UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

2010 REPORT ON ENFORCEMENT

Docket No. AD07-13-003 

Prepared by the Staff of the 

Office of Enforcement 

Federal Energy Regulatory Commission 

Washington, D.C. 

NOVEMBER 18, 2010
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. 
 

2010 Staff Report on Enforcement i

TABLE OF CONTENTS

I. Introduction ............................................................................................................................................................1

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

III. Division of Investigations.......................................................................................................................................3

A. Overview..............................................................................................................................................................3

B. Significant Matters...............................................................................................................................................4

1. Penalty Guidelines..........................................................................................................................................4

2. Notices of Alleged Violations ........................................................................................................................5

3. Disclosure of Exculpatory Materials ..............................................................................................................5

4. Brian Hunter Initial Decision .........................................................................................................................5

5. ISO-NE Connecticut Parties...........................................................................................................................6

6. NOPs ..............................................................................................................................................................6

7. Energy Transfer Partners’ Allocation.............................................................................................................6

C. Settlements...........................................................................................................................................................7

1. Violations of Reliability Standards.................................................................................................................8

2. Open Access Transmission Tariff, section 205 of the FPA, and 358.5(c)(5) of the Commission’s 

Regulations.....................................................................................................................................................9

3. Open Access Transportation...........................................................................................................................9

D. Self-Reports .......................................................................................................................................................10

1. Illustrative Self-Reports Closed with No Action..........................................................................................11

2. Illustrative Self-Reports Converted to Investigations but Closed with No Action.......................................15

E. Investigations .....................................................................................................................................................16

1. Statistics on Investigations ...........................................................................................................................16

2. Illustrative Investigations Closed with No Action........................................................................................19

F. Reliability...........................................................................................................................................................20

G. Enforcement Hotline..........................................................................................................................................20

IV. Division of Audits ................................................................................................................................................22

A. Overview............................................................................................................................................................22

B. Significant Audit and Accounting Matters.........................................................................................................22

1. Independence Audits ....................................................................................................................................22

2. Virginia Electric Power Company................................................................................................................23

3. Entergy Corporation .....................................................................................................................................24

4. International Financial Reporting Standards ................................................................................................24

5. Revision of Accounting Release No. 5, Capitalization of Interest During Construction (AR-5) .................25

C. Statistics .............................................................................................................................................................25

D. Accounting Statistics..........................................................................................................................................26

1. Requests for Approval of the Chief Accountant...........................................................................................26

2. Certificate Proceedings.................................................................................................................................27

3. Merger and Acquisition Proceedings ...........................................................................................................27

4. Rate Proceedings ..........................................................................................................................................27

E. Summary of Audit Results and Accounting Matters..........................................................................................27

1. Reliability Audits .........................................................................................................................................28

2. MBR, OATT, and RTO/ISO Audits.............................................................................................................28

3. PUHCA and Other Accounting Audits.........................................................................................................28

4. Natural Gas...................................................................................................................................................29

5. Audits Closed with No Findings and Recommendations .............................................................................29

F. Division of Audits Compliance Program ...........................................................................................................30
 

2010 Staff Report on Enforcement ii

V. Division of Energy Market Oversight ..................................................................................................................31

A. Overview............................................................................................................................................................31

B. Market Monitoring.............................................................................................................................................31

1. State of the Markets Report 2009, April 15, 2010........................................................................................32

2. Seasonal Market Assessments......................................................................................................................32

3. Capacity Reassignment Reporting................................................................................................................32

4. Pipeline Capacity Release Review ...............................................................................................................33

C. Technical Analysis.............................................................................................................................................33

D. Outreach and Communication............................................................................................................................33

1. Website.........................................................................................................................................................33

2. Snapshot Calls ..............................................................................................................................................34

3. Domestic and Foreign Delegation Briefings ................................................................................................34

E. Forms Administration and Filing Compliance...................................................................................................34

F. Agenda Items: Transparency..............................................................................................................................36

1. Order No. 704-C Clarification Regarding Form No. 552.............................................................................36

2. Order No. 720 Clarifications on Non-Interstate Pipeline Posting Requirements .........................................36

3. Electric Transparency Notice of Inquiry ......................................................................................................37

VI. Conclusion............................................................................................................................................................38

Appendix A: Organization Chart................................................................................................................................39

Appendix B: FY2010 Civil Penalty Enforcement Actions..........................................................................................40
 

2010 Staff Report on Enforcement 1

I. INTRODUCTION NTRODUCTION 

 

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 the Revised Policy Statement on 

Enforcement.1

 This report informs the public and the regulated community of Enforcement activities 

during Fiscal Year 2010 (FY2010),2

 including an overview and statistics on the activities of the three 

divisions within Enforcement: Division of Investigations (DOI), Division of Audits (DA), and Division 

of Energy Market Oversight (Market Oversight). In FY2010, the Division of Financial Regulation was 

integrated into DA and Market Oversight. DA now includes a Regulatory Accounting Branch, and 

Market Oversight is responsible for forms administration and filing compliance. 

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

given the expanded scope and reach of the Commission’s enforcement authority since the passage of the 

Energy Policy Act of 2005.3

 Because the investigative work of Enforcement is non-public, the majority 

of the information that the public receives about investigations comes from Commission orders that 

approve settlements or release staff reports, or orders to show cause why conduct should not be 

sanctioned. However, investigations that result in public actions by the Commission are only a fraction of 

Enforcement’s activities. As in previous years, the FY2010 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 any public enforcement action or civil penalty assessments. 

The report also highlights other Enforcement work in auditing companies subject to the Commission’s 

jurisdiction, compiling and monitoring data from forms and reports submitted by industry participants to 

the Commission, and monitoring wholesale electric and natural gas 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 the instant report. 2

 The Commission’s fiscal year begins October 1 and ends September 30 of the following year. FY2010, the subject of this report, 

began on October 1, 2009 and ended on September 30, 2010. 

3

 Energy Policy Act of 2005, Pub. No. 109-58, 119 Stat. 594 (2005) (EPAct 2005). 
 

2010 Staff Report on Enforcement 2

II. OFFICE OF ENFORCEMENT NFORCEMENT PRIORITIES RIORITIES 

 

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.4

 The Strategic Plan identifies two primary goals in order to fulfill this mission: 1) ensuring that 

rates, terms, and conditions are just, reasonable, and not unduly discriminatory or preferential; and 2) 

promoting the development of a safe, reliable, and efficient energy infrastructure that serves the public 

interest. In order to further those goals, Enforcement’s three divisions will gather information about 

market behavior, market participants, and market rules to assist the Commission in its obligation to 

oversee regulated markets and will work to bring entities into compliance with the applicable statutes, 

Commission rules, regulations, and tariff provisions. 

Enforcement has selected priorities for its three divisions. In FY2010, Enforcement focused 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 intends to focus on these same priorities in 2011. Conduct involving fraud and market 

manipulation poses a significant threat to the markets overseen by the Commission. Such intentional 

misconduct undermines the Commission’s goal of providing efficient energy services at a reasonable cost 

because the losses imposed by such actions ultimately are 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 involve the violations of rules 

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

concern to Enforcement are cases involving the greatest harm to the public, where there is often 

significant gain to the violator or loss to the victims of the misconduct. 

The reliability standards established by the Electric Reliability Organization and approved by the 

Commission protect the public interest by requiring a reliable and secure bulk-power system. 

Enforcement enforces these standards and focuses primarily on violations resulting in actual harm, either 

through the loss of load or through some other means. Enforcement also focuses on cases involving 

repeat violations of the Reliability Standards, a violation of a standard that carries a high Violation Risk 

Factor, or substantial actual risk to the Bulk Power System. In addition, Enforcement enforces safety and 

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

reliable, and efficient energy infrastructure with a particular emphasis on cases involving actual harm or a 

high risk of harm. 

4 The Federal Energy Regulatory Commission, The Strategic Plan (Oct. 2009), available at http://www.ferc.gov/about/strat-docs/FY09-14-strat-plan-print.pdf. 
 

2010 Staff Report on Enforcement 3

III. DIVISION IVISION OF INVESTIGATIONS NVESTIGATIONS 

A. Overview 

DOI conducts non-public investigations of possible violations of the statutes, rules, orders, and tariffs 

administered by the Commission. Investigations may begin from self-reports, tips, calls to the 

Enforcement Hotline, referrals from organized markets, other agencies, other offices within the 

Commission, or as a result of other investigations. During most investigations, DOI staff coordinates 

with other divisions in Enforcement and subject matter experts in other Commission offices. Where staff 

finds violations of sufficient severity, staff so reports to the Commission and attempts to settle the 

investigation for appropriate sanctions and future compliance before recommending that the Commission 

initiate a public show cause proceeding.5

 

The Commission issued several orders focusing on transparency that made for more uniform 

penalties, bringing more certainty to its penalty structure and enforcement activities. In FY2010, the 

Commission furthered transparency by the issuance of the Penalty Guidelines, the Commission’s order 

regarding notices of alleged violations, and the Commission’s order regarding disclosure of exculpatory 

materials. The Revised Policy Statement on Penalty Guidelines6

 bases penalties on the same factors as 

those present in the Commission’s Policy Statements on Enforcement,7

 but does so in a more focused 

manner by assigning specific and transparent weight to each factor so that organizations know with more 

certainty how each factor is applied. 

Similarly, the Commission issued an Order Authorizing Secretary to Issue Staff’s Preliminary Notice 

of Violations,8

 which expands the Commission’s efforts to provide the public with notice of, and 

information about, enforcement activities. The notice is designed to increase the transparency of staff’s 

non-public investigations conducted under Part 1b9

 of the Commission’s regulations by identifying the 

alleged violations that are the subject of the investigation, along with a concise description of the alleged 

wrongful conduct. 

The Commission also issued a Policy Statement on Disclosure of Exculpatory Materials,10

 

formalizing Enforcement staff’s practice of providing exculpatory material to the subjects of 

investigations that it receives from sources other than the investigative subjects themselves.11 This Policy 

Statement ensures open and fair investigations and enforcement proceedings, while promoting 

administrative efficiency and certainty. 

In FY2010, DOI has continued to focus on the enforcement of reliability standards. DOI staff 

coordinates with the compliance programs of the North American Electric Reliability Corporation 

(NERC) and the eight Regional Entities as to reliability standards. DOI played a central role in 

processing the 190 Notices of Penalty (NOPs) that NERC filed with the Commission during FY2010 in 

which Regional Entities proposed monetary penalties totaling approximately $4.5 million for alleged 

violations of the reliability standards. 

DOI has also continued to prioritize the investigation of market manipulation. Notably, this fiscal 

year marked the first Initial Decision finding that an individual had violated the Commission’s Anti-

 

5

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

Statement, supra note 1. 6

 Revised Policy Statement on Penalty Guidelines, 132 FERC ¶ 61, 216 (2010). 7

 See Revised Policy Statement, supra note 1; Enforcement of Statutes, Orders, Rules and Regulations, 113 FERC ¶ 61,068 

(2005) (2005 Policy Statement). 

8

 Order Authorizing Secretary to Issue Staff’s Preliminary Notice of Violations, 129 FERC ¶ 61,247 (2009); order on reh’g, 

Enforcement of Statutes, Regulations, and Orders, Docket No. PL10-2-001 (Feb. 16, 2010). 9

 18 C.F.R. Part 1b (2009). 

10 Policy Statement on Disclosure of Exculpatory Materials, 129 FERC ¶ 61,248 (2009). 11 Administrative enforcement actions are proceedings that arise from section 1b investigations. See 18 C.F.R. § 1b (2009); 18 

C.F.R. Part 385 (2009). 
 

2010 Staff Report on Enforcement 4

Manipulation Rule.12 In another Initial Decision, the judge agreed with DOI that the plaintiff failed to 

prove a violation of the market manipulation rule.13

During this fiscal year, the Commission issued six orders approving settlements reached by DOI staff 

with the subjects of investigations. These settlements resulted in the payment of over $31 million in civil 

penalties and more than $280,000 in disgorgement of unjust profits, as well as compliance monitoring 

reporting requirements in most cases. DOI staff also worked on the Energy Transfer Partners 

Allocation,14 which resulted in the disbursement of the $25,000,000 disgorgement fund among 15 verified 

claimants. 

B. Significant Matters 

1. Penalty Guidelines 

In September 2010, the Commission issued Penalty Guidelines for the purpose of adding greater 

fairness, consistency, and transparency to its enforcement program.15 The Penalty Guidelines provide a 

framework for determining civil penalties that is based on a set of uniform factors that are assigned 

specific values and weighted similarly for similar types of violations and similar types of violators. This 

approach continues Enforcement’s efforts to promote fairness by imposing penalties that are 

proportionate to the seriousness of the violation. The objectivity of the guidelines approach also promotes 

consistency by reducing potential disparities in penalties that might otherwise arise for similar violations, 

particularly because a uniform approach ensures that penalties are not based solely on subjective factors. 

