revenue Rights 

(CRRs) for two months in 2011 at an intertie that experienced import congestion. Two days 

after receiving the CRRs for the second month, the entity applied for a Resource ID for the 

intertie, which would enable it to schedule imports at that location. Later that month, as 

congestion abated at the intertie, the entity self-scheduled imports, daily increasing the import 

amounts until the end of the month, when the intertie experienced twelve hours of congestion 

that benefited the entity’s position by over $30,000. Staff met with the entity’s counsel, who 

offered valid reasons for the trading activity in question, and also met with the market monitor to 

discuss the case. Staff also analyzed data provided by the company and took testimony from the 

key trader. Staff closed the investigation with no further action after deciding that the evidence 

was insufficient to support a violation of the Commission’s Anti-Manipulation Rule.

Market Manipulation (Electricity). Staff opened an investigation into whether a company and its 

affiliate violated the Anti-Manipulation rule by structuring certain transactions to avoid deviation 

charges that the relevant ISO assessed on day-ahead virtual increment offers and decrement bids. 

After taking testimony and reviewing relevant documents staff closed the investigation with no 

further action because it found that the company and its affiliate did not engage in market 

manipulation.

Market Manipulation (Electricity). Staff investigated whether a financial institution engaged in 

market manipulation when it significantly increased its CRR bid quantities and prices in two 

separate geographic locations and thereby held relatively large quantities of these CRRs. The 

institution scheduled price-taking physical import bids in one location that appeared to create or 

exacerbate congestion on the relevant intertie in order to increase revenues from intertie-sourced 

CRRs it had purchased in annual and monthly auctions. The Market Monitor which referred the 

matter was concerned that the institution may have purchased CRRs with the intention of 

profiting from congestion creation. The conduct increased the institution’s CRR payments by 

nearly $1 million, and increased by almost $6 million the net revenue for other CRR holders. 

Staff determined that groups within the institution operated independently without coordination 

and that their behavior was based on economic fundamentals rather than intent to create artificial 

congestion, and thus closed the matter with no action.

Market Manipulation (Gas). Following a DAS daily screening program signal of unusually large 

physical natural gas trades at delivery points in California by one entity, staff investigated 

whether the entity, which held financial positions potentially benefitting from resultant price 

movements, engaged in market manipulation. DAS questioned the entity, which initially failed 

to provide consistent explanations for the questioned activity. Staff opened a preliminary 

investigation of trades at two California hubs to determine whether the entity violated the 

Commission’s Anti-Manipulation Rule. Staff reviewed ICE data and data from the entity 

regarding its physical gas supply operations and obligations, as well as its physical and financial 

positions at the relevant trading hubs. Staff also interviewed the relevant traders and determined 

that the facts did not indicate intent to benefit the entity’s financial positions or otherwise 

manipulate the market, rather, the facts showed legitimate trading activity. Thus, staff closed the 

matter with no action.

Market Manipulation (Gas). Staff opened a preliminary non-public investigation into allegations 

raised by a Hotline caller of potential market manipulation of natural gas trading at Henry Hub 

by one or more market participants, in violation of the Commission’s Anti-Manipulation Rule. 

Staff examined whether monthly index prices or the price of next-day physical fixed gas at Waha 

or other trading points in west Texas, including but not limited to Waha and the Permian Basin, 

had been manipulated. After analyzing company trades and documents and taking testimony 
2014 Staff Report on Enforcement 28

from relevant witnesses, staff determined there was insufficient evidence of a manipulative 

trading scheme and closed the investigation.

F. Enforcement Hotline 

DOI staff fields calls and other inquiries made to the Enforcement Hotline (Hotline).

14 The 

Hotline is a means for people, anonymously if preferred, to inform Enforcement staff of potential 

violations of statutes, Commission rules, orders, regulations, and tariff provisions. The Hotline 

also allows the public to obtain informal guidance and non-binding opinions on matters within 

the Commission’s jurisdiction, including the applicability of Commission orders and policies in 

particular circumstances. When staff receives calls concerning possible violations, such as 

allegations of market manipulation, abuse of an affiliate relationship, or violation of a tariff or 

order, staff researches the issue presented and often consults other members of the Commission’s 

staff with expertise in the subject matter of the inquiry. In some cases, the Hotline calls lead to 

investigations by DOI. 

In FY2014, Enforcement received 211 Hotline calls and inquiries, 197 of which were 

promptly resolved within the fiscal year through advice provided by DOI staff and 14 of which 

remained pending as of the end of the fiscal year. In FY2014, staff converted no Hotline calls to 

preliminary investigations, although multiple FY2014 hotline calls concerned conduct in 

investigations that were already pending. Every year, a significant percentage of the calls 

received relate to subjects outside of the Commission’s jurisdiction or contested matters pending 

before the Commission. DOI staff resolves these matters by advising those callers where they 

may find the information they need, or directs them to the appropriate Commission office or 

docketed proceeding.

G. Other Matters 

DOI staff assisted other divisions and offices within the Commission on important matters in 

FY2014, including: 

Gas-Electric Coordination Issues. DOI staff participated on the Gas-Electric coordination team, 

including the preparation of the Final Rule on Communication of Operational Information 

Between Natural Gas Pipelines and Transmission Operators issued by the Commission in 

November 2013 and the Order on Rehearing, issued in June 2014.15 DOI staff also provided 

advice to the Commission in the context of specific orders related to requests for waiver, gas 

supply issues, and resource compliance with RTO/ISO dispatch instructions.

Polar Vortex Review. DOI staff assisted DAS with an in-depth review of the Polar Vortex

events that occurred in January and February 2014, to determine whether manipulative trading 

behavior contributed to high natural gas prices and elevated electricity costs that arose during the 

Polar Vortex. Staff found no evidence of widespread or sustained market manipulation; 

however, OE opened an investigation into whether downward price manipulation occurred 

during a single monthly natural gas index. Further, OE opened two additional non-public 

 

14 See 18 C.F.R. § 1b.21 (2014).

15 Communication of Operational Information Between Natural Gas Pipelines and Transmission Operators, Order 

No. 787, FERC Stats. & Regs ¶ 31,350 (cross-referenced at 145 FERC ¶ 61,350 (2013)), order on rehearing, 147 

FERC ¶ 61,228 (2014).
2014 Staff Report on Enforcement 29

investigations to determine whether certain generators may have improperly benefited from the 

constrained conditions in the electric markets. 

PJM Up-to Congestion Issues. DOI staff has been working with other offices in the Commission 

to analyze issues raised in Docket Nos. ER13-1654-000 and EL14-37-000 regarding PJM’s 

treatment of Up-to Congestion, including how it compares and contrasts with PJM’s treatment of 

virtual supply and virtual demand. DOI staff also assisted with planning a technical conference 

on these issues, scheduled to occur in early 2015. 

Intra-Office Coordination. DOI staff regularly coordinate with OGC and OEMR when 

applicants fail to timely submit filings to the Commission. In FY2014, the three offices 

coordinated on more than 100 late filings under FPA sections 203 and 205. Frequently, such 

coordination results in the inclusion in orders of language reminding applicants to submit filings 

on a timely basis or they may be subject to future enforcement actions. In some instances, when 

OGC or OEMR staff become aware of a late filing, they encourage entities to also submit a selfreport to OE. Occasionally, such coordination has resulted in referrals to DOI for further 

examination and inquiry. This year, one such combination of a referral and self-report from a 

prior year culminated in a settlement with the ITC companies (discussed above in subsection C), 

which involved 20 late FPA section 203 filings and 174 late FPA section 205 filings.

No-Action Letters. OE is one of several offices within the Commission that is jointly 

responsible for processing entity requests seeking a determination whether staff would 

recommend enforcement action against the requestor if they pursued particular transactions, 

practices or situations. The “No-Action Letter” is an effective tool for entities subject to the 

Commission’s authority to reduce the risk of failing to comply with the statutes the Commission 

administers, the orders, rules or regulations thereunder, or Commission-approved tariffs. 16 FERC 

Staff is generally available to confer on a pre-filing basis for possible “No-Action” requests. 

During FY2014, one such request was submitted, but not acted upon until after FY2014. 

Compliance Desk. In 2008, the Commission established the “Compliance Help Desk Portal” for 

entities to submit questions regarding particular compliance areas.17 For various subjects, DOI 

and staff from other Commission offices are responsible for reviewing inquiries, and 

coordinating responses to the requestors. During FY2014, DOI staff was involved in 10 

Compliance Desk inquiries.

Requests for Waivers of Standards of Conduct under Order No. 717. OGC and OEMR staff 

assigned to requests for waiver of the Standards of Conduct under Order No. 717 confer with 

DOI staff on the merits of the waivers. During FY2014, DOI staff reviewed approximately 20 

such requests for waivers.

 

16 See Interpretive Order Modifying No-Action Letter Process and Reviewing Other Mechanisms for Obtaining 

Guidance, 123 FERC ¶ 61,157 (2008). 

17 See Interpretive Order Modifying No-Action Letter Process and Reviewing Other Mechanisms for Obtaining 

Guidance, 123 FERC ¶ 61,157 at P 30 (2008).
2014 Staff Report on Enforcement 30

DIVISION OF AUDITS AND ACCOUNTING 

A. Overview

The Division of Audits and Accounting within OE administers audit and accounting 

programs to foster the Commission’s efficient, effective, and appropriate oversight of 

jurisdictional entities. DAA enables the Commission to achieve its strategic objectives by 

conducting various types of public audit and accounting activities to ensure compliance, 

accountability, and transparency. Audit and accounting activities are coordinated with other OE 

divisions and legal and technical experts in other Commission offices. Within OE, DAA 

consults with DAS, Market Oversight, and DOI to inform a risk-based approach in the selection 

of audit candidates within a particular audit scope area. Outside of OE, DAA interfaces with 

other offices, such as the Office of Energy Market Regulation, Office of Energy Policy and 

Innovation, Office of General Counsel, and OER, to coordinate actions addressing rates, tariffs, 

transparency, policy, law, reliability, and other areas the Commission deems necessary to 

accomplish its mission.