Finally, the Penalty Guidelines promote greater transparency by providing notice to organizations of how 

the Commission will determine civil penalties. This will add to organizations’ confidence in the fairness 

and consistency of the Commission’s enforcement program. 

The Penalty Guidelines represent a change in the method the Commission uses to determine civil 

penalties. But they also incorporate many of the Commission’s prior considerations and continue its 

enforcement program goals of encouraging compliance, serving as a deterrent, and ensuring fairness, 

consistency, and transparency. The Penalty Guidelines continue to base penalties on the same factors as 

those present in the Commission’s 2005 and 2008 policy statements on enforcement, but do so in a more 

focused and direct manner by assigning specific and transparent weight to each factor. For example, the 

Commission will continue to base penalties on the seriousness of the violation, measured in large part by 

the harm or risk of harm caused, an organization’s efforts to remedy the violation, as well as other 

culpability factors, such as senior-level involvement, prior history, compliance, self-reporting, and 

cooperation. While these factors remain the same, organizations will now have more certainty as to how 

each is applied. 

The Penalty Guidelines’ designation of factors to be applied in each case is balanced by a departure 

mechanism that allows the Commission to deviate from the Penalty Guidelines’ application to account for 

circumstances not considered by the Penalty Guidelines but that nonetheless might warrant consideration. 

This feature preserves the Commission’s function to make an individualized assessment based on the 

facts presented in each case. This feature is an important element of the Penalty Guidelines because each 

 

12 Brian Hunter, 130 FERC 63,004 (2010). 13 Richard Blumenthal, Attorney General for the State of Connecticut v. ISO-New England Inc., et al., 132 FERC ¶ 63,017 (2010). 14 Energy Transfer Partners, L.P., Fund Administrator’s Post-Distribution Report and Accounting, Docket No. IN06-3-010 (August 9, 

2010). 15 Enforcement of Statutes, Orders, Rules, and Regulations, 132 FERC ¶ 61,216 (2010). The Commission first issued the Penalty 

Guidelines on March 18, 2010, and then, on April 15, 2010, suspended their application to allow the public an opportunity to submit 

written comments on them. After careful consideration of forty-one sets of comments, the Commission issued a modified 

version of the Penalty Guidelines on September 17, 2010.
 

2010 Staff Report on Enforcement 5

case presents unique facts and a guidelines approach creates the possibility of outcomes not adequately 

accounting for all of the specifics of a case. 

Similarly, the Penalty Guidelines do not affect Enforcement staff’s exercise of discretion to close 

investigations or self-reports without sanctions. Staff will continue to close all investigations and selfreports where no violation is found, and to close some investigations and self-reports without sanctions 

for certain violations that are relatively minor in nature and that result in little or no potential or actual 

harm. 

2. Notices of Alleged Violations 

In December 2009, the Commission issued an Order Authorizing Secretary to Issue Staff’s 

Preliminary Notice of Violations that provides the public an initial notice of a pending investigation.16

 

The order authorizes the Secretary of the Commission to issue a Staff’s Preliminary Notice of Violations 

(Notice) upon direction from the Director of Enforcement. The Notice would be issued after Enforcement 

staff conducts its investigation and preliminarily concludes that a violation of one or more Commission 

requirements may have occurred and after the subject of the investigation has had the opportunity to 

respond to this information. The Notice issued by the Secretary will include: (1) the identity of the entity 

or entities that are the subject of the investigation; (2) the time and the place of the alleged conduct; (3) 

the rules, regulations, statutes or orders that staff alleges were violated; and (4) a concise description of 

the alleged wrongful conduct. The Notice will be sufficient to inform members of the public regarding 

the basic facts surrounding the investigation. The Notice does not confer a right on third parties to 

intervene in the investigation or any other right with respect to the noticed investigation. Rehearing of the 

Commission order has been requested and is pending. 

3. Disclosure of Exculpatory Materials 

In December 2009, the Commission issued a Policy Statement on Disclosure of Exculpatory 

Materials,17 that provides for disclosure of exculpatory materials during investigations under section 1b 

and administrative enforcement actions under Part 385 of the Commission’s regulations. The policy 

states that Enforcement will scrutinize evidence it receives from sources other than investigative subjects 

for material that would be required to be disclosed as exculpatory under the case law developed following 

the Supreme Court’s decision in Brady v. Maryland.

18 The policy statement details procedures for and 

limitations regarding disclosure of exculpatory materials in section 1b investigations and administrative 

enforcement actions. The longstanding practice of staff has been to provide to the subjects of 

investigations such evidence in investigations and administrative enforcement actions, but the policy 

statement eliminates uncertainty regarding the Commission’s position on its disclosure policy. The 

policy statement promotes and serves the Commission’s goal of providing fairness to regulated entities 

appearing before it, setting forth a procedural framework within which exculpatory disclosures are made. 

4. Brian Hunter Initial Decision 

In FY2009,19 an administrative law judge held a trial-type hearing to determine whether Brian Hunter 

manipulated natural gas markets within the Commission’s jurisdiction. In FY2010, on January 22, 2010, 

the presiding judge issued an Initial Decision ruling that Hunter violated the Anti-Manipulation Rule (18 

C.F.R. § 1c.1).20 The judge found that Hunter intentionally manipulated the settlement price of certain 

 

16 See Order Authorizing Secretary to Issue Staff’s Preliminary Notice of Violations, supra note 8. 17 See Policy Statement on Disclosure of Exculpatory Materials, supra note 10. 18 Brady v. Maryland, 373 U.S. 83 (1963). 19 2009 Annual Report, Docket No. AD07-13-002 (Dec. 17, 2009). 20 Brian Hunter, supra note 12. 
 

2010 Staff Report on Enforcement 6

natural gas futures contracts solely for the benefit of Amaranth Advisors L.L.C. and that his conduct was 

fraudulent and with the requisite scienter required to find a violation under the Anti-Manipulation Rule (§ 

1c.1). Hunter filed exceptions to the decision, and staff filed a response brief. Both parties also 

separately briefed the issue of appropriate penalties for the conduct, which the Commission had reserved 

for itself.21 The Commission has not yet ruled. 

5. ISO-NE Connecticut Parties 

In September 2010, after a trial-type hearing, DOI prevailed in the first third-party complaint alleging 

violations of the Commission’s anti-manipulation authority.22 On August 24, 2009, the Commission set 

for evidentiary hearing complaints filed by the Connecticut Attorney General, the Connecticut 

Department of Public Utility Control and the Connecticut Office of Consumer Council (the Connecticut 

Representatives) against ISO-New England, Inc. (ISO-NE), Constellation Energy Commodities Group, 

Inc., Shell North America (U.S.) LP and Brookfield Energy Marketing Inc. regarding activities related to 

capacity imports to ISO-NE from the three market participants’ capacity resources located in New York 

ISO. The Commission directed DOI litigation staff to participate in the hearing of the Connecticut 

Representatives’ complaint. Connecticut Representatives asserted the three market participants violated 

section 1c.2 of the Commission’s regulations through their combined bid and offer pairings in New York 

ISO and ISO-NE markets by taking payments under the pretense they would perform as capacity 

suppliers while misrepresenting their willingness and ability to deliver energy to ISO-NE from those New 

York capacity resources if called to do so. 

Staff’s analysis revealed no section 1.c.2 violation, and staff took that position at hearing. In the 

Initial Decision, Administrative Law Judge Young agreed with staff’s position and held that the 

Connecticut Representatives “failed in the extreme” to prove that the three market participants had 

violated any provision of 18 C.F.R. § 1c.2.23

 

6. NOPs 

DOI staff worked with staff from the Office of Electric Reliability (OER) and the Office of the 

General Counsel (OGC) to review NOPs filed by NERC in order to recommend the Commission take 

action or decline further review of the proposed outcomes and penalties. 

This fiscal year the Commission reviewed approximately 1,300 violations in 190 NOPs. The 

Commission issued requests for more information on ten NOPs, declined to review 154 NOPs, and 

initiated a review of one NOP. This included review of the Omnibus I filing (NP10-2-000) of 564 

violations, and the Omnibus II filing (NP10-160-000) of 62 violations. At the end of FY2010, 31 NOPs 

were pending initial consideration, three NOPs were pending after requests for additional information, 

and one NOP was under review. By comparison, staff reviewed 97 violations in 46 Notices of Penalty 

filed by NERC in FY2009, all of which became effective after filing without further review by the 

Commission. 

7. Energy Transfer Partners’ Allocation 

On September 21, 2009, the Commission approved a Joint Offer of Settlement requiring Energy 

Transfer Partners, L.P. (ETP) to pay $25,000,000 into a disgorgement fund and a $5,000,000 civil penalty 

to the U.S. Treasury.24 Claimants submitted data, and Administrative Law Judge Young agreed with 

 

21 Amaranth Advisors LLC, 124 FERC ¶ 61,050 at P 14 (2008). 22 Blumenthal v. ISO-New England Inc., et al., supra note 13. 23 Id. P 117. 24 Energy Transfer Partners, L.P., 128 FERC ¶ 61,269 (2009) (Settlement Order). 
 

2010 Staff Report on Enforcement 7

staff’s allocation methodology. An Initial Allocation Report provided that the fund would be divided 

amongst the 16 verified claimants according to their exposure to the IFERC HSC Index without any 

individual adjustments except that those claimants with lawsuits against ETP that predated the settlement 

will receive their verified litigation expenses before any of the fund was allocated.25 All funds have been 

distributed in accord with the Final Fund Allocation Report. 

C. Settlements 

In FY2010, the Commission approved six settlement agreements entered into by Enforcement for 

total civil penalty payments of $31.4 million and disgorgement of $281,038 plus interest.26 Of these 

settlements, three involved violations of the Commission’s natural gas pipeline open access transportation 

requirements, two involved violations of Reliability Standards, and one involved a violation of the Open 

Access Transmission Tariff, section 205 of the FPA, and then-section 358.5(c)(5) of the Commission’s 

regulations. 

By comparison, staff entered into 22 Commission-approved settlement agreements in FY2009, for 

total civil penalty payments of $38.3 million. In FY2008, staff entered into seven Commission-approved 

settlement agreements, for total civil penalty payments of $19.95 million. Settlements decreased this year 

because of DOI’s increased focus on reliability and market manipulation cases. These cases are complex 

and therefore require more resources and time to complete. 

Settlements approved in FY2010 are compared, by type of violation, with settlements in prior years: 

 

25 Energy Transfer Partners, L.P., 130 FERC ¶ 63,018 (2010) (Fund Administrator’s Initial Fund Allocation Report). 26 A table of EPAct 2005 Civil Penalty Enforcement Actions in FY2010 is attached to this report as Appendix B. 
 

2010 Staff Report on Enforcement 8

1. Violations of Reliability Standards 

FY2010 settlements involving Reliability Standards include Florida Power & Light (FPL) and Florida 

Reliability Coordinating Council, Inc. (FRCC). On February 26, 2008, portions of the lower two-thirds 

of the bulk electric system in Florida experienced an event that involved voltage and frequency swings 

that resulted in significant losses of customer load. In response to the event, the Commission opened a 

formal investigation into the cause and events surrounding the outages.27 Contemporaneously, NERC 

also opened a parallel Compliance Violation Investigation 28. 

 

FPL entered into a settlement with FERC and NERC for payment of a $25 million civil penalty 

following a dual investigation which both FERC and NERC conducted.29 This penalty reflects the 

seriousness and nature of the event, yet takes account of FPL’s efforts to remedy the violations. This 

amount also reflects the amount allocated for enhanced mitigation and recognizes that some amount of 

expenditure on additional reliability measures above the requirements of the Reliability Standards is in the 

public interest. The FRCC settlement totaled $350,000.30 This penalty reflects the nature and seriousness 

of FRCC’s alleged conduct as the reliability coordinator. As with FPL, this settlement followed a dual 

investigation which both the Commission and NERC conducted. 

27 Florida Blackout, 122 FERC ¶ 61,244 (2008). 28 NERC0002CVI. 29 Florida Blackout, 129 FERC ¶ 61,016 (2009). 30 Florida Blackout, 130 FERC ¶ 61,163 (2010).
 

2010 Staff Report on Enforcement 9

2. Open Access Transmission Tariff, section 205 of the FPA, and 358.5(c)(5) of the 

Commission’s Regulations 

A settlement involved Open Access Transmission Tariff (OATT), section 205 of the FPA, and thensection 358.5(c)(5) of the Commission’s regulations. Specifically, the alleged misconduct related to the 

improper use of designated network resources. Portland General Electric Co. (PGE) agreed to pay a civil 

penalty of $375,000, and to submit compliance monitoring reports.31 This penalty was based on the fact 

that PGE did not receive unjust profits or cause a significant amount of quantifiable harm. However, the 

violations impeded transparency in the electric market and undercut certain core OATT principles. 