Since the vast majority of audits are initiated without any allegation of wrongdoing, risk 

assessments continue to be an important aspect of DAA’s audit program. DAA’s risk-based 

methodology typically includes surveying significant areas of risk facing the industries the 

Commission regulates using internal and external sources of information to inform the risk-based 

audit candidate selection process. Examples of internal sources informing the selection of risk 

areas include: discussions with agency officials and legal, technical, accounting, and other staff; 

and analysis of rate filings, financial forms, and reports. External sources include, but are not 

limited to: meetings and discussions with other regulatory agencies, review of financial and 

other forms filed with other regulatory agencies, routine monitoring of trade reporting sources, 

and compliance history. In FY2014, for the first time DAA, planned all of its audits using a riskbased methodology (see chart below).

0%

20%

40%

60%

80%

100%

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014

Audits Planned Using a Risk-Based Approach
2014 Staff Report on Enforcement 31

Transparency is another hallmark of DAA’s audit and accounting functions. DAA publicly 

issues its audit reports and commencement letters, providing audited entities and the industry 

with insight into the areas of emphasis and concern. DAA provides great detail in the audit 

scope and methodology section of its audit reports, enabling jurisdictional entities to be better 

informed, avoid noncompliance, and improve operational performance. The detail is designed to 

enable company staff to focus internal review on outlined program areas so companies can 

evaluate their own compliance programs in a similar fashion. DAA also uses its audits to inform 

effective Commission oversight, identify potential regulatory areas needing modification or 

addition, assist in policy formulation, and promote transparency. Similar transparency elements 

are used within the accounting program through publicly noticing accounting guidance as well as 

maintaining open access to DAA staff for all jurisdictional entities with accounting concerns.

DAA conducts industry outreach in many forums, including: participating in periodic 

scheduled meetings with trade associations, such as the Interstate Natural Gas Association of 

America (INGAA) and the Edison Electric Institute (EEI); attending and participating in industry 

workshops, conferences, and other public trade gatherings; and encouraging interested parties to 

contact DAA senior management with any inquiries or concerns. These points of contact inform 

the industry, public, and others about what constitutes effective oversight, accountability, 

transparency, operational efficiency and effectiveness, and compliance. Such outreach efforts 

further DAA’s goal of strengthening each jurisdictional entity’s compliance and operations as 

well as foster more effective communication. 

B. Compliance Reviews and Alerts

1. Compliance Reviews

A core objective of DAA’s audit and accounting programs is to assist jurisdictional 

companies to achieve robust compliance. Driven by the Commission’s strategic plan, DAA’s 

audit program has systematically reviewed and provided feedback to jurisdictional entities on 

compliance programs related to specific audit scope areas. DAA and audited entities have found 

that these transparency efforts promote more robust compliance cultures and programs. For 

example, DAA observed jurisdictional entities taking proactive measures to develop and 

integrate robust compliance practices, controls, and procedures into their operations even before 

audits were complete. This increased emphasis upon compliance and the proactive response by 

the industry has been encouraging. The new strategic plan for 2014 - 2018 continues to promote 

strong compliance programs but places a renewed emphasis on timely implementation of 

corrective actions. Based on experience, DAA believes that the proactive responses of audited 

entities to address corrective actions identified from compliance review will facilitate achieving 

the new emphasis on timely implementation of corrective actions. Thus, DAA will continue 

reviewing compliance programs during its audits.

While the structure of an internal compliance program may vary considerably based upon an 

entity’s size, scope of activities, and other inherent factors, DAA examines some key features to 

assess what enables a company to increase the likelihood of abiding by and following the spirit 

of rules and regulations to comply with statutes, Commission rules, orders, regulations, and tariff 

provisions. These factors include: 

• A strong emphasis on risk assessment - to encourage and promote self-detection of 

issues in a timely manner to prevent noncompliance proactively, rather than 

responding reactively to mitigate and remediate compliance failures.

• The active involvement of senior management - to provide a tangible demonstration 

of tone-from-the-top as well as the allocation of funds necessary for such programs.
2014 Staff Report on Enforcement 32

• The implementation of routine assessments of program effectiveness - to foster a 

strong and sustainable culture of commitment to compliance on an enterprise-wide 

basis.

2. Compliance Alerts 

In the course of conducting audits, DAA has observed certain areas in which compliance has 

been problematic for some entities. DAA believes that highlighting these areas for other 

jurisdictional entities and their corporate officials will disseminate awareness of these concerns 

and facilitate compliance efforts. The topics presented below are not the only areas in which 

compliance has been at issue, but relate also to areas where DAA has found consistent 

compliance concerns or noncompliance. DAA believes that greater attention in these areas will 

enable jurisdictional entities to prevent noncompliance, thereby avoiding enforcement action.

Formula Rate Matters. DAA continues to examine accounting that populates formula rate 

recovery mechanisms used in determining billings to wholesale customers. In recent formula 

rate audits, DAA observed certain patterns of noncompliance in the following areas:

• Merger Goodwill – including goodwill in the equity component of the capital structure 

absent Commission approval;

• Depreciation Rates – using state-approved or a blended depreciation rate consisting of 

Commission and state-approved depreciation rates without Commission approval;

• Merger Costs – including any merger-related costs in rates (e.g., third-party advisory 

fees, internal labor, severance, and other general and administrative costs) without 

Commission approval;

• Tax Prepayments – incorrectly recording tax overpayments not applied to a future tax 

year’s obligation as a prepayment leading to excess recovery through working capital;

• Unused Inventory and Equipment – including the cost of materials, supplies, and 

equipment purchased for a construction project without removing the cost of items 

unused in whole or in part from the cost of a project;

• Allocated Labor – using labor cost allocators not based on a representative time study to 

determine the amount of indirect labor costs to distribute to construction projects;

• Asset Retirement Obligation (ARO) – including ARO amounts in formula rates, without 

explicit Commission approval;

• Below-the-Line Costs – including below-the-line costs in formula rates (e.g., lobbying, 

charitable contributions, fines and penalties, and compromise settlements arising from 

discriminatory employment practices) without Commission approval; and

• Improper Capitalization – seeking to include in rate base (and earn a return on) costs that 

should be expensed.

Consolidation. Commission accounting regulations require the equity method of accounting for 

an investment in subsidiaries. Recent audit activity has found jurisdictional companies 

incorrectly using the consolidated method for accounting for subsidiaries instead of the 

Commission’s equity method. As a result, improper amounts were included in formula rate 

billings.

Nuclear Decommissioning Trust Funds. Some public utilities owning nuclear assets have failed 

to: make required Commission filings; secure required documents upon acquisition of nuclear 

assets; and separately report the wholesale portions of jurisdictional funds invested in external 

trust funds.
2014 Staff Report on Enforcement 33

Allowance for Funds Used During Construction. Recent audit activity has shown deficiencies in 

how jurisdictional entities have calculated the Allowance for Funds Used During Construction 

(AFUDC) rate including: inclusion of goodwill-related equity in determining the equity 

component of AFUDC; failure to include short-term debt in computing the AFUDC rate; 

computing AFUDC on contract retention; inclusion of unrealized gains and losses from other 

comprehensive income; compounding of the rate more than semi-annually; and use of an 

AFUDC methodology not prescribed by the Commission.

Capacity Transparency and Allocation. Interstate natural gas pipelines are required to post 

available pipeline capacity on their web sites. These postings promote transparency of available 

pipeline capacity and enable greater competitive and efficient use of such capacity. However, 

recent audits identified common deficiencies in reported available pipeline capacity where 

quantities were either omitted or incorrectly reported. The result is that some shippers may not 

be able to avail themselves of operational opportunities for use of available pipeline capacity.

Open Access Transmission Tariffs. An essential goal of open access is to support efficient and 

competitive markets. On recent OATT audits, DAA noted instances where company actions did 

not support this goal. Specifically, incorrect rates were billed to customers, available transfer 

capacity data was inaccurately posted, transmission capacity was not released in accordance with 

Commission approved tariffs, and scheduling protocols to ensure appropriate transmission 

reservations over constrained interfaces were not consistently followed.

Transmission and Distribution. Commission orders granting incentives to specific transmission 

projects require increased rigor in the proper accounting of costs to ensure that such incentives 

are applied only to approved projects. DAA noted instances in which cost allocation 

mechanisms improperly assigned costs to incentive projects, permitting a greater return than 

warranted. Additionally, in some audits, the controls over directly assigning costs to specific 

work orders for approved transmission projects were inadequate, resulting in certain costs being 

improperly assigned to incentive transmission projects.

For non-transmission incentive projects, DAA found that costs associated with construction of 

distribution plants were erroneously recorded in transmission plant accounts. DAA also 

observed instances of the cost of items in inventory, such as materials, supplies, and equipment, 

being included in the total cost of completed transmission construction projects when the items 

were not used for construction. These issues led to improper recovery of (and returns on) 

inappropriate costs through transmission rates.

Untimely Filing of Commission Reports. DAA identified instances where companies have failed 

to timely file various reports with the Commission. These instances included reports such as 

decommissioning trust fund reports and required filings, and reports related to mergers. Failure 

to timely file these reports immediately impacts the Commission and industry’s ability to use 

report-provided data. It also negatively impacts the transparency of information and creates 

doubt regarding the effectiveness of these companies’ compliance programs.

Record Retention. DAA has identified instances where records are not retained in accordance 

with Commission regulations. In some cases, DAA determined that records associated with 

assets acquired through acquisitions have not been obtained from the original owner. Failure to 

maintain adequate records could impair the Commission’s ratemaking and enforcement activities 

and ultimately impact an entity’s ability to recover costs associated with those assets.

Demand Response/Energy Efficiency. DAA audits have pointed out that jurisdictional 

companies need to strengthen controls over the reporting of capacity additions to bid into and 

otherwise participate in capacity markets.
2014 Staff Report on Enforcement 34

C. Audit Matters 

In FY2014, DAA completed 19 financial and operational audits of public utilities and natural 

gas pipelines covering a wide variety of topics. Some audits addressed multiple topics. The 

audits resulted in 162 recommendations for corrective action and directed over $11.7 million in 

refunds and recoveries. Other recommendations directed improvements to internal company 

processes and procedures, enhancements to report accuracy and transparency and web sites, and 

more efficient and cost-effective operations. Collectively, these recommendations and savings 

benefit ratepayers and market participants.

The following audit activities reflect the issues and priorities identified and discussed above.

1. Formula Rates

South Carolina Electric & Gas Company (SCE&G). At SCE&G, DAA evaluated whether 

SCE&G provided transmission services and calculated formula rate revenue requirements in 

accordance with its OATT and maintained its accounts and reported costs according to the 

Uniform System of Accounts (USofA) and FERC Form No. 1 reporting requirements.18

 DAA 

concluded that SCE&G misreported and overstated transmission materials and supplies 

inventory in its FERC Form No. 1. By overstating transmission inventory, SCE&G inflated its 

rate base and investment return on rate base, a major component of its annual transmission 

revenue requirement (ATRR). As a result of DAA’s findings, SCE&G refunded $453,633, 

including interest, to wholesale customers.

 

18 South Carolina Electric & Gas Company, Docket No. PA13-10-000 (June 10, 2014) (delegated letter order).

FY2014 Audits by Topic

MBR & EQR

Formula Rates

Transmission Incentives

Accounting & Reporting

Capacity Markets & Demand

Response

OATT

AFUDC

Mergers & Acquisitions

Nuclear Decommissioning

Trust Funds
2014 Staff Report on Enforcement 35

NSTAR Electric Company (NSTAR Electric). DAA evaluated whether NSTAR Electric 

complied with: (1) Schedule 21-NSTAR and Attachment F of the ISO New England Inc. (ISONE) Transmission, Markets, and Services Tariff; (2) various accounts in its transmission formula 

rate tariff; (3) accounting regulations in the USofA under 18 C.F.R. pt. 101; and (4) section 

111.13, Forward Capacity Market, of ISO-NEs Transmission, Markets, and Services Tariff for 

efficiency resources within ISO-NE.19 The findings mainly related to formula rate issues, as well 

as NSTAR’s energy efficiency assets participation in the capacity markets. Regarding the 

formula rate, NSTAR Electric overbilled its transmission wholesale customers because it 

included merger-related internal labor costs in its calculations and assets as part of its 

transmission plant-in-service that were sold or served as a distribution function asset. Regarding 

capacity market participation, DAA was concerned with the accuracy of NSTAR’s asset 

performance, classification and timely removal from the program upon expiration, as well as the 

improper treatment of revenues and expenses in company records. As a result of the audit report 

findings, NSTAR issued refunds of $186,771 to wholesale customers for including mergerrelated costs in it formula rate calculations. Also, NSTAR removed $915,155 of assets from its 

transmission plant-in-service thus eliminating recovery through future rates.

Idaho Power Company (Idaho Power). DAA evaluated whether Idaho Power complied with: (1) 

Idaho Power’s OATT; (2) requirements for various accounts incorporated into its formula rate 

tariff; and (3) USofA accounting regulations.20 DAA found that Idaho Power improperly 

included in transmission plant-in-service approximately $4,267,707 of jointly-owned Generator 

Step-up facilities and certain unrecoverable operation and maintenance expenses, as well as an 

electric plant held for future use unrelated to transmission, which was eliminated from being 

passed through future rates. Idaho Power also used balances unsupported by its 2010 FERC 

Form No. 1 to calculate its Transmission Wages and Salaries allocation factor. As a result of 

DAA’s findings, Idaho Power refunded $720,554, including interest, to its wholesale customers.

San Diego Gas & Electric (SDG&E). DAA evaluated whether SDG&E calculated formula rate 

revenue requirements in accordance with its OATT and maintained its accounts and reported 

costs according to the USofA and FERC Form No. 1 reporting requirements.21 At the audit’s 

conclusion, SDG&E made a $2.9 million adjustment to the forecasted plant additions of its 

transmission formula rate for improperly accruing AFUDC on unpaid contract retention fees. 

SDG&E also refunded $33,000 with interest for improperly including amounts related to 

compromise settlements for employee discrimination suits in above-the-line rather than belowthe-line accounts. Further, the audit identified several other accounting deficiencies requiring 

SDG&E to conduct comprehensive studies dating back to the inception of its transmission 

formula rate. The results of these studies will determine the total cost recovery impact on 

customer billings and necessary refunds.

2. Transmission Incentives

Southern Indiana Gas and Electric Company (Southern Indiana). DAA evaluated whether 

Southern Indiana complied with the conditions and requirements upon which the Commission 

approved its incentive rate treatments. The audit also evaluated Southern Indiana's compliance 

with: (1) its transmission cost-of-service formula rate schedule in Attachment O of the MISO 

OATT; (2) various accounts incorporated into its cost-of-service transmission formula rate; (3) 

 

19 NSTAR Electric Company, Docket No. FA12-10-000 (Mar. 25, 2014) (delegated letter order).

20 Idaho Power Company, Docket No. FA12-9-000 (Dec. 11, 2013) (delegated letter order).

21 San Diego Gas & Electric Company, Docket No. FA12-8-000 (June 10, 2014) (delegated letter order).
2014 Staff Report on Enforcement 36

USofA accounting regulations for public utilities under 18 C.F.R. pt. 101; and (4) FERC-730, 

Report of Transmission Investment Activity, reporting regulations under 18 C.F.R. pt. 35.22 As a 

result of the audit, Southern Indiana will refund approximately $78,000 with interest for 

improperly accounting for lobbying expenses in various above-the-line administrative and 

general accounts rather than below-the-line expense accounts.

Trans-Allegheny Interstate Line Company (TrAILCo). DAA evaluated TrAILCo’s compliance 

with: (1) its transmission cost-of-service formula rate schedule in Attachment H-18 to the PJM 

OATT; (2) various accounts used in the formula rate; (3) USofA accounting regulations for 

public utilities under 18 C.F.R. pt. 101; and (4) FERC-730 reporting regulations under 18 C.F.R. 

pt. 35.

23 TrAILCo refunded $657,448 for improperly recovering merger-related internal labor 

costs without submitting the section 205 filing required by the hold harmless provision 

established in the Commission’s Merger Order. TrAILCo is a wholly-owned subsidiary of 

FirstEnergy Corporation and was one of three affiliates that improperly recovered merger-related 

internal labor costs through its transmission formula rate mechanism.24

3. Mergers & Acquisitions

FirstEnergy Corporation (FirstEnergy). DAA evaluated FirstEnergy’s compliance with the 

conditions established in the Commission’s Order Authorizing Merger and Disposition of 

Jurisdictional Facilities between FirstEnergy and Allegheny Energy Inc. issued December 16, 

2010.25 DAA found that FirstEnergy pushed merger-related costs down to its regulated and nonregulated subsidiaries. FirstEnergy’s regulated subsidiaries, Trans-Allegheny Interstate Line 

Co., Potomac-Appalachian Transmission Highline, LLC, and American Transmission System, 

Inc. improperly accounted for and recovered merger related costs associated with internal labor 

without making a section 205 compliance filing with the Commission to seek rate recovery of 

such costs. As a result, FirstEnergy’s regulated subsidiaries refunded $1,168,609, with interest, 

to its wholesale customers. They also wrote off approximately $273,000 of capitalized labor 

costs related to the merger as a result of the audit.

BHE Holdings, Inc. (BHE Holdings). DAA evaluated BHE Holdings and its public utility 

affiliate’s compliance with the conditions established in the Commission’s December 16, 2010 

Order Authorizing Merger and Disposition of Jurisdictional Facilities.26 BHE’s public utility 

affiliate, Maine Public Service Company, failed to file its post-merger transaction accounting 

entries within six months of the merger consummation date, as required by the Commission’s 

December 16 Order. The company agreed to strengthen its processes for tracking and submitting 

compliance filings with the Commission in a timely manner.

 

22 Southern Indiana Gas and Electric Company, Docket No. PA13-2-000 (Dec. 3, 2013) (delegated letter order).

23 Trans-Allegheny Interstate Line Company, Docket No. PA12-18-000 (Dec. 11, 2013) (delegated letter order).

24 FirstEnergy Corporation, Docket No. PA12-5-000 (Nov. 1, 2013) (delegated letter order).

25 FirstEnergy Corporation, Docket No. PA12-5-000 (Nov. 1, 2013) (delegated letter order).

26 BHE Holdings, Inc., Docket No. PA13-8-000 (Jan. 27, 2014) (delegated letter order).
2014 Staff Report on Enforcement 37

4. Accounting and Reporting

Tampa Electric Company (Tampa Electric). DAA evaluated Tampa Electric’s compliance with 

the Commission’s financial accounting and reporting requirements under 18 C.F.R. §§ 141.1, 

141.400 and record retention requirements under 18 C.F.R. pt. 125.

27 The audit found that 

Tampa Electric improperly recorded fees related to lines of credit and letters of credit in the 

administrative and general expense account rather than in an interest expense account as required 

by the regulations. The audit also found other reporting issues related to Tampa Electric’s FERC 

Form No. 1. As a result, Tampa Electric refunded approximately $9,800 for improperly 

recording fees related to lines of credit.

ETC Tiger Pipeline, LLC. (ETC Tiger). DAA evaluated ETC Tiger’s compliance with the 

Commission’s accounting and reporting requirements for calculating and accruing AFUDC.28 

ETC Tiger improperly included unpaid amounts associated with contract retention fees in the 

construction base component of its AFUDC calculation. This resulted in over-accruing AFUDC 

on ineligible construction costs, which ETC Tiger recorded to plant-in-service. This over 

accrual, however, was offset by the effect of semi-annual compounding, which ETC Tiger did 

not originally reflect in its AFUDC calculation.

5. Open Access Transmission Tariff

Florida Power & Light Company (FPL). DAA evaluated FPL’s compliance with its OATT.29 

During the audit, NextEra Energy, Inc. (NEE), FPL’s parent company, disclosed a compliance 

issue regarding the filing of nuclear decommissioning trust fund reports with the Commission by 

three entities that are subsidiaries of another NEE subsidiary, NextEra Energy Resources, LLC. 

This matter was added to the scope of the audit and included in the audit report. The audit report 

made findings related to improper counteroffers to transmission service requests, untimely 

release of transmission capacity, termination of network resources, transmission service billing, 

and nuclear decommissioning trust funds. The report also discusses two other matters with four 

recommendations, regarding the use of a unit power sales agreement, and internal coordination 

between FPL’s energy marketing and trading group and FPL’s transmission function.

Puget Sound Energy, Inc. (PSE). DAA evaluated PSE’s compliance with its OATT.30 The audit 

identified five findings: (1) PSE’s merchant function acquired and used, with its transmission 

function’s approval, unreserved non-firm transmission after-the-fact for four individual hours 

during the audit period; (2) PSE neither charged unreserved use penalties from offending 

transmission customers, nor did it allocate these unreserved use penalty amounts to nonoffending transmission customers; (3) PSE improperly approved transmission service requests 

when the posted ATC was insufficient to grant the service; (4) PSE provided non-firm point-topoint transmission service to customers under expired transmission service agreements; and (5) 

PSE’s quality controls over its EQR filings were inadequate to ensure accurate public reporting 

to the Commission.