3. Open Access Transportation 

The three settlements concerning open access transportation resulted from both self-reports of 

violations and from DOI staff investigations. One case involved abuses in capacity release transactions 

known as “flipping.”32 Many cases involved more than one violation – failure to adhere to the shippermust-have-title requirement, flipping, discounted rate capacity releases, and prohibited buy/sell 

transactions occurred in several of the settled cases. In addition to civil penalties ranging from $750,000 

to $4 million, two of these settlements involved disgorgement of unjust profits. Each settlement required 

the submission of compliance monitoring reports to Enforcement. 

On March 12, 2010, the Commission issued an order approving the Stipulation and Consent 

Agreement between Enforcement and Noble Energy, Inc. This order resolved staff’s investigation into 

alleged violations from 2005-2007 of the Commission’s open access transportation program, including 

circumvention of the posting and bidding requirements for released capacity, flipping, the shipper-musthave-title requirement, and violations of the prohibition on buy-sell transactions. In the settlement 

approved by the Commission, Noble agreed to pay a $4,000,000 civil penalty, $160,487 of disgorgement, 

and agreed to file a one-time compliance report if it becomes involved in certain interstate natural gas 

operations within the next four years. 

On September 27, 2010, the Commission issued an order approving the Stipulation and Consent 

Agreement between Enforcement and RRI Energy, Inc. (RRI, formerly known as Reliant Energy, Inc.) 

and RRI Energy Wholesale Generation, LLC (REWG), resolving staff’s investigation into self-reported 

violations from 2000-2008 of the Commission’s open access transportation program, including the 

prohibition of buy/sell transactions and the competitive bidding requirements for long-term, discounted 

rate capacity releases.33 In the settlement approved by the Commission, RRI and REWG agreed to pay a 

$750,000 civil penalty and agreed to submit compliance monitoring reports. 

Also on September 27, 2010, the Commission issued an order approving the Stipulation and Consent 

Agreement between Enforcement and South Jersey Gas Company (South Jersey) resolving violations of 

the Commission’s open access transportation program, including the prohibition of buy/sell transactions 

and the competitive bidding requirements for long-term, discounted rate capacity releases, and the 

shipper-must-have-title requirement.34 In the settlement approved by the Commission, South Jersey 

agreed to pay a $950,000 civil penalty, pay disgorgement in the amount of $120,550 plus interest, and 

submit compliance monitoring reports. 

 

31 In re Portland Gen. Elec. Co., 131 FERC ¶ 61,224 (2010). 32 Flipping describes transactions that avoid the posting and bidding requirements for discounted rate firm capacity at 18 C.F.R. § 

284.8 (2009), typically consisting of a series of short-term releases of discount rate capacity to two or more affiliated replacement 

shippers on an alternating monthly basis that rolls over, extends, or continues the discount rate release without complying with the 

posting and competitive bidding requirements. 

33 RRI Energy, Inc., 132 FERC ¶ 61,267 (2010). 34 South Jersey Gas Co., 132 FERC ¶ 61,266 (2010). 
 

2010 Staff Report on Enforcement 10

D. Self-Reports 

Since issuance of the first Policy Statement on Enforcement through the end of FY2010,35 staff has 

received a total of 351 self-reports. Recent years’ reports are broken down by fiscal year as follows: 

 FY2008 – 68 reports received 

 FY2009 – 122 reports received 

 FY2010 – 93 reports received 

Of the 93 self-reports received in FY2010, staff closed 54 of them after an initial review and without 

opening an investigation. Staff’s initial review is still pending for 39 of these self-reports, none of which 

have been converted into an investigation. For comparison, in FY2009, staff received 122 self-reports. 

Staff closed 62 of them after an initial review, and one was closed without sanctions after conducting an 

investigation. Staff receives self-reports from a variety of market participants, including power 

marketers, electric utilities, natural gas companies, and RTOs and ISOs. Staff received an increasing 

number of self-reports from RTOs and ISOs this fiscal year. 

The importance of self-reporting is underscored by the issuance of the Penalty Guidelines, which 

provide for a five-point credit in a company’s culpability score if the company self-reports the violation 

and has an effective compliance program. Staff encourages the submission of self-reports and expects to 

see a continuing upward trend in the number of self-reports received. 

Staff receives self-reports on a variety of matters. The following charts depict the types of violations 

for which staff received self-reports from FY2008 through FY2010. As in previous years, the number of 

self-reported open access violations continues to account for a significant portion of the self-reports 

received in FY2010. The number of self-reported Tariff or Open Access Tariff (OATT) violations has 

continued its upward trend that began in FY2009 and currently accounts for the largest category of selfreports. Open access violations have decreased, as natural gas companies have increased compliance 

efforts to prevent capacity release violations. 

 

35 See 2005 Policy Statement, supra note 7. 
 

2010 Staff Report on Enforcement 11

1. Illustrative Self-Reports Closed with No Action 

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

entities, staff presents the following illustrations summarizing the circumstances surrounding some of the 

self-reports that were closed in FY2010. These illustrations are intended to provide guidance to the 

public and to regulated entities as to why staff chose not to pursue enforcement action, while still 

preserving the non-public nature of the self-reports. 
 

2010 Staff Report on Enforcement 12

Tariff/OATT Violation. A power marketer self-reported possible violations of the Commission’s 

prohibition of using network transmission service for off-system sales. A trader for the marketer 

contacted various counterparties in an attempt to induce them to engage in a wash transaction by 

purchasing energy at the border of one control area and selling an equivalent amount of energy at another 

control area. The counterparties recognized this proposed arrangement as impermissible and declined to 

participate. A standard review of the trader’s log the next day alerted the marketer to the potential 

violation. The marketer promptly investigated, gave the trader the opportunity to resign (and the trader 

did so), and self-reported the potential violation. Staff closed the matter without further action because 

(1) the prohibited transactions were not actually executed; (2) there was no harm to the market or to any 

parties; and (3) the company took remedial action and submitted a prompt self-report. 

Tariff/OATT Violation. A utility company submitted a self-report after being assessed unreserved use 

penalties by its transmission provider for scheduling errors under the provisions of the provider’s Open 

Access Transmission Tariff. The company reported that it had been charged approximately $6 million in 

unreserved use penalties over a 2,622 hour period spanning 17 months. According to the company, these 

scheduling errors were inadvertent. Staff determined that the self-report should be closed with no further 

action for several reasons: (1) the company already paid the penalties to its transmission provider; (2) 

there was no indication of fraudulent behavior by the company, past wrongdoing, or senior management 

involvement; (3) although the company’s compliance program was lacking in significant ways, the 

company did attempt to provide for adequate training of its employees on its provider’s Open Access 

Transmission Tariff; (4) the company instituted several remedial measures to ensure future compliance 

including technological improvements, improvements in its communication and coordination abilities, 

and modifications to its procedures regarding avoiding unreserved use and employee training. 

Tariff/OATT Violation. An RTO/ISO self-reported that it had inadvertently failed to calculate and pay 

interest on certain study deposits held in connection with interconnection requests. Although the 

RTO/ISO was not obligated to calculate and pay interest on unused study deposits, it was obligated to 

calculate and pay interest on withdrawn study deposits. A request by a customer caused the RTO/ISO to 

review all its study deposits, which revealed that although the RTO/ISO was properly calculating and 

paying interest on unused study deposits, it had inadvertently failed to calculate and pay interest on 

withdrawn study deposits (a relatively small category of all study deposits). To correct this violation, the 

RTO/ISO calculated interest on the 186 deposits that had been at issue, and completed payment of interest 

to all but twelve, for whom the RTO/ISO was unable to make contact or determine a current address. The 

RTO/ISO also corrected its accounting procedures for withdrawn deposits on a going forward basis. 

Based on the ISO’s corrective action, also designed to prevent recurrence of the violation, staff closed the 

self-report without further action. 

Tariff/OATT Violation. A company self-reported a tariff violation arising from its failure to secure 1-2 

MW of firm transmission capacity on a third-party transmission line to support network service for a 

period of two days. The tariff provision at issue required the company to make all arrangements 

necessary to deliver power from network resources not physically interconnected to the company’s own 

transmission system. The violation arose because the company redirected a portion of transmission 

service necessary to import power from the network resource into the company’s balancing area. Staff 

closed the self-report because the violation was isolated and inadvertent, did not cause harm, and was 

unlikely to reoccur. 

Tariff/OATT Violation. A wholesale power and capacity provider self-reported a tariff violation for 

failing to bid its capacity into the RTO/ISO’s Day Ahead Market for a single day. As a result of human 

error, the company inadvertently failed to bid its capacity into this market for a single day when an 

employee responsible for submitting bids to the RTO/ISO failed to do so. Staff closed the matter with no 

further action after finding that the company’s violation was limited in time; found, self-reported, and 
 

2010 Staff Report on Enforcement 13

promptly corrected; and did not result in financial gain or harm to the market. In addition, the company 

paid an uncontested penalty assessed by the RTO/ISO. 

Standards of Conduct Violation. A natural gas company self-reported that during an audit of its standards 

of conduct training for the last two quarters of 2009 it had discovered that several employees had failed to 

complete annual training by the deadline imposed by section 358.8(c)(1) but completed the training 

shortly after the deadline. To prevent future violations, the company required its Human Resources 

department to make weekly reviews of training files. The lack of timely training did not result in the 

untrained individuals committing other standards of conduct violations. Given the minor nature of the 

incidents self-reported, the fact that they were found through a self-audit required by senior management, 

the remedial efforts taken and the lack of harm and economic benefit, staff closed the matter without 

further action. 

Errors in Filed Electric Quarterly Reports (EQRs) and Market-Based-Rate Authority Violation. An 

electric company authorized to sell wholesale power at market-based-rates filed a self-report indicating 

that it failed to file several power-related filings, including applications for market-based-rate 

authorization for several subsidiaries. In addition to failing to obtain market-based-rate-authorization, 

these subsidiaries were also selling wholesale power into an organized market without also reporting their 

sales in quarterly EQR submissions. The companies properly filed and obtain market-based-rateauthorization from the Commission, and corrected their EQR filings in addition to filing notifications 

about the company’s status and customers pursuant to Commission regulations. Because the late filings 

did not harm the market, and resources were implemented to prevent future violations with respect to 

timely filings, staff closed the matter with no further action. 

Failure to Update Reference Levels. An RTO/ISO deactivated some of its automated software processes 

in order to install a security patch, and failed to reactivate it until the next morning. Thus the software did 

not perform its routine daily update of both Day Ahead Market and Real Time reference levels. As a 

result, one unit was improperly mitigated. The RTO/ISO backed out the mitigation and restored the 

appropriate payment to the unit and prices were not impacted. The RTO/ISO updated its software to 

include additional validation steps, and added system monitoring points to detect incidence of process 

failure. Because staff concluded that the error was inadvertent, all harms were corrected, and the error is 

unlikely to recur under the new review protocols, the matter was closed with no further action. 

Undue Discrimination. An RTO/ISO self-reported possible violations of section 205 of the Federal Power 

Act (FPA). Several utilities within the RTO/ISO’s service area requested authorization to sell energy 

from their generation resources in both the RTO/ISO’s market and a neighboring RTO/ISO’s market. 

The RTO/ISO granted the request, but did not notify other market participants of the availability of this 

option. Later, the RTO/ISO determined that by not notifying all other market participants of this 

opportunity, the RTO/ISO may have inadvertently engaged in undue discrimination under section 205 of 

the FPA. Staff found that these actions may have constituted undue discrimination, and that the RTO/ISO 

should have revised its tariff to apprise other market participants of this opportunity. Staff informed the 

RTO/ISO of its conclusions and obtained assurances from the RTO/ISO that it would not permit these 

authorizations in the future unless it modified its tariff to specifically allow such authorizations. Staff 

declined to open an investigation because: (1) the RTO/ISO withdrew its authorizations immediately 

upon discovering the potential violations; (2) only one of the market participants actually exercised its 

authority to offer energy in two RTO/ISO markets; (3) the violations did not cause any harm, were 

isolated; and (4) the violations are unlikely to recur because the ISO understands the requirement to make 

future authorizations only through its tariff. 

Termination of Transmission Contracts. An electric utility self-reported that it had failed to file notices of 

termination with the Commission for four jurisdictional transmission contracts once the contracts expired, 

in violation of section 205 of the FPA. The company identified these errors through a new compliance 
 

2010 Staff Report on Enforcement 14

program and check system that staff views as sufficient to ensure that no similar violations occur in the 

future. The company did not profit from the error and submitted requisite termination notices with the 

Commission. Based upon these representations and a review of the transmission contracts at issue, staff 

determined to close the self-report with no further action. 