 

27 Tampa Electric Company, Docket No. FA13-6-000 (Mar. 25, 2014) (delegated letter order).

28 ETC Tiger Pipeline, LLC, Docket No. FA13-9-000 (Mar. 5, 2014) (delegated letter order).

29 Florida Power & Light Company, Docket No. PA13-4-000 (Aug. 13, 2014) (delegated letter order).

30 Puget Sound Energy, Inc., Docket No. PA13-6-000 (Aug. 13, 2014) (delegated letter order).
2014 Staff Report on Enforcement 38

6. Market-Based Rates and Electric Quarterly Reports

Tucson Electric Power Company (Tucson Electric). DAA evaluated Tucson Electric’s 

compliance with the requirements of its market-based rate authorization and EQR filing 

requirements under 18 C.F.R. § 35.10b.31 As a result of the audit, Tucson Electric refunded 

approximately $92,749, including interest, for selling ancillary services at market-based rates 

without Commission authorization.

Wisconsin Electric Power Company (Wisconsin Electric). DAA evaluated Wisconsin Electric’s 

compliance with the requirements of its market-based rate authorization, EQR filings, and the 

market rules governing revenue sufficiency guarantee payments under MISO’s OATT.32 DAA 

found that Wisconsin Electric reported inappropriate information, misreported data and failed to 

report certain required information in its EQR. Wisconsin accepted all corrective actions.

7. Capacity Markets and Demand Response

Hess Corporation (Hess). DAA evaluated Hess’s compliance with various tariffs governing the 

markets in which its resources operate. Audit staff focused on tariff provisions relevant to 

Hess’s participation in wholesale markets that permit the use of demand response and energy 

efficiency.33 The audit identified three areas of concern: (1) Hess failed to shed its capacity 

supply obligation in ISO-NE, and thereby overstated the amount of capacity its resources were 

able to provide to the market; (2) Hess had missing or incorrect data submissions to RTO/ISOs, 

which caused decreased payments to some customers, but which Hess since corrected and paid; 

(3) Hess failed to make an energy payment to one customer for its performance in a demand 

response event. Hess accepted all DAA-recommended corrective actions including 

strengthening its policies and procedures.

Massachusetts Electric Company (MECO). DAA evaluated MECO’s compliance with ISONE’s Markets and Services Tariff.34 DAA focused on tariff provisions relevant to MECO’s 

participation in the ISO-NE Forward Capacity Market and demand response programs. The 

audit identified areas of concern related to the accuracy of the reported capacity assets under the 

tariff and the manner in which the revenues and expenses were treated in financial reporting to 

the Commission. Some of the erroneous capacity reporting resulted in capacity payments that 

could not be corrected within the ISO settlement window. Therefore, DAA instructed MECO to 

work with ISO-NE to determine the overpayment amounts and to arrange refunds with interest. 

MECO accepted the findings and recommendations in the audit report and agreed to timely 

submit compliance filings with the Commission.

8. Oversight of ERO Audited-Related Activities to Ensure Reliability of the BulkElectric System

In 2014, DAA shifted its efforts to provide oversight of audit-related activities by the Electric 

Reliability Organization (ERO), NERC and its eight Regional Entities, to ensure compliance 

with Commission-approved mandatory reliability standards. These standards include both 

operation and planning standards and the critical infrastructure protection standards. This shift in 

approach was in response to the ERO’s efforts to implement a more systematic use of risk-based 

elements in its Compliance Monitoring and Enforcement Program (CMEP). This effort has been 

 

31 Tucson Electric Power Company, Docket No. PA13-7-000 (Dec. 3, 2013) (delegated letter order).

32 Wisconsin Electric Power Company, Docket No. PA13-9-000 (July 1, 2014) (delegated letter order).

33 Hess Corporation, Docket No. PA13-11-000 (Nov. 7, 2013) (delegated letter order).

34 Massachusetts Electric Company, Docket No. PA12-12-000 (Sept. 25, 2014) (delegated letter order).
2014 Staff Report on Enforcement 39

denoted as the Reliability Assurance Initiative (RAI). DAA is focusing on the auditing aspects 

of RAI.

DAA staff focused their efforts on RAI program elements related to Inherent Risk 

Assessment and Internal Control Evaluation and the manner in which these elements inform the 

audit process. Specifically, DAA staff monitored ERO workgroups, webinars, advisory groups, 

board meetings, web site postings and other public forums in which the ERO has sought to 

develop, test and document the RAI. In addition, DAA staff met directly with staff of NERC and 

regional entities to gain a better understanding of the intent, design, and proposed 

implementation of the RAI. DAA believes that these efforts have the capability to enhance the 

current CMEP by permitting a greater emphasis upon higher risk areas covered by the standards.

9. No Audit Findings

Kern River Gas Transmission Company (Kern River), Golden Pass Pipeline, LLC (Golden Pass), 

and Bison Pipeline, LLC (Bison). At Kern River, Golden Pass, and Bison, DAA evaluated the 

companies’ compliance with Commission accounting and reporting requirements for calculating 

and accruing AFUDC under 18 C.F.R. pt. 201.35 The evaluation focused on the components of 

construction costs eligible under Gas Plant Instruction No. 3 and, more specifically, the 

derivation of the AFUDC rate as promulgated in paragraph 17 for recent pipeline projects 

certificated under section 7 of the NGA. These audits did not result in any findings or 

recommendations requiring corrective action.

D. Accounting Matters

DAA administers the Commission’s accounting program established for jurisdictional 

electric utilities, natural gas companies, centralized service companies, and oil pipeline carriers.

DAA also is primarily responsible for maintaining the USofA and for processing jurisdictional 

company filings that aid in establishing and monitoring just and reasonable rates. DAA also 

advises the Commission and may act on filings submitted to the Commission involving current 

accounting issues affecting jurisdictional industries. Further, DAA provides accounting 

expertise to Commission program offices in developing Commission policies and proposed 

rulemakings. Finally, DAA monitors and participates in projects initiated by the Financial 

Accounting Standards Board, Securities and Exchange Commission, and International 

Accounting Standards Board to address issues that may impact the Commission or its 

jurisdictional entities.

DAA receives accounting inquiries from Commission jurisdictional electric, natural gas, and 

oil entities then provides informal accounting and financial reporting advice based on the 

Commission’s accounting and financial reporting regulations. Similarly, DAA responds to 

various accounting and financial reporting matters presented to staff during pre-filing, 

accounting liaison, and other meetings with jurisdictional entities. Although it is widely known 

that informal advice does not constitute a formal Commission action, DAA works diligently to 

aid entities in the process of complying with the Commission’s accounting and financial 

reporting regulations when requests are made. Also, DAA continues to encourage jurisdictional 

entities to seek formal guidance on accounting issues of doubtful interpretation consistent with 

General Instruction No. 5 to enhance compliance with the Commission’s accounting and 

financial reporting regulations.

 

35 Kern River Gas Transmission Company, Docket No. PA13-11-000 (Jan. 8, 2014); Golden Pass Pipeline, LLC, 

Docket No. PA13-10-000 (Jan. 8, 2014); Bison Pipeline, LLC, Docket No. PA13-8-000 (Jan. 8, 2014) (delegated 

letter orders).
2014 Staff Report on Enforcement 40

In FY2014, DAA reviewed 345 Commission filings. These filings and applications included 

requests for accounting approval, certificate authorizations, mergers and acquisitions, security 

and debt authorizations, and rate filings. Also, DAA provided informal guidance on 85 inquiries 

related to various aspects of Commission accounting, financial reporting, and record retention 

regulations. These inquiries came from jurisdictional entities, industry stakeholders, and 

consultants, as well as through the Commission’s Compliance Help Desk, Office of External 

Affairs, Enforcement Hotline, and other Commission offices.

1. Requests for Approval of the Chief Accountant

In FY2014, the Chief Accountant responded to 79 accounting filings requesting approval of a 

proposed accounting treatment for a specific transaction or event. The matters covered in these 

accounting requests related to a substantial portion of the Commission’s accounting and financial 

reporting requirements for electric, natural gas, and oil entities. Specifically, accounting requests 

sought guidance related to Commission-approved sale, purchases, mergers, and transfers of 

jurisdictional assets, test energy produced during construction, deferred income taxes, changes in 

accounting methods, prior-period adjustments, and AFUDC.

2. Certificate Proceedings

In FY2014, DAA reviewed 45 natural gas pipeline certificate application filings seeking 

Commission authorization to construct, own, and operate new pipeline facilities, abandon 

pipeline facilities, or acquire pipeline facilities, and establish rates for new pipeline facilities in 

service. DAA works with other Commission program offices to assist development of just and 

reasonable rates in the public interest by reviewing construction costs and all items used to 

determine initial rates, including operation and maintenance expenses, depreciation, 

amortization, taxes, AFUDC, and return on investment. DAA also ensures that applicants follow 

Commission accounting rules and regulations related to asset abandonment, construction, 

AFUDC calculations, contributions in aid of construction, regulatory assets and liabilities, leases, 

and system gas.

0 5 10 15 20 25 30 35

Purchase of Assets

Sale of Assets

Mergers

Premature Loss of Records

Deferred Income Taxes

Regulatory Assets

Prior Period Adjustments

Capitalization Policy

Energy Produced during Construction

AFUDC

Impairment

CIAC

Accouting Policy changes

Gas Losses

Filings Submitted for Chief Accountant Approval 

FY2014

FY2013

FY2012
2014 Staff Report on Enforcement 41

3. Merger and Acquisition Proceedings

In FY2014, DAA reviewed one merger filing and approximately 111 acquisition filings from 

electric utilities. The accounting review for merger transactions entails examining proposed 

accounting for costs to execute the transaction, costs to achieve integration and synergies, fairvalue adjustments to assets and liabilities, and goodwill. DAA also ensures that the accounting 

is consistent with any hold harmless or other rate requirements discussed in a merger order. In 

acquisition filings, DAA conducts an accounting review to ensure applicants properly account 

for the purchase and sale of plant assets consistent with Commission regulations. For example, 

DAA ensures that an acquiring applicant maintains the appropriate original cost and historical 

accumulated depreciation of a utility plant and properly records an acquisition premium when 

appropriate. DAA reviews accounting entries that merger and acquisition applicants file to 

ensure they provide appropriate transparency to any rate implication resulting from such 

accounting for consideration by the Commission and all interested parties. 

4. Debt and Security Issuance Proceedings

In FY2014, the Chief Accountant reviewed 48 electric utility security/debt applications. 

Section 204(a) of the FPA provides the Commission authority to grant electric utilities the 

authority to issue securities or assume liabilities. In reviewing filings under § 204, the 

Commission evaluates an applicant’s viability based on a review of financial statements 

submitted with the application, interest coverage ratio, and debt maturities and cash flow 

projections. DAA’s review of debt and security applications provides critical analysis that helps 

prevent public utilities from borrowing substantial amounts of money and using the proceeds to 

finance non-utility businesses. This also ensures that future issuance of debt is compatible with 

the public interest.

5. Rate Proceedings

In FY2014, DAA participated in 52 rate filings from electric, natural gas, and oil 

jurisdictional entities. In these rate filings, DAA reviews an applicant’s filing and 

intervening comments or protests to uncover and evaluate all accounting issues arising in the 

filing. DAA works with other program offices to discuss these accounting issues and 

understand the effect accounting and financial reporting has on rates. Since many natural gas 

and electric rates are directly tied to a jurisdictional entity’s financial reports (e.g., fuel 

trackers and cost of service formula rates), DAA works to ensure that accounting is not used 

as a tool to alter components of a FERC jurisdictional rate. DAA has also worked with other 

program offices to enhance financial transparency of financial information of costs recovered 

in formula rates. That is, formula rate informational filings should disclose: amounts that do 

not represent historical cost, merger-related costs, prior-period adjustments, or corrections of 

errors, among other things, to ensure all ratepayers can assess the costs they are billed.

0 5 10 15 20 25 30 35

Payment of Dividends

Operating vs Nonoperating Expense

Capitalization vs Expense

Regulatory Assets

Account Classification

Grants Received

Accounting Issues Addressed in Rate Proceedings

FY2014

FY2013

FY2012
2014 Staff Report on Enforcement 42

6. Accounting Inquiries

In FY2014, DAA responded to 85 accounting inquiries from jurisdictional entities and other 

stakeholders in the Commission’s jurisdiction. Accounting inquiries are made through the 

Compliance Help Desk,36 the Accounting Inquiries phone line and e-mail,37 or sent directly to 

DAA staff. The majority of accounting inquiries sought accounting and financial reporting 

direction on topics such as accounting for utility plant, construction activities, and revenues and 

expenses. Accounting inquiries also sought answers to specific questions on depreciation, the 

appropriate functional classification of costs, and record retention requirements. Other 

accounting inquiries requested assistance in finding specific Commission orders and regulations 

of interest. DAA responded to these accounting inquiries by providing informal accounting and 

financial reporting guidance based on Commission precedent and regulations and instructing 

individuals how to find documents and regulations using the Commission’s eLibrary system38

and the Code of Federal Regulations.39

7. International Financial Reporting Standards

International Financial Reporting Standards (IFRS) have been of special interest to the 

Commission and its regulated entities in recent years as a result of the steps taken to consider the 

convergence of U.S. Generally Accepted Accounting Principles and IFRS. The Chief 

Accountant has worked with U.S. regulated entities, state commissions, and international 

regulators to promote the development of an IFRS accounting standard that provides for 

regulatory assets and liabilities in IFRS financial statements. Following several comment letters 

by the Chief Accountant and others requesting an IFRS accounting standard for regulatory assets 

and liabilities, the IASB initiated a two-step comprehensive project to consider reporting 

regulatory assets and liabilities in IFRS financial statements. The first step entailed the January 

2014 IASB issuance of IFRS 14, Regulatory Deferral Accounts, to serve as interim accounting 

 

36 Compliance Help Desk webpage can be found at: http://www.ferc.gov/contact-us/compliance-help-desk.asp.

37 For Accounting Inquiries contact us at (202) 502-8877 or accountinginquiries@ferc.gov.

38 The Commission’s eLibrary system can be accessed at: http://www.ferc.gov/docs-filing/elibrary.asp.

39 The Commission’s regulations in 18 C.F.R. can be found at: http://www.ecfr.gov/cgi-bin/textidx?SID=03cdba1b6c896b3bd9734aab926c7b88&c=ecfr&tpl=/ecfrbrowse/Title18/18cfrv1_02.tpl.

0

5

10

15

20

25

30

35

40

45

50

Acct. & Fin.

Reporting

FERC Regs &

Orders

Depreciation Record

Retention

Miscellaneous

Issues Addressed in Accounting Inquiries 

FY2012

FY2013

FY2014
2014 Staff Report on Enforcement 43

guidance allowing first-time adopters of IFRS to apply their previous accounting standards to 

recognize regulatory assets and liabilities in IFRS financial statements. The second step entails a 

comprehensive research project and employs a consultative group of experts to aid the 

development of a discussion paper on rate-regulated activities to inform the development of a 

permanent accounting standard. In FY2014, the Chief Accountant participated in several 

meetings with IASB staff as a member of the consultative group and provided expert advice and 

comments on drafts of the discussion paper issued in September 2014.40 In FY2015, the Chief 

Accountant expects to continue providing expert advice to IASB staff to develop permanent 

standards on rate-regulated activities.

8. Energy Storage Assets

On July 18, 2013, the Commission issued Order No. 784 which, among other things, revised 

the Commission’s accounting and financial reporting requirements to foster competition and 

transparency in ancillary services markets and enhance the accounting and financial reporting of 

energy storage asset transactions in public utility operations. DAA led the development of 

revisions to the Commission’s accounting and financial reporting requirements. These reforms 

accommodate the increasing availability of new energy storage resources for use in public utility 

operations and help ensure that the activities and costs of energy storage operations are 

sufficiently transparent to enable stakeholders and state and Federal regulators to provide 

adequate oversight. Information gathered through these reforms is essential to developing and 

monitoring rates, making policy decisions, aiding compliance and enforcement initiatives, and 

informing the Commission and the public about the activities of subject entities. In FY2014, 

DAA also led the development of certain accounting and financial reporting clarifications in 

Order No. 784-A. Additionally, the Chief Accountant issued interim guidance directing the 

reporting and disclosure of energy storage assets and operations until the FERC Form No. 1 

software is updated to accommodate changes of Order No. 784.

9. Accounting Filing Statistics 

In its review of filings to the Commission, DAA has advised the Commission and acted on 

filings covering many different accounting matters with cost-of-service rate implications, such as 

accounting for mergers, asset dispositions, depreciation, acquisition premiums, waivers, and 

income taxes. Over the past four years, DAA has reviewed 889 Commission filings to ensure 

proper accounting is followed and advise the Commission on potential rate effects.

 

40 http://www.ifrs.org/Current-Projects/IASB-Projects/Rate-regulated-activities/Discussion-Paper-September2014/Pages/Discussion-Paper-and-Comment-letters.aspx.

0

20

40

60

80

100

120

Certificate Merger &

Acquisition

Rate & Securities Accounting

Types of Filings Reviewed by DAA

FY2010

FY2011

FY2012

FY2013

FY2014
2014 Staff Report on Enforcement 44

DIVISION OF ENERGY MARKET OVERSIGHT 

A. Overview

The Division of Energy Market Oversight (Market Oversight) within Enforcement is 

responsible for monitoring and overseeing the nation’s wholesale natural gas and electric power 

markets. Market Oversight continuously examines the structure and operation of these markets 

to identify market anomalies, flawed market rules, tariff and rule violations, and other unusual 

market behavior. Staff performs daily oversight of wholesale natural gas and electric markets 

and related fuel and financial markets, identifying market events and trends. Market Oversight 

analyzes and reports its observations to the Commission and, as appropriate, to the public, and 

collaborates with other offices at the Commission to develop regulatory strategies addressing the 

issues identified. Staff assesses factors that relate to the competitiveness, fairness, and efficiency 

of wholesale energy markets. In addition, Market Oversight administers, analyzes, and ensures 

compliance with the filing requirements of EQRs and various financial forms. Finally, Market 

Oversight advises the Commission on the efficacy of regulatory policies in light of evolving 

energy markets and ensures the Commission has the information needed to effectively administer 

and monitor those markets. 

B. Market Monitoring 

Market Oversight staff continuously examines the structure, operation, and interaction of 

natural gas and electric markets. Market Oversight staff accesses data from a variety of sources 

to review market fundamentals and emerging trends. 

As developments warrant, Market Oversight staff initiates projects designed to evaluate 

market trends and to assess participant behavior. Staff also presents analyses at Commission 

meetings. During FY2014, such presentations included the following:

1. 2013 State of the Markets Report 

Market Oversight annually presents a State of the Markets report assessing the significant 

events of the past year. Presented March 20, 2014, the 2013 annual report observed that natural 

gas spot prices rose across the U.S, driving production growth from shale gas plays. As a result, 

total U.S. natural gas supplies reached record levels. Wholesale power prices followed rising 

natural gas prices. Despite the recent spot price run-up, long-term natural gas futures prices fell 

in 2013, encouraging long-term demand growth. A changing generation mix led the electric 

sector to begin making changes to address increased dependence on natural gas and the 

integration of renewable generation. Financial trading volumes for natural gas fell on the 

Intercontinental Exchange (ICE), while financial trading volumes for electricity rose. The rise in 

financial electric trading is related to a shift from over-the-counter trading to exchange-based 

trading. Finally, extreme weather throughout the U.S. in early 2014 stressed natural gas and 

power markets. Electricity spot prices rose across the country in 2013, despite a slight decline in 

demand. Natural gas remained a major driver of electricity prices, with regional prices 

reflecting, in part, regional variations in natural gas prices. The largest increases were in the 

Northeast, where prices rose as much as 54 percent, and in the West where prices rose to 66 
2014 Staff Report on Enforcement 45

percent in some areas. Nationally, electricity demand fell for the third consecutive year, 

dropping by 0.1 percent.41

2. Seasonal Market Assessments 

Market Oversight prepares seasonal assessments presented at Commission meetings and 

made available to the public on the Commission website. In FY2014, Market Oversight staff’s 

seasonal assessments included the following: 

Winter 2013/2014 Energy Market Assessment, October 17, 2013. Market Oversight staff 

presented the outlook for natural gas markets and noted that conditions going into the winter 

were generally positive. Nationally, natural gas prices increased 40-50% from the previous year, 

but remained below historic highs. Natural gas power burn decreased 13% from 2012, with the 

largest decline in the Midwest where power burn fell 36%. As natural gas prices recovered from 

the previous year’s lows, coal became more economic in certain regions, including the Southeast 

and MidAtlantic. Natural gas and power futures prices for the winter were comparable to the 

year before across the country, except in New England. Natural gas storage was more than 

adequate for a normal winter, and gas production continued to grow, particularly in the Northeast 

and liquids-rich production regions such as the Eagle Ford Shale in Texas. Staff anticipated 

localized price spikes in New England during periods of high demand, due to ongoing 

constraints.42

Summer 2014 Energy Market and Reliability Assessment, May 15, 2014. This assessment 

reviewed the outlook for the electric market for summer 2014. OER contributed an analysis of 

NERC’s market review, which indicated that reserve margins would exceed planning targets for 

all assessment areas for the summer. Market Oversight staff examined electric grid operations 

and market prices, noting that conditions over the summer would reflect exceptional gas burn 

and storage withdrawals form the winter, and the anticipation of a warmer-than-normal summer 

for much of the country. The possibility of a summer El Nino might moderate temperatures and 

associated market impacts, and deep drought could affect California’s electric and gas markets as 

gas-fired generation increases to offset lower hydro generation. 