Transportation Service Agreement and Tariff Material Deviations Violations. A natural gas pipeline 

company failed to ensure that a number of its transportation service agreements (TSAs) and 

transportation-related agreements complied with the requirement that the language in such agreements 

adhere and conform to the specific language set forth in the pipeline’s currently effective pro-forma TSA 

and tariff General Terms and Conditions of Service in violation of section 4(b) of the Natural Gas Act 

(NGA), and section 154.1(d) of the Commission’s regulations. Following a comprehensive internal 

review of over 1,300 TSAs and transportation-related agreements, the company determined that there 

were 25 different types of deviations totaling 2,199 deviations of which 2,156 were typographical or 

inadvertent non-material deviations, and 43 deviations that were considered material and that may affect 

the substantive rights of market participants. The company promptly self-reported its findings to staff and 

embarked on a program that cured all of these violations by: (1) restating the non-conforming TSAs; (2) 

revising its pro-forma TSAs and tariff consistent with the non-conforming TSAs; (3) terminating certain 

non-conforming TSAs pursuant to contractual provisions contained in such agreements; and (4) filing 

certain non-conforming TSAs and transportation-related agreements with the Commission for approval. 

Notably, beginning in 2004, the pipeline implemented a comprehensive compliance plan that revamped 

its tariff and required all TSAs to be executed electronically in a form that adhered to the then currently 

effective pro-forma TSAs. Staff found no evidence that the non-conforming TSAs or transportationrelated agreements contained material deviations that were unduly preferential or unduly discriminatory 

or caused harm to similarly situated market participants. Further, staff found no evidence that the failure 

to file the non-conforming TSAs was willful. Accordingly, staff closed the matter with no further action. 

Failure to Timely Notify the Commission of the Acquisition of New Generation Capacity. An electric 

company with market-based rates and thirteen of its affiliates self-reported that they failed to notify the 

Commission of the acquisition of several sites for new generation capacity in PJM with a total potential 

maximum generation capacity of approximately 1,400 MW. The sites had been acquired between 2002 

and 2008 and the company should have filed Notices of Change of Status reflecting the acquisition of 

each of these sites under § 35.42 of the Commission’s regulations and their respective market-based rate 

authorizations. The companies explained that the control of these sites could not have affected eligibility 

for market-based rates or raised competitive concerns because the sites are not yet operational. The 

company claimed that it was an inadvertent omission that did not cause harm to market participants or an 

undue benefit to the company. The company became aware of the omissions based on its ongoing 

commitment to ensure compliance with all applicable rules and regulations. The company routinely 

reviews its regulatory compliance efforts for accuracy and completeness and devotes substantial resources 

towards compliance activities. In addition to procedures to prevent this type of omission from recurring, 

the company trains its staff in the applicable regulatory requirements. 

The company promptly remedied the violations by filing Notices of Change in Status, which the 

Commission accepted. For all these reasons, staff recommended closing the self-report without further 

action. 

Violation of Commission Order. A company self-reported its failure to comply with a 2001 Commission 

order that requires generators operating in the Western energy market to log their available generation 

capacity and to post their available generation capacity on their company website and on the website for 

the Western Systems Coordinating Council. The purpose of the Commission order, issued in the wake of 

the California energy crisis, was to ensure that all available generation capacity was known to potential 

purchasers in the Western market. Staff closed the self-report primarily because the violation caused no 

harm. The company communicated the availability of generation capacity to potential purchasers through 
 

2010 Staff Report on Enforcement 15

methods other than those required by the Commission order, including posting supply offers on the 

Intercontinental Exchange, notifying brokers, and by direct communication with potential purchasers. 

The company remedied the violation by making the required postings and by logging its available 

generation, and implemented compliance procedures that made reoccurrence of the violation less likely. 

Omission of Regulatory Filing. A company modified an existing TSA with its marketing affiliate, but 

inadvertently filed the modified TSA as part of its Electric Quarterly Report rather than with the 

Commission, as required by 18 C.F.R. § 35.13(a), which requires public utilities to file with the 

Commission modifications to certain agreements (including transmission agreements). Staff closed the 

self-report because the violation caused no harm, the company took sufficient efforts to remedy the 

violation, and the violation was isolated and inadvertent. 

2. Illustrative Self-Reports Converted to Investigations but Closed with No Action 

The following illustrations provide a short summary of the circumstances surrounding the self-reports 

that were closed in FY2010 for which investigations were opened but, upon investigation, were closed 

with no action. 

Tariff/OATT Violation. An RTO/ISO self-reported violations of the company’s Open Access 

Transmission Tariff (OATT) when it released certain financial transmission rights (FTRs) collateral to 

certain market participants prior to settlement of their FTR accounts. Staff’s investigation revealed that 

the company violated the OATT, but because the violations were: (1) limited in volume and duration; (2) 

found, self-reported, and corrected; (3) were not done for financial gain; and (4) resulted in no harm to the 

market, staff closed the matter with no further action. 

Standards of Conduct Violation. An electric generation and transmission company self-reported two 

potential violations of the Commission’s Standards of Conduct for Transmission Providers. In the first 

event, the company’s marketing employees contacted transmission employees regarding curtailment of a 

generator for a line outage and asked the RTO/ISO to have the outage postponed. Staff’s investigation 

determined that there was no prohibited communication because the outage information was posted on 

OASIS, and there was no undue preference because the RTO/ISO cancelled the outage. There was no 

other generation facility attached to the line and affected by the outage, and the postponement did not 

otherwise affect other market participants. In the second event, a company transmission function 

included certain marketing function employees on an email regarding a planned outage. Staff closed the 

investigation without further action because: (1) there was no market harm because the outage never took 

place; (2) it was an isolated incident; (3) other company employees understood that the email violated the 

Standards of Conduct; (4) the company had a robust compliance plan; (5) the company notified the 

RTO/ISO immediately about the mistake; and (6) the company agreed to implement new staff training on 

the Commission’s Standards of Conduct. 

Shipper-Must-Have-Title Violation. A marketer entered into transactions among itself and two affiliates 

concerning shipments on a ten-mile long intrastate pipeline owned by a third affiliate. In the self-report, 

the marketer admitted to violations of the Commission’s shipper-must-have-title requirement. Staff 

investigated and concluded the transactions constituted shipper-must-have-title violations. However, staff 

closed the investigation without sanctions based on mitigating factors including: (1) the violations 

occurred among affiliates of a single corporate entity and appear to have resulted from the lack of 

accounting controls assigning responsibility for purchases and sales to a specific affiliate; (2) due to the 

limited number of shippers on the pipeline, little, if any, harm occurred to other shippers because of the 

lack of posting available system capacity; (3) the self-report was comprehensive and thorough; (4) the 

company stated it has trained personnel so that future violations are unlikely to occur; and (5) since the 

transactions occurred entirely among affiliates of the same corporate entity and did not involve third 

parties, there were no unjust profits to disgorge. 
 

2010 Staff Report on Enforcement 16

Buy/Sell and Serial Release Violations. A natural gas local distribution company with an affiliated gas 

marketer self-reported potential violations of the Commission’s capacity release rules. It reported its 

discovery that certain bundled sales from the company to the affiliate resembled prohibited “buy-sell” 

transactions, and that certain serial transactions to unaffiliated entities appeared to violate the prohibition 

against serial short-term capacity releases to the same or affiliated entities, 18 C.F.R. § 284.8(h)(2) 

(2010). The company also reported that the affiliate engaged in a small number of buy-sell transactions 

with unaffiliated entities. Staff investigated these activities and determined that the company’s bundled 

sales to the affiliate were not structured as buy-sell transactions, with the exception of a small number that 

involved non-deliberate purchases of gas from the affiliate at the well-head in conjunction with a request 

from the Affiliate for a bundled sale. In addition, the serial short-term capacity releases did not involve 

roll-over of the same capacity. The buy-sell transactions between the affiliate and the unaffiliated entities 

involved negligible amounts on a small number of days. The company and affiliate re-trained personnel 

on the capacity release rules and regulations, and demonstrated no further violations after discovery and 

internal investigation. Staff closed this matter with no further action. 

E. Investigations 

During FY2010, staff opened 15 non-self-reported investigations, as compared to the 10 non-selfreported investigations opened in FY2009. As discussed below, the alleged violations in these cases 

involve market manipulation, tariff violations, market based rate violations, and reliability standards 

violations 

1. Statistics on Investigations 

Of the 15 investigations staff opened this fiscal year, eight addressed tariff violations, five involve 

market manipulation, three relate to violations of the reliability standards, three involve market based rate 

violations, and one relates to the Commission’s capacity release requirements. Five investigations opened 

this year entail more than one type of violation. 

Five of the investigations staff opened in FY2010 were referred to the Commission by RTO or ISO 

market monitoring units (MMUs). Pursuant to Commission policy, MMUs are to refer potential 

misconduct to the Commission for investigation.36 Of the remaining ten investigations opened in 

FY2010, four were referred to DOI by another division within Enforcement, three were initiated by DOI, 

two were referred to DOI by another office within the Commission, and one resulted from a hotline call. 

Staff closed a total of 16 investigations in FY2010 as compared to 36 during FY2009. Of the 16 

investigations closed this fiscal year, two investigations, or 12.5 percent, were closed with no finding of a 

violation. In eight, or 50 percent of the investigations, staff found a violation, but the investigation was 

closed with no sanctions. As in FY2009, the number of investigations related to open access 

transportation violations continue to account for a majority of the investigations closed without penalty in 

FY2010. Finally, six, or 37.5 percent of the investigations, were concluded through settlement. For 

comparison purposes, in FY2009, six investigations, or 17 percent, were closed with staff finding no 

violation. Also during FY2009, eight investigations, or 22 percent, were closed with a finding of a 

violation, but closed with no sanctions, and 22 investigations, or 61 percent, were concluded through 

settlement. The following charts show the overall disposition of investigations from FY2007 through 

 

36 Wholesale Competition in Regions with Organized Electric Markets, Order No. 719, FERC Stats. & Regs. ¶ 31,281 (2008), order 

on reh’g, Order No. 719-A, FERC Stats. & Regs. ¶ 31,292 (2009). See also Market Monitoring Units in Regional Transmission 

Organizations and Independent System Operators, 111 FERC ¶ 61,267 (2005). 
 

2010 Staff Report on Enforcement 17

FY2010 and highlight the types of violations that staff examined for those investigations that were closed 

without sanctions from FY2007 through FY2010. 
 

2010 Staff Report on Enforcement 18

 
 

2010 Staff Report on Enforcement 19

2. Illustrative Investigations Closed with No Action 

The following illustrations describe the circumstances surrounding selected investigations that were 

closed in which staff found a violation, but did not take any enforcement action. Like the self-report 

illustrations, these are intended to provide guidance to the public, while still preserving the non-public 

nature of DOI’s investigations. 

Tariff/OATT Violation and Reliability Standards. Staff investigated whether a company may have 

violated provisions of RTO/ISO’s tariff, Commission regulations, and NERC reliability standards by 

failing to timely update power supply offers into the RTO/ISO energy market to reflect a reduced 

generating capability of its generating units. Staff identified isolated violations, but determined that under 

the totality of the circumstances, sanctions were not warranted and the investigation should be closed. 

Staff found substantial compliance by the company and that the violations were inadvertent and 

infrequent. 

Capacity Release. Staff opened this investigation after finding that a natural gas company’s affiliates 

were replacement shippers with another natural gas company in flipping transactions. The investigation 

uncovered additional instances of flipping by affiliates, almost all of which occurred prior to 2006. In 

addition, the company voluntarily identified certain buy/sell transactions which occurred from 2003 to 

2007 in connection with supplying gas for the company’s power generation requirements. Staff 

determined that affiliates did engage in flipping to avoid competitive bidding for discounted rate capacity, 

but that the transactions predated the Commission’s authority to impose civil penalties for affiliate’s 

conduct as a replacement shipper. Staff’s investigation determined that the company engaged in 

prohibited buy/sells, but that only a small portion of the transactions occurred after the Commission 

received civil penalty authority. In light of the fact that company had no unjust profits in either the 

flipping or the buy/sell transactions, staff closed the investigation with no action. Since the investigation, 

the company has increased and improved training procedures to ensure that similar violations do not 

occur. 

Capacity Release. Staff investigated transactions in which it appeared that a natural gas company violated 

the Commission’s posting and bidding regulations for discounted pipeline capacity codified in 18 C.F.R. 

§ 284.8, in transactions with four sets of replacement shippers. Staff decided to close the investigation 

without sanctions based on mitigating factors presented by company including the facts that the company 

took delivery of all volumes of capacity released, the releases took place under an asset management-like 

structure, somewhat similar to those now accommodated by Order No. 712,37 and the entire financial 

benefit from optimization activity by the company’s counterparties was directed to the company’s retail 

customers; therefore, there was no unjust profit retained by the company. The company also 

implemented various measures to prevent future violations such as updating a policy manual to comply 

with Order 712, modifying compliance protocols such that each section of 18 CFR is reviewed by 

departmental management for applicability to departmental operations, establishing a compliance network 

of individuals who are accountable for their respective officer’s area, and adding four line items to its 

employee job performance evaluation process dealing with compliance and ethics. 

Market Manipulation. Staff investigated twelve entities or individuals trading Natural Gas Futures 

Contracts on the New York Mercantile Exchange. This investigation focused on trading during the period 

of January 2005 to March 2007. For each of these 27 months, staff reviewed trading during the 30-

minute final settlement period for the futures contract expiring that month. The investigation focused on 

entities that had traded enough contracts during the final settlement period to substantially affect the 

volume-weighted average price. Staff has now completed its inquiry into the last of these entities. Staff 

sought to determine whether that entity held an overall position that would benefit if it used its large 

 

37 Promotion of a More Efficient Capacity Release Market, Order No. 712, FERC Stats. & Regs. ¶ 31,271 (2008). 
 

2010 Staff Report on Enforcement 20

futures position to manipulate the settlement price. The entity’s positions and trading behavior, upon 

closer examination, did not present sufficient evidence to conclude that the trading behavior was 

manipulative. With the closure of this inquiry, staff has closed this investigation with no further action. 

F. Reliability 

Pursuant to the Electric Reliability Organization’s (ERO) Compliance Monitoring and Enforcement 

Program, NERC files NOPs with the Commission that reflect violations of the Reliability Standards 

found by NERC or one of the eight Regional Entities after investigation. Each NOP indicates resolution 

of a violation or alleged violation through a penalty and mitigation plan, which may result from an 

assessment by the Regional Entity or NERC, or from settlement negotiations with the registered entity. 

The NOP becomes effective by operation of law thirty days after filing with the Commission if the 

Commission takes no action within that time either to request more information or to open the matter for 

further review. In addition, the Commission can investigate alleged violations of reliability standards on 

its own or in coordination with NERC.38 Several such investigations are pending. 

In FY2010, the Commission received 190 NOPs, encompassing approximately 1,300 violations.39

 

This includes the Omnibus I filing (NP10-2-000) encompassing 564 violations, and the Omnibus II filing 

(NP10-160-000) encompassing 62 violations. DOI staff, together with staff from OER and OGC, 

reviewed the NOPs as they were filed and recommended the Commission take action or decline further 

review. In FY2010, the Commission declined to review 154 of 190 NOPs, 31 NOPs were pending initial 

consideration, three NOPs were pending after request for additional information, and one NOP was under 

review. In FY2010, excluding Omnibus I and II, which both included zero and non-zero penalties, there 

were 20 zero dollar penalties and 168 non-zero penalties totaling $4,487,300 filed with the Commission. 

The largest single penalty of FY2010, which arose from a settlement between PPL Electric Utilities and 

RFC in NP10-171-00 was $290,000 and related to violations of reliability standards FAC-003-1 R2, 

EOP-004-1 R3.1, and PRC-005-1 R2.1. In FY2010, the Commission also reviewed 45 NOPs involving 

violations of the Critical Infrastructure Protection (CIP) Reliability Standards. 

In FY2010, the Director of Enforcement issued requests for data and documentation on 10 NOPs, and 

three were still pending at the end of the fiscal year. Of the remaining seven NOPs, the Commission 

declined to review six NOPs, and initiated review on one NOP, NP10-18-000. That Notice proposes an 

$80,000 penalty against Turlock Irrigation District (Turlock) pursuant to a settlement agreement between 

it and WECC. The penalty is for multiple violations, of which the most severe is a violation of FAC-003-

1 R2 related to a vegetation-caused outage and loss of load of 270 MW for more than an hour on August 

29, 2007. This NOP was the first in which a vegetation contact that led to the outage of a transmission 

line resulted in a loss of load. 

 

By comparison, staff reviewed 97 violations in 46 NOPs filed by NERC in FY2009, all of which 

became effective after filing without further review by the Commission. 

G. Enforcement Hotline 

DOI staff operates the Enforcement Hotline. The Hotline is an anonymous means for persons to 

inform Enforcement staff of potential violations of Commission statutes, rules, regulations, and orders. 

 

38 See 2008 Florida Blackout, 122 FERC ¶ 61,244 (2008); Florida Blackout, 129 FERC ¶ 61,016 (2009); Florida Blackout, 130 

FERC ¶ 61,163 (2010). 

39 All Notices of Penalty are available on the NERC website at http://www.nerc.com/filez/enforcement/index.html. 
 

2010 Staff Report on Enforcement 21

The Hotline is also a means by which the public can obtain informal guidance and nonbinding opinions 

on matters within the Commission’s jurisdiction, including applicability of Commission orders and 

policies to particular circumstances. When staff members receive calls concerning possible violations, 

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

order, DOI staff researches the issue presented and 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. Hotline staff also provides informal dispute resolution services. 

The Commission issued an instant final rule40 revising its regulations under Parts 1b and 157 to 

substitute the Commission’s Dispute Resolution Service (DRS) for the Commission’s Enforcement 

Hotline as the point of contact for handling dispute-related calls pertaining to the construction and 

operation of jurisdictional infrastructure projects, including all certificated construction projects under the 

NGA and licensed or exempt hydroelectric projects under the FPA. The Commission issued the rule, 

effective May 1, 2010, so that Enforcement could focus more on priorities involving: (1) fraud and 

market manipulation; (2) serious violations of the reliability standards; (3) anticompetitive conduct; and 

(4) conduct that threatens the transparency of regulated markets. By transferring the responsibility of 

dispute-related calls pertaining to the construction and operation of jurisdictional infrastructure projects to 

DRS with its expertise in conflict resolution, and allowing Enforcement to focus on its priorities, the 

Commission stated that it would ensure an efficient allocation of its resources that will better serve the 

public interest. 

In FY2010, Enforcement received 301 Hotline calls and inquiries, and a total of 298 Hotline matters 

were resolved (including matters that remained open at the end of FY2009). The most common category 

of calls (108) concerned landowner complaints about natural gas pipeline construction. These calls were 

received prior to the transfer of these matters to DRS, effective May 1, 2010. Many Hotline calls were 

resolved with the provision of information concerning the subject of the call, and in other instances staff 

informally assisted callers in resolving disputes, often with the assistance of subject matter experts from 

other Commission offices. In FY2010, one Hotline call was converted to a preliminary investigation, and 

one call was referred to an existing investigation relating to the subject of the call. 

 

40 Instant Final Rule Transferring Certain Enforcement Hotline Matters to the Dispute Resolution Service, Order No. 734, 131 FERC 

¶ 61,018 (2010). 
 

2010 Staff Report on Enforcement 22

IV. DIVISION IVISION OF AUDITS 

A. Overview 

The Division of Audits (DA) within Enforcement operates and maintains the Commission’s audit 

program. DA conducts compliance, performance, and other types of audits and related activities to ensure 

that jurisdictional companies comply with the Commission statutes, orders, rules, tariffs, and regulations. 

DA’s audit process is instrumental in promoting and ensuring compliance. During the course of an 

audit, audit staff works closely with audited entities to improve their performance and bring them in 

compliance with the Commission statutes, orders, rules, tariffs, and regulations. Audit staff discusses and 

provides informal compliance guidance to audited entities during the course of the audit engagement. If 

applicable, areas of noncompliance and performance enhancements are discussed throughout the audit 

engagement. 

Transparency and outreach continue to be critical elements in how audit staff promotes and educates 

audited entities about compliance. Audit transparency is bolstered through public postings of audit 

commencement letters and final audit reports on the Commission’s eLibrary system and through 

information about the audit process posted on the Commission’s website.41 Public disclosure of these 

documents provides the public, audited entities, and others with valuable insights into the compliance 

areas of interest to the Commission. Also, DA conducts outreach activities to promote compliance 

through formal speaking engagements, industry liaison meetings, meetings with audited entities and their 

outside counsel, and informal discussions of compliance matters with audited entities. 

In January 2010, as part of a reorganization of Enforcement, the Regulatory Accounting Branch and 

its Chief Accountant function were merged into DA. The Regulatory Accounting Branch administers the 

Commission’s Uniform System of Accounts (USofA), provides expert accounting advice to the electric, 

natural gas, and oil industries about meeting Commission accounting requirements, and reviews proposed 

accounting submissions from entities in certificate and merger and acquisition proceedings. DA 

accounting staff also advises the Commission on current accounting issues affecting jurisdictional 

industries and reviews exposure drafts and other publications of the Financial Accounting Standards 

Board (FASB) for items that may affect the Commission or jurisdictional entities. 

B. Significant Audit and Accounting Matters 

In FY2010, DA conducted notable audits of: Florida Reliability Coordinating Council, Inc.; Texas 

Regional Entity; Western Electric Coordinating Council; Virginia Electric Power Company; and Entergy 

Corporation. DA also addressed several significant accounting issues including: International Financial 

Reporting Standards and Capitalization of Interest During Construction. 

1. Independence Audits 

DA conducted three independence audits of Regional Entities (RE): Texas Regional Entity (Texas 

RE), then a division of the Electric Reliability Council of Texas, Inc. (ERCOT); Florida Reliability 

Coordinating Council, Inc. (FRCC); and Western Electric Coordinating Council (WECC). Each audit 

reviewed the Regional Entity’s compliance with its Bylaws and Delegation Agreement between NERC 

and the Regional Entity, as well as conditions included in relevant Commission orders. 

 

Florida Reliability Coordinating Council, Inc. While audit staff found that FRCC had taken steps to 

improve the separation between FRCC RE and FRCC Member Service activities, it nonetheless expressed 

 

41 The Office of Enforcement audit process is available at www.ferc.gov/enforcement/audits/audit-process.pdf. 
 

2010 Staff Report on Enforcement 23

concerns with: (1) the FRCC stakeholder Compliance Committee exerting improper influence over the 

FRCC RE’s implementation of certain aspects of the compliance monitoring and enforcement program 

(CMEP); (2) FRCC RE’s lack of oversight of the reporting of misoperations; (3) FRCC’s lack of an 

agreement with a third party to perform compliance activities for all FRCC-registered reliability 

functions; (4) FRCC RE’s perfunctory review of reliability assessments; (5) FRCC’s estimated cost 

assignment of statutory and non-statutory activities; and (6) the absence of adequate periodic evaluations 

of FRCC RE staffing needs. In a June 23, 2010 order issued in Docket No. PA09-7-000, the Commission 

accepted the audit findings and directed FRCC to implement 10 audit staff recommendations to ensure 

FRCC’s independence in its performance of its NERC-delegated functions and eight recommendations to 

ensure FRCC’s RE independence and provide adequate separation between its RE and Member Services 

functions.42

Texas Regional Entity. The audit identified concerns with: (1) Texas RE and ERCOT sharing a Board of 

Directors, which includes the ERCOT ISO CEO; (2) real or perceived conflicts of interest related to 

Texas RE’s role in compliance monitoring of another division of ERCOT, the ISO; (3) Texas RE’s 

cursory review of reliability assessments prepared by ERCOT; and (4) Texas RE’s controls over certain 

ERCOT employees and other IT professionals’ access to confidential information. Texas RE acted 

promptly to address these areas of concern. Of particular note, Texas RE legally separated from ERCOT 

and is now an independent entity known as Texas Reliability Entity, Inc. Also, Texas RE created a 

position for a Senior Regional Planning Engineer with responsibility for monitoring ERCOT regional 

planning assessments. This audit was completed with a Commission order approving the audit report on 

January 8, 2010 in Docket No. PA09-6-000.43

 

Western Electric Coordinating Council. During this audit, DA found five areas of concerns involving: (1) 

WECC’s inability to track and segregate statutory and non-statutory monies in its accounting system; (2) 

WECC’s registration as and performance of the Interchange Authority for the Western Interconnection as 

a statutory duty without prior Commission review and approval; (3) the need to ensure the independence 

of the Regional Entity’s performance of CMEP functions and the protection of confidential information 

with respect to the oversight of the WECC Compliance Committee (WCC); (4) the reduction of the 

backlog of WECC’s current caseload of compliance matters and verification of the completion of 

mitigation plans; and (5) the lack of a procedure to address improper communication between WECC 

staff and the registered entities. WECC accepted all of DA’s recommendations as a way to strengthen its 

internal controls, and acted promptly to address the areas of concern. For example, as part of the revised 

2010 Business Plan and Budget filing, WECC requested a revision to Exhibit E of the Delegation 

Agreement to clarify the status of statutory and non-statutory activities. The Commission issued an order 

approving the audit report on August 20, 2010, in Docket No. PA09-5-000.44

2. Virginia Electric Power Company 

At Virginia Electric Power Company (VEPCO), audit staff identified five areas of noncompliance 

with VEPCO’s implementation of its Fuel Adjustment Clause (FAC).45 Audit staff determined that 

VEPCO improperly included wood chips and interim oil storage costs in calculating fuel costs for FAC 

billings to wholesale customers. As a consequence of this audit, the Commission ordered VEPCO to 

refund $1.8 million to the three wholesale customers billed under its wholesale FACs. However, audit 

staff’s inquiry into VEPCO’s use of wood chips as a fuel and its authority to pass the expense through its 

FAC mechanism led VEPCO to file modifications to its FAC to expressly permit the recovery of the cost 

of any type of fuel through the operation of its FAC. 