C. Outreach and Communication

Market Oversight makes available to the public its analyses by posting reports on the Market 

Oversight website and in monthly and periodic snapshot presentations. Staff also briefs visiting 

industry participants, state and federal officials, and foreign delegations. 

1. Website 

Market Oversight publishes data and analyses on the Market Oversight website, at 

http://www.ferc.gov/market-oversight/market-oversight.asp, organized into pages for (1) national 

overviews of natural gas and electricity markets, and (2) ten regional electricity and five regional 

natural gas markets. The regional market pages provide charts, tables, and maps displaying 

market characteristics and outcomes. The Market Oversight website also has information on 

several other relevant markets, including LNG, coal, and emissions markets. 

 

41 The 2013 State of the Markets Report is available at http http://www.ferc.gov/market-oversight/reportsanalyses/st-mkt-ovr/2013-som.pdf.

42 The Winter 2013-2014 Energy Market Assessment is available at http://www.ferc.gov/market-oversight/reportsanalyses/mkt-views/2013/10-17-13-A-5.pdf.
2014 Staff Report on Enforcement 46

2. Snapshot Calls

Market Oversight held eight conference calls with representatives of public utility 

commissions and state agencies in the eastern, central, and western states. These calls provide a 

current “snapshot” of energy markets. Regional Snapshot Reports are compiled monthly and 

serve as the basis for discussion on the calls. The reports include data on natural gas, electricity, 

LNG, weather, and other market developments. Additionally, the Snapshot Report incorporates 

reports on special topics. Snapshot Reports are available on the Market Oversight website at 

http://www.ferc.gov/market-oversight/mkt-snp-sht/mkt-snp-sht.asp, and are archived back to 

2007.

3. Domestic and Foreign Delegation Briefings 

Market Oversight periodically hosts visitors, including foreign and domestic delegations of 

regulators and industry participants, interested in energy markets and in staff’s market 

monitoring activities. In FY2014, Market Oversight conducted thirteen briefings in the Market 

Monitoring Center, including briefings to: Congressional delegations, groups of delegates from 

federal and state agencies, delegations from industry, and foreign delegations.

Market Oversight also briefs new Commission employees and others on its ongoing 

monitoring of market trends and events, and the management of the Market Monitoring Center 

resources to support its oversight function. 

D. Forms Administration and Filing Compliance 

Market Oversight staff administers and ensures compliance with the Commission’s forms 

filing requirements. The Commission requires companies subject to its jurisdiction to submit 

annual and quarterly reports regarding jurisdictional sales, financial statements, and operational 

data. The Commission uses these reports for analyses, including evaluation of whether existing 

rates continue to be just and reasonable. Other government agencies and industry participants 

use these reports for a variety of business purposes. Accordingly, accurate reporting is a critical 

aspect of monitoring markets. During FY2014, over 10,000 FERC forms were submitted.

Market Oversight performs a series of data validation checks for the various FERC forms to 

ensure that submissions comply with filing requirements and to improve the accuracy and quality 

of the filed information. During FY2014, Commission staff implemented a new filing system 

which automated over 150 compliance checks, ensuring accuracy, and assisted filers to come 

into compliance with Commission requirements. Additionally, staff reviewed the various forms 

and data submitted to the Commission to assess whether to recommend that the Commission take 

remedial action. 

1. Electric Quarterly Reports 

Section 205 of the FPA, 16 U.S.C. § 824d (2006), and 18 C.F.R. Part 35 (2014), require, 

among other things, that all rates, terms, and conditions of jurisdictional service be filed with the 

Commission. In Order No. 2001, the Commission revised its public utility filing requirements 

requiring public utilities, including power marketers, to file EQRs summarizing the contractual 

terms and conditions in their agreements for all jurisdictional services (including market-based 

power sales, cost-based power sales, and transmission service) and provide transaction 
2014 Staff Report on Enforcement 47

information (including rates) for short-term and long-term power sales during the most recent 

calendar quarter.43

FERC staff implemented a new EQR platform in accordance with Order Nos. 768, 768-A, 

and 770.44 Staff continues to address any issues with the platform as they arise, with major 

changes included in a second version of the EQR platform in the future. In FY2014, 

Commission staff reviewed nearly 9,000 EQR submittals from over 1,900 individual 

respondents. Commission staff determines whether sellers have timely complied with the 

requirements set forth in Order No. 2001 and whether the data is accurate and reliable. 

E. Agenda Items and Rulemakings

Market Oversight assists the Commission in evaluating the efficacy of certain regulatory 

policies in light of evolving energy markets and ensures that the Commission has the information 

needed to administer and monitor the markets effectively. During FY2014, Market Oversight 

staff continued to support Commission efforts to increase electric market transparency under 

§ 220 of the FPA. Market Oversight continuously reviews the monitoring program to ensure that 

it is comprehensive and systematic, and reviews reporting requirements to ensure that 

appropriate and accurate information is collected. Market Oversight seeks to enhance market 

transparency and efficiency while balancing the regulatory burden on market participants. As 

such, Market Oversight provided support for the following: 

1. Winter 2013-2014 Operations and Market Performance in RTOs and ISOs

In light of the cold weather events last winter, the Commission issued a notice on February 

21, 2014 announcing a Commissioner-led Technical Conference on Winter 2013-2014 

Operations and Market Performance in RTOs and ISOs on April 1, 2014 (Docket No. AD14-8).45

The Technical Conference explored the impacts of the cold weather events on the RTOs/ISOs 

and discussed actions taken in response to inform the Commission of the challenges posed by 

these events. Staff provided natural gas and electric market expertise on the effects of the 2013-

2014 cold weather events and submitted a presentation. Staff also participated in industry 

outreach calls in coordination with the Division of Analytics and Surveillance exploring market 

participant behavior.46

 

43 Revised Public Utility Filing Requirements, Order No. 2001, FERC Stats. & Regs. ¶ 31,127 (2002), reh’g denied, 

Order No. 2001-A, 100 FERC ¶ 61,074 (2002), reh’g denied, Order No. 2001-B, 100 FERC ¶ 61,342 (2002), order 

directing filing, Order No. 2001-C, 101 FERC ¶ 61,314 (2002), order directing filing, Order No. 2001-D, 102 FERC 

¶ 61,334 (2003), order refining filing requirements, Order No. 2001-E, 105 FERC ¶ 61,352 (2003), order on

clarification, Order No. 2001-F, 106 FERC ¶ 61,060 (2004), order revising filing requirements, Order No. 2001-G, 

120 FERC ¶ 61,270 (2007), order on reh’g and clarification, Order No. 2001-H, 121 FERC ¶ 61,289 (2007), order 

revising filing requirements, Order No. 2001-I, FERC Stats. & Regs. ¶ 31,282 (2008).

44 Electricity Market Transparency Provisions of Section 220 of the Federal Power Act, Order No. 768, FERC Stats. 

& Regs. ¶ 31,336 (2012), order on reh’g and clarification, Order No. 768-A, 143 FERC ¶ 61,054 (2012); Revisions 

to Electric Quarterly Report Filing Process, Order No. 770, 141 FERC ¶ 61,120 (2012).

45 Complete event details, including all presentations and transcripts are located at 

http://www.ferc.gov/EventCalendar/EventDetails.aspx?ID=7272&CalType=%20&CalendarID=116&Date=04/01/2

014&View=Listview.

46 The Winter 2013-2014 Operations and Market Performance in RTOs and ISOs presentation is located at 

http://www.ferc.gov/CalendarFiles/20140401083844-Staff%20Presentation.pdf.
2014 Staff Report on Enforcement 48

2. Gas-Electric Coordination

Market Oversight provided ongoing market support to the Gas-Electric Coordination 

initiative. Per Docket No. AD12-12, staff conducts industry outreach and updates the 

Commission quarterly through publicly posted reports on the Commission’s website. Staff 

closely monitored regional Gas-Electric Coordination activities and coordinated outreach calls 

with national and regional industry stakeholders. Staff provided natural gas subject matter 

expertise for the November 2013 Commission Final Rule which allowed interstate natural gas 

pipelines and electric transmission operators to share non-public, operational information with 

each other to promote the reliability and integrity of their systems (Order No. 787).47 To protect 

against undue discrimination and ensure that the shared information remains confidential, the 

order also adopts a No-Conduit Rule that prohibits disclosure by recipients of non-public

information to an affiliate or a third party. The Final Rule took effect on December 23, 2013. 