 

42 Florida Reliability Coordinating Council, 131 FERC ¶ 61,262 (2010). 43 Texas Regional Entity, 130 FERC ¶ 61,025 (2010). 44 Western Electricity Coordinating Council, 132 FERC ¶ 61,149 (2010). 45 Virginia Electric and Power Company, Letter Order, Docket No. FA08-17-000 (January 12, 2010).
 

2010 Staff Report on Enforcement 24

3. Entergy Corporation 

At Entergy, audit staff evaluated compliance with Commission cross-subsidization restrictions on 

affiliate transactions; accounting, recordkeeping, and reporting requirements for holding companies; 

records preservation requirements for holding companies; and USofA for centralized service companies. 

Overall, audit staff identified four areas of noncompliance related to cost allocation, accounting 

classification, EQR reporting, and accrual of allowances for funds used during construction (AFUDC) 

that resulted in a recovery of $2.3 million that arose from a reduction in utility plant.46

 

 

4. International Financial Reporting Standards 

In FY2010, DA accounting staff actively participated in the pending move to International Financial 

Reporting Standards (IFRS) from traditional GAAP accounting.47 IFRS began as an effort by 

industrialized nations to create standards that could be used by smaller, developing nations unable to 

establish their own accounting standards. As business and finance became more global, regulators, 

investors, large companies, and auditing firms began to realize the importance of having common 

standards in all areas of the financial reporting chain. 

Accounting leaders from around the world see a single set of international standards as important for 

economic growth and allowing, among other benefits, greater access to capital markets, simplified 

comparisons of reporting entities from different countries, and a single accounting language for large 

public companies with subsidiaries in multiple jurisdictions. Since the adoption of IFRS by the 27 

European Union member states in 2005, the vast majority of industrialized countries has converted to 

IFRS or has plans to do so in the near future. In late 2008, the Securities and Exchange Commission 

(SEC) published its Roadmap for the Potential Use of Financial Statements Prepared in Accordance With 

International Financial Reporting Standards by U.S. Issuers,

48 stating its support for a single set of highquality financial statements to be used by public companies globally and establishing a timeline for 

possible adoption of IFRS by U.S. public companies. The change to IFRS would have a major impact on 

Commission jurisdictional pubic companies, as IFRS lacks the fundamental principles to allow rateregulated entities to recognize the economic effects of rate regulation in their publicly issued financial 

statements. 

In July 2009, the IASB issued an exposure draft entitled “Rate Regulated Activities” (Exposure Draft) 

seeking comment on the need for a standard to recognize the economic effects of regulation in publicly 

issued financial statements. In November 2009, the Commission’s Chief Accountant submitted 

comments on the Exposure Draft voicing strong support for the recognition of the economic effects of 

regulation (principally, regulatory assets and liabilities) in financial statements prepared using IFRS, 

among other comments. In response to the comments received from the Chief Accountant and other 

stakeholders from around the globe, the IASB directed its staff to continue researching the issue. 

DA has continued to provide support to the Commission on the international accounting standards. In 

May 2010, a Commissioner, along with industry representatives, met with the IASB to voice further 

strong support for, and to reiterate the importance and appropriateness of, allowing for the economic 

effects of rate regulation in financial statements prepared using IFRS. When IASB staff published its 

Agenda Papers 12-12D in September 2010 it recommended that regulatory assets and liabilities not be 

 

46 Entergy Corporation, Letter Order, Docket No. FA09-9-000 (December 9, 2009). 47 GAAP stands for Generally Accepted Accounting Principles. These are the standards, conventions, and rules accountants follow

in recording and summarizing transactions, and in the preparation of financial statements. GAAP was first set forth by the 

Accounting Principles Board of the American Institute of Certified Public Accountants, which was superseded by the Financial 

Accounting Standards Board in 1973. GAAP has been the standard for accounting in the United States for more than half a century. 48 See SEC Release No. 33-8982; (November 14, 2008) [73 FR 70816 (November 21, 2008)] at 

http://www.sec.gov/rules/proposed/2008/33-8982.pdf. 
 

2010 Staff Report on Enforcement 25

recognized in financial statements prepared in accordance with IFRS, but instead be disclosed in notes to 

the financial statements. In a letter submitted to the IASB on September 14, 2010, the Commission 

disagreed with the IASB recommendation and argued for the recognition of regulatory assets and 

liabilities. At its meeting, many IASB members disagreed with the recommendations of the Agenda 

Papers, and the IASB decided that further analysis needed to be done before any final decisions were 

made relating to the recognition of regulatory assets and liabilities. 

 

During FY2010, DA also initiated communication with the SEC and stakeholders, including state 

regulators and electric and natural gas industry representatives, to disseminate information about the 

pending change to IFRS. DA staff continues to monitor IASB developments and meet with concerned 

stakeholders about IFRS and its potential impact on the Commission and its regulated entities. 

5. Revision of Accounting Release No. 5, Capitalization of Interest During 

Construction (AR-5) 

The Commission allows jurisdictional entities to include the cost of financing the construction of a 

utility plant in the cost of plant through AFUDC. The Commission has relied on the guidance issued by 

the Commission’s Chief Accountant in AR-5 to address when a company may begin to include AFUDC 

in the cost of construction. Under AR-5, natural gas pipelines generally could not begin construction 

until after a pipeline filed an application with the Commission for a certificate of public convenience and 

necessity. However, many natural gas pipelines now participate in pre-filing activities with the 

Commission and stakeholders, and engage in activities that require them to incur significant projectrelated expenditures prior to filing a certificate application. As a result, natural gas pipelines may be at 

risk of being unable to capture all of the costs of financing construction projects if they cannot accrue 

AFUDC on expenditures made prior to the filing of a certificate application. 

Accounting staff worked with the OEP and OGC to revise Commission policy on when AFUDC can 

begin to be included in the cost of construction in order to reflect recent developments in the natural gas 

industry. The revised policy allows natural gas pipelines to begin accruing AFUDC on projects when 

capital expenses for a project are incurred and activities necessary to get a project ready are progressing. 

This new policy promotes infrastructure development by allowing natural gas pipelines to recover all 

monies invested in the construction of interstate facilities. The AFUDC policy was issued on March 18, 

2010, in orders to Southern Natural Gas Co. and Florida Gas Transmission LLC.49

C. Statistics 

In FY2010, DA completed 52 audit activities. Of these, 25 were DA-directed audits of public 

utilities, natural gas pipeline and storage companies, and Regional Entities. The audits consisted of 

nonfinancial and financial audits. Eighteen of the 25 were nonfinancial audits focused on ensuring 

compliance with requirements for: open access transmission tariffs and market-based rates, mergers and 

acquisitions, pipeline capacity releases, and independence of Regional Entities. The remaining seven 

financial audits addressed: affiliated transactions and the Public Holding Company Act of 2005 (PUHCA 

2005), fuel cost recovery mechanisms, and EQRs. 

These 25 audits resulted in 210 recommendations for corrective action and included $4.1 million in 

monetary recoveries. Specifically, audit staff identified $1.8 million in refunds from accounting and 

billing adjustments, with interest, to wholesale fuel-adjustment clause customers. Other monetary 

 

49 Florida Gas Transmission Co. LLC, 130 FERC ¶ 61,194 (2010); Southern Natural Gas Co., 130 FERC ¶ 61,193 (2010). 
 

2010 Staff Report on Enforcement 26

recoveries of $2.3 million resulted from accounting adjustments involving reductions in utility plant. 

Other corrective actions included: (1) structural and other remedies to achieve independence; (2) process 

enhancements; (3) improvements to business procedures and practices relating to Commission 

requirements; and (4) accounting and reporting corrections. 

Audit staff continues to require that jurisdictional companies implement compliance plans to ensure 

that Commission regulatory requirements are met, including those undertaken for comprehensive 

employee training, periodic self-auditing, and establishing and monitoring of processes, practices, and 

procedures. To assess whether jurisdictional companies and entities properly implement corrective 

action, DA staff often conducts a post-audit site visit to examine whether the subject of an audit has 

implemented DA’s recommendations. Audit staff tracks all audit recommendations to ensure that they 

are implemented. 

In addition to 25 DA-directed audits, audit staff joined OER staff to observe 27 reliability audits 

conducted by the eight Regional Entities and two Agreed-Upon Procedures (AUP) audits conducted on 

behalf of NERC. As observers on the reliability audits, DA and OER’s role on these audits was to 

understand the Regional Entity audit process and engage in discussions with Regional Entity audit team 

members to examine lessons learned about audit processes, methods, and techniques. On the AUP audits, 

DA and OER staff also examined audit processes, methods, and techniques, but from the perspective of 

NERC’s role as monitor of the Regional Entities. 

D. Accounting Statistics 

The Commission requires that electric utilities, natural gas companies, centralized service companies 

and oil pipelines subject to its jurisdiction keep financial and related records in accordance with the rules 

and regulations contained in the applicable USofA to aid in the establishment and monitoring of just and 

reasonable rates. DA accounting staff develops and maintains uniform regulations and requirements for 

accounting, financial reporting, and preservation of records. In addition, accounting staff advises the 

Commission on current accounting issues affecting jurisdictional industries and provides its accounting 

expertise to the Commission’s program offices in the development of Commission policies and proposed 

rulemakings and the review of electric rate, merger, and natural gas certificate filings before the 

Commission. In FY2010, accounting staff reviewed approximately 200 filings to ensure that accounting 

is consistent with the applicable USofA. 

Accounting staff also provides accounting advice to the electric, gas, and oil industries with regard to 

meeting the Commission’s accounting requirements, and participates in liaison meetings with these 

industries to stay abreast of current and emerging accounting and financial reporting issues. Accounting 

staff monitors and participates in projects initiated by the Financial Accounting Standards Board, the 

SEC, and the International Accounting Standards Board for items that may impact the Commission or its 

jurisdictional entities. 

1. Requests for Approval of the Chief Accountant 

Accounting staff reviews and responds to all requests for approval submitted to the Chief Accountant. 

Requests span the breadth of Commission accounting and reporting requirements and regulations for 

electric, natural gas, oil, and centralized service companies, and may involve anything from statutorily 

required filings to unique topics involving issues of first impression, items of questionable interpretation, 

or implementation of new or evolving generally accepted accounting principles. In FY2010, the Chief 

Accountant responded to 50 requests for approval by the Chief Accountant. Many of these filings include 

the accounting requests related to Commission-approved mergers, transfers of jurisdictional assets, prior 
 

2010 Staff Report on Enforcement 27

period adjustments, corporate re-organizations, and the filing of a FERC Form No. 1 that consolidates the 

financial information of two jurisdictional entities. 

2. Certificate Proceedings 

Pursuant to section 7 of the NGA, natural gas pipelines must file for a certificate of public 

convenience and necessity from the Commission to construct or abandon natural gas facilities and to 

initiate or abandon natural gas service. Also, in authorizing the construction of natural gas pipeline 

facilities, the Commission establishes an initial rate for the new service. A certificate application 

contains, in part, cost and accounting information related to the construction and operation of natural gas 

facilities used to determine initial rates charged to customers. 

Working with the OEP, OGC, and OEMR, accounting staff reviews all items used to determine initial 

rates, such as operation and maintenance expenses, depreciation, depletion, amortization, taxes, and return 

on investment to assure the Commission will set “just and reasonable” rates that are in the public interest. 

In its review of these items, DA ensures the applicant follows the Commission’s accounting rules and 

regulations, and frequently addresses accounting issues related to AFUDC calculations, contributions in 

aid of construction, regulatory assets and liabilities, capacity leases, and sale and lease-back transactions. 

In FY2010, accounting staff reviewed 26 natural gas pipeline certificate applications. 

3. Merger and Acquisition Proceedings 

Accounting staff reviews all merger and acquisition filings made under section 203 of the FPA to 

ensure the proposed accounting for business combinations conforms to the Commission’s regulations. 

DA works with OGC and OEMR in providing critical accounting direction addressing all accounting 

concerns raised in the filing to ensure accounting does not result in an unjust and unreasonable rate. For 

example, DA provides direction on the proper accounting for merger transaction costs, acquisition 

adjustments, and goodwill, ensuring filers maintain appropriate original cost records of assets, and by 

addressing emerging accounting issues (e.g., fair value accounting and reporting of long-term debt) for 

cost-of-service rate regulated entities. After the Commission approves the business combination, DA 

continues its accounting monitoring by reviewing and approving filings made by applicants under the 

Commission’s accounting regulations to ensure filers properly implement all accounting direction in the 

order. During FY2010, accounting staff reviewed 95 merger and acquisition filings. 

4. Rate Proceedings 

Accounting staff provides accounting insight and support to OEMR in reviewing electric, natural gas, 

and oil pipeline rate filings before the Commission. These filings may encompass a host of issues 

requiring input on a range of complex accounting and ratemaking issues (e.g., inclusion of precommercial costs, construction costs, carrying charges, and large acquisition premiums in the 

development of rates). Also, accounting staff advises the Commission on how new accounting 

pronouncements issued by the Financial Accounting Standards Board and others affect the ratemaking 

process. Accounting staff’s input on these and other matters ensures uniform accounting and financial 

reporting for new and emerging issues, and aids in the development of just and reasonable rates. During 

FY2010, accounting staff participated in 28 rate proceedings. 

E. Summary of Audit Results and Accounting Matters 

The section below highlights the results of several major categories of audits completed in FY2010. 
 

2010 Staff Report on Enforcement 28

1. Reliability Audits 

In FY2010, DA expanded its reliability efforts and joined OER staff to observe 27 reliability audits 

conducted by the eight Regional Entities. As observers, DA and OER’s role on these audits was to 

understand the Regional Entity audit process and engage in discussions with Regional Entity audit team 

members to examine lessons learned about audit processes, methods, and techniques. 

Also, DA and OER observed NERC and its outside contractor on two audit engagements in which 

NERC evaluated the Regional Entity’s performance under its delegation agreements, using a selected set 

of AUPs developed to assess compliance. DA and OER attended site visits to observe the audits, which 

included interviews of Regional Entity employees, evaluation of the evidentiary record, and NERC 

review of confidential data. 

 

2. MBR, OATT, and RTO/ISO Audits 

PJM Interconnection, LLC. The focus of this audit was an evaluation of whether PJM complied with its 

Operating Agreement, Open-Access Transmission Tariff, and USofA regulations. Audit staff identified 

findings involving employees’ acceptance of gifts from vendors and procurement policies for purchases 

over $50,000. Audit staff also found that PJM inconsistently applied procedures for identifying potential 

price errors in real-time Locational Marginal Prices and did not always charge time for services 

performed on behalf of its subsidiaries, or for subsidiaries’ use of PJM data. Finally, audit staff found 

that PJM provides generators’ zonal dispatch rate data through dispatch instructions about five seconds 

before posting the information on its website for all market participants. In its order, the Commission 

adopted 25 audit staff recommendations that PJM was required to implement to bring the organization 

into compliance with respect to audit staff’s findings.50

 

3. PUHCA and Other Accounting Audits 

Duke Energy Corporation. Audit staff examined whether Duke Energy Corporation (Duke Energy) 

complied with Commission cross-subsidization restrictions on affiliate transactions; accounting, 

recordkeeping, and reporting requirements; the USofA for centralized service companies; and 

preservation of records requirements for holding companies and service companies. Audit staff identified 

six areas of noncompliance. They ranged from failing to report wholesale sale transactions with the 

Midwest Independent Transmission System Operator (MISO) for 2008 in its Electric Quarterly Report 

(EQR) filings to untimely notification to the Commission of a premature loss of records. In its order, the 

Commission adopted 16 audit staff recommendations, including Duke Energy’s refiling of all 2008 EQRs 

in which MISO transactions were unreported. The Commission also ordered Duke Energy to strengthen 

its processes and procedures to ensure that it makes timely filings to the Commission when reporting a 

premature loss or deletion of records, and to submit those policies and procedures to audit staff.51

 

 

American Electric Power, Inc. In this audit, audit staff evaluated whether American Electric Power, Inc. 

(AEP) complied with FERC cross-subsidization restrictions on affiliate transactions; accounting, 

recordkeeping, and reporting requirements; the USofA for centralized service companies; and 

preservation of records requirements for holding companies and service companies. The audit identified 

ten areas of noncompliance addressing accounting and reporting issues. Five issues required corrections 

(i.e., reductions) to AEP’s formula rate tariff billing in the amount of $116,760.52

 

 

50 PJM Interconnection, LLC, 132 FERC ¶ 61,173 (2010). 51 Duke Energy Corporation, Letter Order, Docket No. FA09-8-000 (March 3, 2010). 52 American Electric Power Company, Inc., Letter Order, FA09-7-000 (April 23, 2010).
 

2010 Staff Report on Enforcement 29

4. Natural Gas 

Questar Pipeline Company. This audit was the first multi-objective probe of a pipeline’s compliance with 

selected reporting and accounting requirements in Order No. 581.53 Audit staff identified a dozen 

noncompliance findings on the company’s implementation of Order No. 581, including improper 

accounting and reporting errors in FERC Form No. 2. The report also identified reporting errors in the 

Index of Customers; errors complying with North American Energy Standards Board standards; and the 

failure to file a single nonconforming contract. 

The Commission approved all 23 audit staff recommendations. The recommendations range from 

filing with the Commission all outstanding contracts with material deviations and negotiated rates to 

establishing, implementing, and updating written policies and procedures to ensure that Questar complies 

with Commission rules and regulations, and NAESB standards. Also, Questar was ordered to comply 

with Order No. 581 and the USofA by recording all cash-out transactions and revising accounting 

procedures to classify properly the appropriate account the amounts for fuel received in-kind.54

5. Audits Closed with No Findings and Recommendations 

During FY2010, DA completed seven audits and determined that no audit findings and 

recommendations were warranted. These audits involved the examination of transactions associated with 

capacity release, fuel-adjustment clause, and mergers, acquisitions, and dispositions. Even when audits 

result in no findings and recommendations, the audit reports provide insights into the type of audit topics 

and testing performed by DA in reaching its conclusions. 

 

Capacity Release Audits. DA conducted five capacity release audits to determine compliance with Order 

No. 712, which relaxed and waived certain regulations to improve the efficiency of the Commission’s 

capacity release program. The companies audited were: (1) Southwest Gas Corporation; (2) Cascade 

Natural Gas Corporation; (3) Berry Petroleum Company; (4) National Grid; and (5) UNS Gas, Inc. Each 

audit evaluated the company’s compliance with the capacity release requirements under 18 C.F.R. § 284.8 

for firm capacity held and released by the company on interstate natural gas pipelines. After thorough 

evaluations, audit staff did not identify non-compliance with the Commission’s capacity release 

requirements by any of the five companies. On May 7, 2010, all five audits were completed with no 

findings of noncompliance.55

Mergers, Acquisitions, and Dispositions. DA commenced audits of Texas Energy Future Holdings L.P. 

(Texas Holdings) and U.S. Power Generating Company to determine whether each company had 

complied with regulations on blanket authorizations under 18 C.F.R. § 33.1(c), and conditions in the 

Commission’s merger orders. These audits paid particular attention to each company’s compliance with 

hold-harmless commitments, among other conditions, in the Commission merger order. On August 5, 

2010, both audits were completed with no findings of noncompliance.56

 

 

53 Revisions to Uniform System of Accounts, Forms, Statements, and Reporting Requirements for Natural Gas Companies, Order 

No. 581, 60 FR 53019, 53050-51, FERC Stats. & Regs. ¶ 31,026 (1995), order on reh’g, Order No. 581-A, FERC Stats. & Regs. ¶ 

31,032 (1996). 

54 Questar Pipeline Company, Letter Order, Docket No. PA09-4-000 (March 18, 2010). 55 Southwest Gas Corporation, Letter Order, Docket No. PA10-7-000 (May 7, 2010); Cascade Natural Gas Corporation, Letter 

Order, Docket No. PA10-8-000 (May 7, 2010); Berry Petroleum Company, Letter Order, Docket No. PA10-6-000 (May 7, 2010); 

Keyspan Gas East Corporation d/b/a National Grid, Letter Order, Docket No. PA10-9-000 (May 7, 2010); and UNS Gas, Inc., Letter 

Order, Docket No. PA10-8-000 (May 7, 2010).

56 Texas Energy Future Holdings L.P., Letter Order, Docket No. PA10-14-000 (August 5, 2010); US Power Generating Company, 

Letter Order, Docket No. PA10-4-000 (August 5, 2010).
 

2010 Staff Report on Enforcement 30

Fuel Recovery Mechanisms. DA initiated an audit of Allete, Inc. to evaluate its compliance with FAC 

requirements under 18 C.F.R § 35.14 and the company’s respective FAC tariffs. Audit staff identified no 

areas of noncompliance with Allete’s FAC calculations and underlying accounting and issued a “nofindings” audit report on August 5, 2010.57

F. Division of Audits Compliance Program 

DA has a long-standing history of promoting compliance through transparency and outreach. 

Transparency has been achieved through public postings on the Commission’s eLibrary system of audit 

commencement letters and audit reports. This freely available document display provides the public and 

jurisdictional entities with information about compliance areas that the Commission is emphasizing. In 

addition, DA has provided greater detail in its reports to enable companies to be better informed and 

prepared for similar audits of their operations. 

Likewise, outreach serves as an important avenue for audit and accounting staff to provide 

compliance guidance to the public and jurisdictional companies. DA responds daily to questions from 

jurisdictional entities, industry stakeholders, and consultants. These inquiries are directed to DA from the 

Commission’s Compliance Help Desk, Office of External Affairs, Enforcement Hotline, other offices 

within the Commission, or directly from interested parties. In responding to more than 120 such 

questions during FY2010, DA provided informal staff advice on all aspects of Commission accounting, 

financial reporting, and record retention regulations. 

DA also oversees accounting liaison activities with industry groups, such as Edison Electric Institute, 

American Gas Association, Interstate Natural Gas Association of America, and Association of Oil 

Pipelines. Through meetings with industry groups and jurisdictional entities, and responding to inquiries, 

DA staff helps provide regulatory certainty on accounting and reporting matters, which reduces regulatory 

risk to jurisdictional entities. 

Collectively, transparency and outreach provide jurisdictional entities the information and tools 

needed for developing and enforcing their own compliance programs using: DA’s publicly available 

audit commencement letters, audit reports, audit process, detailed scope and methodology, frequently 

asked questions (FAQs) on the Commission website, and feedback from reliability observation audits. 

In FY2010, DA continued to support the Commission’s goal of promoting internal compliance 

programs at jurisdictional entities. DA enhanced its review of internal controls and compliance programs 

and has provided feedback to companies when shortcomings are noted. Audit staff has already seen 

positive signs of improvement, such as companies enhancing their measures to comply with Commission 

regulations even prior to the commencement of audits. 

 

57 Allete, Inc., Letter Order, Docket No. FA10-7-000 (August 5, 2010). 
 

2010 Staff Report on Enforcement 31

V. DIVISION IVISION OF ENERGY MARKET OVERSIGHT VERSIGHT 

A. Overview 

The Division of Market Oversight within the Office of Enforcement is responsible for monitoring, 

oversight, and analysis of the nation’s natural gas and electric power markets. Market Oversight 

continuously examines and monitors the structure and operation of these markets to maintain market 

intelligence, to identify market anomalies, and to follow market events as they arise. Market Oversight 

develops, examines, and disseminates its analysis through daily morning meetings in the Division’s 

Market Monitoring Center. Market Oversight reviews market developments for issues and events which 

are then included in internal documents as well as publications posted on the Oversight website, and in 

presentations at open Commission meetings and other public conferences, briefings of state regulatory 

agencies, and discussions with industry and foreign delegations. Market Oversight’s outreach efforts 

include monthly calls with State commissions, as well as meetings with market stakeholders. In January 

2010, as part of a reorganization in Enforcement, the Forms Administration and Data Branch of the 

former Division of Financial Regulation merged into Market Oversight. Market Oversight now 

administers and ensures compliance with the filing requirements for the Electric Quarterly Report (EQR) 

and other FERC financial forms required of and filed by jurisdictional companies. The data collected is 

complementary to the market monitoring and analysis functions of Market Oversight. 