Staff also contributed to the March 20, 2014 issuance of the Commission’s Notice of Proposed 

Rulemaking (NOPR) in Docket No. RM14-2-000 regarding the Coordination of the Scheduling 

Processes of Interstate Natural Gas Pipelines and Public Utilities.48

 

47 Communication of Operational Information Between Natural Gas Pipelines and Electric Transmission Operators, 

144 FERC ¶ 61,043 (2013). 

48 Coordination of the Scheduling Processes of Interstate Natural Gas Pipelines and Public Utilities, 146 FERC ¶ 

61,201 (2014).
2014 Staff Report on Enforcement 49

DIVISION OF ANALYTICS AND SURVEILLANCE 

A. Overview

The Division of Analytics and Surveillance (DAS) develops surveillance tools, conducts 

surveillance, and analyzes transactional and market data to detect potential manipulation, 

anticompetitive behavior, and other anomalous activities in the energy markets. DAS focuses 

on: (1) natural gas surveillance; (2) electric surveillance; and (3) transactional analysis. The 

analysts and economists in DAS participate in investigations with attorneys from DOI, providing 

detailed transactional analysis, market event analysis, and subject matter expertise. As part of its 

surveillance function, DAS develops, refines, and implements surveillance tools and algorithmic 

screens to perform continuous surveillance and analysis of market participant behavior, 

economic incentives, operations, and price formation in both the natural gas and electric markets, 

to detect anomalous activities in the markets, and to identify potential investigative subjects. 

In FY2014, the Commission continued to enhance its ability to conduct surveillance of the 

natural gas and electric markets and to analyze individual market participant behavior by gaining 

access to the Commodity Futures Trading Commission’s (CFTC) Large Trader Report (LTR) 

data. In addition, DAS led an extensive review of the Polar Vortex events that occurred in 

January and February of 2014 to determine whether manipulative trading behavior contributed to 

the high natural gas prices and elevated electricity costs. LTR data was essential to this effort as 

it allowed DAS to quickly and efficiently evaluate natural gas and electric market participants’ 

financial incentives during the Polar Vortex events. 

Large Trader Report. In FY2014, the Commission began receiving a daily feed of data from the 

CFTC’s Large Trader Report, which includes the open financial positions for natural gas and 

electric products that are traded on exchanges for each large trader. DAS has integrated this 

information into its automated surveillance screens and uses it in its continuous surveillance of 

the natural gas and electric markets. The LTR data is particularly useful in identifying 

manipulative schemes that employ a “tool” to attack a “target” price setting mechanism to 

improve the value of a “benefiting position.” In this type of scheme, a market participant takes a 

loss or engages in sub-optimal trades in physical markets as the tool used to target a price index 

or indices, resulting in increased value for products in the market participant’s financial 

portfolio, its benefiting position. Using the LTR data, FERC staff is often able to determine 

quickly and efficiently whether a market participant whose physical energy trading indicates 

potential manipulation holds a financial position that would benefit from the market participant’s 

conduct in Commission jurisdictional markets. 

Polar Vortex Review. In addition to DAS’ ongoing surveillance of the natural gas and electric 

markets, DAS (with the support of DOI and Market Oversight) conducted an in-depth review of 

the Polar Vortex events that occurred in January and February 2014. DAS conducted this review 

to determine whether manipulative trading behavior contributed to the high natural gas prices 

and elevated electricity costs that arose during the Polar Vortex. DAS worked closely with

RTO/ISOs and market monitors as they reviewed the winter events and checked for improper 

conduct. In addition, staff evaluated whether market participants illegally took advantage of 

constrained conditions. For example, DAS staff evaluated whether market participants engaged

in electric offer behavior that was meant to increase the level of uplift payments received by a 

generating resource.

 As part of this effort, staff interviewed more than 30 natural gas and electric market 

participants, including those who were actively trading during the price spikes and whose 

conduct tripped DAS’ surveillance screens. DAS staff also interviewed generators that received 
2014 Staff Report on Enforcement 50

high levels of uplift as compensation for their natural gas costs during the events. DAS 

conducted extensive analysis to verify information obtained during the interview process. Using 

ICE and LTR data, staff evaluated the physical natural gas trading of market participants to 

determine if entities had an incentive to influence natural gas prices to benefit financial positions. 

DAS also (1) requested additional information from specific market participants to evaluate

further their trading and to test explanations they provided during the interviews; (2) reviewed 

generator offer behavior; (3) responded to hotline calls and tips the Commission received that 

expressed concern over natural gas trading at certain locations; and, (4) reviewed generator 

outages to determine whether (a) any outages constituted economic withholding and (b) 

generators with capacity supply obligations took outages for economic, not physical reasons. 

 Staff found no evidence of widespread or sustained market manipulation. However, OE has 

opened a non-public investigation related to the formation of a single monthly natural gas index. 

This investigation is examining potential downward price manipulation. OE has opened two 

additional non-public investigations to determine whether certain generators may have 

improperly benefited from the constrained conditions in the electric markets. 

B. Natural Gas Surveillance 

DAS conducts surveillance and analysis of physical natural gas market behavior to detect 

potential manipulation and anti-competitive behavior. DAS created and uses analytical tools, 

known as screens, that detect anomalous activity by analyzing data relating to trade prices, 

volumes, times, and other transaction characteristics. In addition, DAS uses LTR data to look 

for potential financial incentives that might cause a market participant to engage in a 

manipulative scheme. The automated screens cover the majority of physical and financial 

trading hubs in the United States. DAS also employs asset-based screens that monitor cash 

trading around infrastructure, including natural gas storage. The screens alert staff to a variety of 

market conditions and market participant actions.

When a screen issues an alert, staff conducts a series of analyses to gain information about 

the activity that caused it. First, staff (a) compares the trading to that at other hubs and (b) 

determines whether there is a fundamentals-based explanation for the activity based on a review

of supply, demand, pipeline utilization, operational notices, and physical and financial trading. 

Most often, staff finds such an explanation. However, when the follow-up analysis fails to 

explain the alert, staff performs a more in-depth analysis of the specific trading behavior 

underlying the alert. Under some circumstances, DAS staff will contact market participants for 

additional transactional details or explanations of trading activities to better understand the 

purpose of the transactions. If staff continues to have concerns that the market activities 

underlying the screen alert could constitute manipulation, DAS recommends that DOI open an 

investigation. 

C. Electric Surveillance

DAS regularly accesses data from a variety of sources to screen for anomalies and potentially 

manipulative behavior in the RTO/ISO and bilateral electricity markets. During FY2014, staff 

ran monthly screens that identify patterns at the hourly level by monitoring the interactions 

between physical and virtual bidding strategies and potentially benefiting payouts. In particular, 

these screens identify financial transmission rights and swap-futures that exist at nodes and 

constraints where market participants also trade virtuals, generate electricity, or move power 

between RTO/ISOs. Staff developed and deployed analytic tools and screens for: (1) 

determining uneconomic virtual transactions by node, zone, and constraint; (2) detecting dayahead market congestion manipulation that would benefit financial transmission rights and swap-
2014 Staff Report on Enforcement 51

futures positions; (3) identifying anomalies in physical offer patterns; and (4) identifying 

abnormal out-of-market payments.

Throughout FY2014, DAS continued to develop and improve its surveillance capabilities by 

incorporating new data sources such as the LTR data. DAS continues to use the data from the 

RTO/ISOs under Order No. 76049 and the e-Tag data from Order No. 77150 extensively. In 

addition, staff continued to work closely with the Market Monitoring Units of each RTO and 

ISO. 

D. Analytics 

During FY2014, DAS worked on more than 30 investigations, some of which are discussed 

above in the DOI section. Many of these investigations involve allegations of manipulation in 

the Commission-jurisdictional natural gas and electric markets or violations of tariff provisions 

that are intended to foster open, competitive markets. DAS’ investigative activities generally 

include: (1) assessing market conditions during periods of suspected manipulation; (2) 

identifying patterns of market activity that could indicate market manipulation; (3) identifying 

time periods in which potentially manipulative activities occurred; (4) fully reconstructing and 

analyzing companies’ trading portfolios; and, (5) calculating the amount of unjust profits 

resulting from violations to assist with determining a civil penalty recommendation under the 

Commission’s penalty guidelines. Upon completion of the analytical process, staff develops 

data-based explanations to inform the structure and substance of further investigation, settlement 

discussions, and Commission actions. Staff also coordinates to develop new screens to detect 

improper behavior that has been identified during prior investigations. 

 

49 Enhancement of Electricity Market Surveillance and Analysis through Ongoing Electronic Delivery of Data from 

Regional Transmission Organizations and Independent System Operators, Order No. 760, FERC Stats. & Regs. ¶ 

31,330 (2012). 

50 Availability of E-Tag Information to Commission Staff, Order No. 771, 141 FERC ¶ 61,235 (2012).
2014 Staff Report on Enforcement 52

 CONCLUSION 

The information in this Report is provided to promote transparency and to encourage entities 

subject to Commission requirements to develop strong internal compliance programs. As 

discussed in this Report, Enforcement promotes compliance with the Commission’s statutes,

rules, orders, regulations, and tariff provisions by investigating a wide variety of matters, 

auditing regulated entities for both compliance and performance issues, and actively overseeing 

the gas and electric markets to assist the Commission in ensuring reliable, efficient, and 

sustainable energy for consumers. DOI will continue to focus its efforts on keeping markets 

transparent and competitive and helping to ensure the reliability of the bulk power system. DAA

will work closely with entities to improve compliance, while Market Oversight will examine and 

monitor the structure and operation of natural gas and electric markets. DAS will conduct 

surveillance and analyze transactional and market data to detect potential manipulation, 

anticompetitive behavior, and other anomalous activities in the energy markets. 
2014 Staff Report on Enforcement 53

APPENDIX A: OFFICE OF ENFORCEMENT ORGANIZATION CHART 

Division of Audits and Accounting

Bryan Craig, Dir and Chief Accountant

Timothy Smith, Dep Dir

Steven Hunt, Dep Chief Accountant

Stephen Flanagan, Sr. Economist

Office of the Director

Larry D. Gasteiger, Acting Director 

Roger Morie, Reliability Enforcement Counsel

Administration Staff

Denice Smith, Chief

Market Oversight Branch 1

Deepak Ramlatchan, Acting Chief

Investigations Branch 1

Demetra Anas, Chief

Audits Branch 2

Christopher Handy, Chief 

Investigations Branch 2

Justin Shellaway, Chief

Investigations Branch 3

Geof Hobday, Chief

Audits Branch 1

Stephen Flanagan, Acting Chief

Audits Branch 3

Sylvia Anderson, Chief

Division of Investigations

Larry Parkinson, Director

David Applebaum, Dep Dir

Kathryn Kuhlen, Sr. Attorney

Division of Energy

Market Oversight

Jerome Pederson, Director

Deepak Ramlatchan, Dep Dir 

MaryBeth Tighe, Sr. Market Advisor

Laura Vallance, Legal Counsel to the Dir

Audits Branch 4

Brian Harrington, Chief

Investigations Branch 4

Gabriel Sterling, Chief

Regulatory Accounting Branch

Gerald Williams, Chief

Market Oversight Branch 4 

Christopher Ellsworth, Chief

Market Oversight Branch 2 

Kelli Merwald, Chief

Market Oversight Branch 3

Jason Stanek, Chief

Analytics and Surveillance Branch 2

Nancy Bowler, Chief

Analytics and Surveillance Branch 1 

Thomas Pinkston, Chief

Analytics and Surveillance Branch 3

Shawn Bennett, Chief

Division of Analytics

and Surveillance

Lee Ann Watson, Director 

Sean Collins, Dep Dir

Jamie Marcos, Attorney

Analytics and Surveillance Branch 4

Steven Reich, Chief 

Analytics and Surveillance Branch 5

Felice Richter, Chief 

OFFICE OF ENFORCEMENT
2014 Staff Report on Enforcement 54 

APPENDIX B: FY2014 CIVIL PENALTY ENFORCEMENT 

ACTIONS51 

Subject of Investigation and 

Order Date Total Payment Explanation of Payments and Compliance Plans 

Direct Energy Services, LLC, 

148 FERC ¶ 61,114 (August 

11, 2014)

$20,000 civil penalty; 

$31,935 disgorgement; 

compliance measures and

monitoring.

The Commission approved a settlement arising 

from a self-report by Direct Energy that led to 

an investigation in which Staff concluded that 

two traders formerly employed by Direct 

Energy manipulated the price of physical 

natural gas at two hubs on several days in May 

2012 to benefit related financial positions. Staff 

also concluded that Direct Energy promptly (i) 

discovered the trades, (ii) suspended the 

traders, (iii) investigated the situation, (iv) fired 

the traders, and (iv) self-reported, after which it 

cooperated fully in Staff’s investigation.

Imperial Irrigation District, 

148 FERC ¶ 61,108 (August 

7, 2014)

$12,000,000 civil penalty, 

offset by $9,000,000 in 

reliability enhancements;

mitigation; compliance 

monitoring.

The Commission approved a settlement 

resolving findings under ten Requirements of 

four Reliability Standards for failures to 

perform necessary operational planning 

studies, coordinate those studies with 

neighboring transmission operators, establish 

valid system operating limits, conduct near-and 

long-term planning studies that consider the 

most severe system results, and operate the 

system to prevent any disturbance from 

creating emergency operating conditions.

Arizona Public Service 

Company, 148 FERC ¶ 

61,009 (July 7, 2014)

$3,250,000 civil penalty, 

offset by $1,250,000 in 

reliability and compliance 

enhancements; 

mitigation; compliance 

monitoring.

The Commission approved a settlement 

resolving findings under four Requirements of 

two Reliability Standards for failure to perform 

necessary operational planning studies, 

coordinate those studies with neighboring 

transmission operators, and operate the system 

to prevent any disturbance from creating 

emergency operating conditions. 

Indianapolis Power & Light 

Company, 148 FERC ¶ 

61,007 (July 3, 2014)

$32,500 civil penalty; 

$301,000 disgorgement to 

MISO; compliance 

enhancements; 

compliance monitoring.

The Commission approved a settlement 

resolving admitted violation of section 39.2.5 

(c) of the MISO tariff for failure to adjust realtime offers for a unit to reflect the unit’s actual 

capacity on two days when conditions limited 

the available output.

 

51A list of all EPAct 2005 civil penalty orders is available at http://www.ferc.gov/enforcement/civil-penalties/civilpenalty-action.asp. 
2014 Staff Report on Enforcement 55 

International Transmission 

Company, Michigan Electric 

Transmission Company, 

LLC, ITC Midwest LLC, 

ITC Great Plains, LLC, 146 

FERC ¶ 61,172 (Mar. 11, 

2014)

$750,000 civil penalty; 

compliance 

enhancements; 

compliance monitoring.

The Commission approved a settlement 

resolving findings under FPA section 205 for 

failure to timely file jurisdictional contracts 

and under FPA section 203 for failure to timely 

seek Commission authorization for 

jurisdictional transactions.

MISO Virtual and FTR 

Trading (Louis Dreyfus 

Energy Services), 146 FERC 

¶ 61,072 (Feb. 7, 2014)

Louis Dreyfus: 

$4,072,257 civil penalty, 

$3,334,000 disgorgement 

compliance 

enhancements; 

compliance monitoring.

Xu Cheng: $310,000 civil 

penalty 

The Commission approved a settlement 

resolving findings under the Anti-Manipulation 

Rule, 18 C.F.R. § 1c.2, for virtual transactions 

made to increase the value of the company’s 

position in financial transmission rights.

In re Erie Boulevard 

Hydropower, L.P., 146 

FERC ¶ 61,027 (Jan. 15, 

2014)

$4,000,000 civil penalty; 

$1,700,000 public safety 

enhancements; 

compliance and 

operational 

enhancements.

The Commission approved a settlement 

resolving findings under Part 12 of the 

Commission’s regulations for failure to 

adequately maintain and operate dam safety 

mechanisms.

Constellation Energy 

Commodities Group, Inc., 

145 FERC ¶ 61,062 (Oct. 

18, 2013)

$500,000 civil penalty; 

$145,928 disgorgement; 

compliance monitoring.

The Commission approved a settlement 

resolving admitted violation of 18 C.F.R. § 

35.41(b), and a related CAISO tariff provision, 

for falsely designating transactions to 

improperly ensure awards of bids at multiple 

interties.
2014 Staff Report on Enforcement 56 

APPENDIX C: FY2014 NOTICES OF ALLEGED VIOLATIONS52 

Issue Date Subject of Investigation Description of Alleged Misconduct Dates of Alleged 

Misconduct 

August 25, 2014 City Power Marketing, 

LLC and K. Stephen 

Tsingas

Violation by City Power and Tsingas 

of Commission’s Anti-Manipulation 

Rule through Up To Congestion 

transactions in PJM regional market 

designed to falsely appear to be spread 

trades but in fact aimed at collecting 

Marginal Loss Surplus Allocation 

payments. Violation by City Power of 

18 C.F.R. 35.41(b) through false 

statements and omissions (by Tsingas) 

in sworn deposition testimony and 

data responses.

July 2010 

(violation of AntiManipulation 

Rule); October 

2010-August 2014 

(violation of 35 

C.F.R. 35.41(b)). 

August 5, 2014 Houlian ‘Alan’ Chen; 

HEEP Fund Inc., CU 

Fund Inc (which were 

solely owned and 

operated by Chen); and 

Powhatan Energy Fund, 

LLC

Chen and the three funds for which he 

traded (HEEP Fund, Inc., CU Fund, 

Inc., and Powhatan Energy Fund, 

LLC) are alleged to have violated the 

Commission’s Anti-Market 

Manipulation Rule, 18 C.F.R. § 1c.2 

(2013), by placing large volumes of 

offsetting Up To Congestion spread 

trades in PJM as an intentional 

strategy designed to cancel out the 

financial consequences of the spreads 

in order to improperly collect large 

payments, known as “Marginal Loss 

Surplus Allocation” from PJM.

June 1, 2010–

August 3, 2010

July 9, 2014 Direct Energy LLC The subject is alleged to have violated

the Commission’s Anti-Market 

Manipulation Rule, 18 C.F.R. § 1c.1 

(2013), by manipulating natural gas 

prices during May 2012 at Algonquin 

and Transco Zone 6 in order to benefit 

its related financial positions.

May 1, 2, 7, 8, 9, 

and 11, 2012.

 

52 A list of all notices of alleged violations is available at http://www.ferc.gov/enforcement/allegedviolation/notices.asp. 
2014 Staff Report on Enforcement 57 

June 12, 2014 Twin Cities PowerCanada, U.L.C., Twin 

Cities Energy, L.L.C., 

Twin Cities Power, 

LLC, Allan Cho, Jason 

F. Vaccaro, Gaurav 

Sharma

The subjects are alleged to have 

violated the Commission's Prohibition 

of Electric Energy Market 

Manipulation, 18 C.F.R. 1c.2 (2013) 

by scheduling and trading physical 

power in MISO to benefit related 

swap positions that settle off of realtime MISO prices.

January 1, 2010–

January 31, 2011 

April 1, 2014 Indianapolis Power & 

Light 

IPL is alleged to have violated the 

MISO Energy and Operating Reserve 

Markets Tariff when it operated its 

Petersburg 2 unit at a derated capacity 

during two days in July 2012 but 

failed to adjust the unit’s real-time 

offer to reflect the derate. 

July 5–6, 2012 

February 11, 2014 International 

Transmission Company 

Michigan Electric 

Transmission Company, 

LLC ITC Midwest LLC 

ITC Great Plains, LLC 

The ITC Companies are alleged to 

have violated Section 203(a)(1)(B) 

and 205 of the FPA and/or Part 33 as 

well as Part 35 of the Commission’s 

regulations, by acquiring certain 

Commission-jurisdictional 

transmission assets without prior 

approval and failing to timely file 

Commission-jurisdictional 

agreements.

Period between 

2003 and 2011 

January 22, 2014 Arizona Public Service; 

California Independent 

System Operator; 

Imperial Irrigation 

District; Southern 

California Edison; 

Western Area Power 

Administration-Desert 

Southwest Region; 

Western Electricity 

Coordinating Council 

Reliability Coordinator 

The entities are alleged to have 

violated various mandatory Reliability 

Standards, as set forth in the Notice of 

Alleged Violations, in connection with 

a system disturbance on September 8, 

2011.

Period surrounding 

and including 

September 8, 2011. 

January 6, 2014 Louis Dreyfus Energy 

Services L.P.

Louis Dreyfus Energy Services L.P. is 

alleged to have violated the 

Commission’s Prohibition of Electric 

Market Manipulation, 18 C.F.R. § 

1c.2 (2013), when it engaged in virtual 

trading at a node in North Dakota, 

which enhanced the value of its 

nearby Financial Transmission Rights.

November 2009–

February 2010 

October 4, 2013 Constellation Energy 

Commodities Group

Constellation Energy Commodities 

Group is alleged to have violated 18 

CFR § 35.41(b) and the parallel 

provision of the CAISO tariff, § 

37.5.1, by not providing accurate 

information to CAISO.

January 22, 2010 

through March 24, 

2010.