Market Oversight regularly performs market surveillance, in part, to identify potentially improper 

market participant behavior and anomalous market outcomes. Market Oversight accesses a large variety 

and quantity of data on an ongoing basis, studying changes in trends highlighting market outcomes that 

cannot be readily explained by supply and demand fundamentals. Market Oversight staff examines such 

anomalies to determine, among other things, whether there are indications of possible fraud or 

manipulation. In support of the Commission’s market-based rate program, Market Oversight analyzes the 

EQR price, volume, and contract data for market-based rate sales to determine whether reported sales 

indicate that a seller may be charging excessive rates. Market Oversight provides technical expertise and 

analyses to DOI, particularly in investigations involving possible market manipulations. 

Market Oversight staff plays an integral role in Commission efforts to increase transparency in the 

energy markets. In 2006, Commission staff conducted an extensive outreach effort to formulate options 

for implementing EPAct 2005’s transparency provisions for wholesale natural gas and electric markets. 

Market Oversight staff has continued to support Commission efforts to adopt additional filing and posting 

requirements for the sale or transportation of physical natural gas in interstate commerce. 

B. Market Monitoring 

Market Oversight staff continuously examines the structure, operation, and interaction of natural gas 

and electric markets. On an ongoing basis, Market Oversight staff accesses and surveils numerous data 

sets from a variety of sources to review market fundamentals and emerging trends; staff holds daily 

meetings in the Market Monitoring Center to track and consider market events as they occur. 

As developments warrant, Market Oversight staff initiates projects designed to understand market 

patterns, to evaluate participant behavior, and to identify potential manipulation. During FY2010, such 

projects included analyses of natural gas price formation and an assessment of financial transmission 

rights (FTRs) in RTO markets. Staff may also initiate analyses based upon the request of the Chairman, 

other Commissioners, or other offices within the Commission. During FY2010, such analyses included: 
 

2010 Staff Report on Enforcement 32

1. State of the Markets Report 2009, April 15, 2010 

Each year, Market Oversight presents a State of the Market report reviewing how the significant 

events of the past year better inform our understanding of the current and future energy markets. Energy 

markets underwent considerable change in 2009. In its annual review of the prior year’s markets, Market 

Oversight reviewed the unprecedented drop in electric demand (2009 vs. 2008) that occured after the 

economic downturn, mild weather and, possibly, increasing energy efficiency. The deep global recession 

was reflected in reduced demand, lower prices, and slowed investment. Staff presented the report to the 

Commission and discussed developments in the gas market in 2009, particularly the significant upward 

reassessment of the U.S. resource base, the completion of significant pipeline projects and the movement 

toward gas/coal price parity in several regions. During the year, a new gas market paradigm emerged into 

clearer focus. Finally, the report noted the initiation of California ISO’s new nodal market as well as the 

new ancillary services market in MISO.58

 

2. Seasonal Market Assessments 

Market Oversight makes seasonal assessments which are presented at Commission meetings and 

made available to the public on the FERC website. In FY2010, the following annual assessments were 

presented by Market Oversight staff: 

2009/2010 Winter Energy Market Assessment, November 19, 2009. Market Oversight staff presented the 

outlook for natural gas markets and noted how improved infrastructure and increased shale gas production 

were reducing volatility and regional disparities in gas prices. The continued effects of the economic 

downturn, combined with the gas outlook, were expected to hold electric prices down.59 

 

Summer 2010 Energy Market and Reliability Assessment, May 20, 2010. This assessment reviewed the 

outlook for the electric market for the coming summer. The Office of Electric Reliability contributed a 

summary of NERC’s market review, which raised little concern for reliability for the coming season. On 

the market side, the most significant concern was caused by low snowpack in the Pacific Northwest, 

combined with a forecast for a warm summer on the West Coast.60

 

 

3. Capacity Reassignment Reporting 

Market Oversight staff provided a report summarizing the findings of a 30-month study of the 

competitive effects of removing the price cap for reassigned electric transmission capacity. In Order No. 

890, the Commission removed the price cap on reassignments of transmission capacity.61 In Order No. 

890-A, issued in December 2007, FERC removed the price cap for a limited period ending Oct. 1, 2010, 

and directed staff to study the developing market.62 In April, staff completed the report and presented 

findings at the April 15, 2010 Commission meeting. 

The report concluded that the secondary market for transmission capacity reassignments experienced 

strong growth during the study period, with the number of transactions growing from 200 to 32,000 and 

the volume of reassigned capacity expanding from 3,000 gigawatt hours (GWh) to 36,000 GWh. Only a 

few of the reassignments were at prices above the cost-based tariff rate. A comparison of the 

 

58 This presentation is available at http://www.ferc.gov/market-oversight/st-mkt-ovr/som-rpt-2009.pdf. 59 This presentation is available at http://www.ferc.gov/market-oversight/mkt-views/2009/11-19-09.pdf. 60 This presentation is available at http://www.ferc.gov/market-oversight/mkt-view /2010/05-20-10.pdf. s 61 Preventing Undue Discrimination and Preference in Transmission Service, Order No. 890, 72 Fed. Reg. 12,266 (March 15, 

2007), FERC Stats. & Regs. ¶ 31,241 (2007). 

62 Preventing Undue Discrimination and Preference in Transmission Service, Order No. 890, 72 Fed. Reg. 12,266 (March 15, 

2007), FERC Stats. & Regs. ¶ 31,241 (2007), order on reh’g, Order No. 890-A, 73 Fed. Reg. 2984 (Jan. 16, 2008), FERC Stats. & 

Regs. ¶ 31,261 (2007).
 

2010 Staff Report on Enforcement 33

reassignment prices to market price differentials suggested that resale prices reflect market fundamentals 

rather than the exercise of market power. Staff’s report, along with a Notice of Proposed Rulemaking 

(NOPR) issued in April, served as the basis for Order No. 739 which permanently extends the lifting of 

the price cap on reassignments of firm transmission capacity.63 

4. Pipeline Capacity Release Review 

In Order No. 712, the Commission instructed staff to prepare a report reviewing the effects of 

removing the price cap on and changing the asset management rules for released pipeline capacity.64 This 

report is due January 30, 2011. Staff began routine monitoring of the capacity release market with a focus 

on price and counterparty data to determine the prices charged for released capacity and to understand 

which market participants are releasing capacity and purchasing released capacity. This analysis is 

ongoing, allowing staff to present the Commission with capacity-release transactional trends, data, and 

analyses as required. 

C. Technical Analysis 

Market Oversight staff examines the structure, operation, and interaction of natural gas and electric 

markets. Staff performs technical analyses using available data including hourly prices at RTO nodes and 

hubs, prices and volumes traded on public exchanges, and electric transactional reporting in the Electric 

Quarterly Reports. Staff is constantly using these and other data to better understand how these markets 

work, to assess the economics of market behavior, and to identify possible anomalies. Market Oversight 

also evaluates behavior of specific market participants, including detailed portfolio examinations and 

market event review. Market Oversight works with Investigations throughout the lifecycle of market 

manipulation investigations providing detailed transaction analysis and subject matter expertise. Through 

the re-creation of positions and trading activities, staff reviews the interaction between physical and 

financial products within the portfolios of investigative subjects to uncover improper uses of jurisdictional 

markets. Market Oversight serves a key role during investigations, providing critical market context, 

specific trading portfolio review, and subject matter support in the areas of trading and markets. 

D. Outreach and Communication 

Market Oversight makes available to the public its analyses, posting reports on the Market Oversight 

website and in monthly snapshot presentations, and frequently provides briefings to industry participants, 

state and federal officials, and foreign delegations. 

1. Website 

Market Oversight publishes data and analysis on the Market Oversight website at 

http://www.ferc.gov/market-oversight/market-oversight.asp. The site is organized into pages for (a) 

national overviews of electricity and natural gas markets, and (b) ten regional electricity and five regional 

natural gas markets. The regional market pages provide descriptive information and statistics and a 

number of charts, tables and maps displaying market characteristics and outcomes. The Market Oversight 

 

63 Promoting a Competitive Market for Capacity Reassignment, Order No. 739, 75 Fed Reg. 58293 (September 24, 2010), 132 

FERC ¶ 61,238 (2010). See also page 8 herein.

64 Promotion of a More Efficient Capacity Release Market, Order No. 712, 73 Fed. Reg. 37,058 (June 30, 2008), FERC Stat. and 

Regs. ¶ 31,271(2008), order on reh’g, Order No. 712-A, 73 Fed. Reg. 72,692 (December 1, 2008), FERC Stats. & Regs. ¶ 31,284 

(2008).
 

2010 Staff Report on Enforcement 34

website also has information on several other relevant markets, including LNG, coal, and emissions 

markets. 

2. Snapshot Calls 

Market Oversight holds monthly conference calls with representatives of state agencies in four main 

regions of the country: Northeast, Midwest and SPP, Southeast, and West to provide a current “snapshot” 

of energy markets. 

Regional Snapshot Reports are compiled on a monthly basis and serve as the basis for discussion on 

the calls. They include data on electricity, natural gas, LNG, and weather, and charts on other marketaffecting developments. In addition, the Snapshot Report occasionally incorporates reports on special 

topics. In FY2010, special reports included in some of the Snapshot Reports included: 

 Lessons Learned from the First Form No. 552 Submissions, a Form designed to promote 

greater transparency in gas and electric markets; 

 Agenda Update on Order No. 720A, Electric Transparency Notice of Inquiry, Credit Notice 

of Proposed Rulemaking; and 

 Transmission Capacity Release promoting a competitive market for capacity reassignments. 

Snapshot Reports are available on the Market Oversight website at http://www.ferc.gov/marketoversight/mkt-snp-sht/mkt-snp-sht.asp, where they are archived back to 2007. 

3. Domestic and Foreign Delegation Briefings 

Market Oversight periodically hosts visitors to FERC including foreign and domestic delegations of 

regulators and industry participants. In FY2010, Market Oversight conducted a number of briefings in 

the Market Monitoring Center (MMC) including: 

 Twenty domestic briefings. These included briefings to two Congressional delegations, nine 

groups of officials from federal or state agencies, and eight industry groups. 

 18 presentations to foreign delegations. These included delegations from Albania, Serbia, 

India, Saudi Arabia, Norway, China, Canada, Korea, and Kosovo, as well as regional 

delegations from Southeast Asia. Each briefing was tailored to the particular interests of the 

visiting delegation. 

Market Oversight briefs new FERC employees, summer interns and special visitors on the uses of the 

MMC and the data to which we subscribe, demonstrating how Market Oversight monitors market 

fluctuations on a continuing basis. 

E. Forms Administration and Filing Compliance 

Market Oversight staff administers and ensures compliance with the Commission’s 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, as well as industry, uses these reports for a variety of purposes, including 

evaluation of whether existing rates continue to be just and reasonable. Accordingly, the accuracy of 
 

2010 Staff Report on Enforcement 35

these reports is a critical aspect of monitoring the markets. During FY2010, approximately 3,000 

respondents submitted FERC forms as shown below: 

Form Filing 

Frequency 

Total 

Respondents in 

Last Collection 

Form No. 165 Annually 201 

Form No. 1-F Annually 4 

Form No. 266 Annually 86 

Form No. 2A68 Annually 51 

Form No. 667 Annually 171 

Form No. 6068 Annually 35 

FERC-6169 Annually 27 

Form No. 55270 Annually 690 

FERC-73071 Annually 34 

Form No. 3-Q major Electric72 Quarterly 192 

Form No. 3-Q non-major Electric72 Quarterly 4 

Form No. 3-Q major Gas72 Quarterly 84 

Form No. 3-Q non-major Gas72 Quarterly 43 

Form No. 6Q69 Quarterly 146 

Electric Quarterly Report 

(FERC-516)73

Quarterly 1,397 

Market Oversight performs a series of data validation checks for the various FERC forms to ensure 

that submissions comply with filing requirements and are intended to improve the accuracy and quality of 

the information filed with the Commission. Market Oversight contacted filers regarding issues with their 

submittals. The majority of issues were resolved, and, as appropriate, filings were resubmitted to address 

concerns. When a company fails to file as required and cannot be contacted, the Commission must take 

action to address non-compliance. For example, in FY2010, the Commission revoked the market-based 

 

65 Form No. 1 is a comprehensive financial and operating report submitted for electric rate regulation and financial audits. 66 Form No. 2 is a compilation of financial and operational information from major interstate natural gas pipelines subject to the 

jurisdiction of the FERC. “Major” is defined as having combined gas transported or stored for a fee that exceeds 50 million 

dekatherms. Form No. 2 respondents must also file a CPA Certification by an independent certified public accountant. Form No.

2A is an abbreviated Form No. 2 filed by non-major interstate natural gas pipelines subject to the jurisdiction of the FERC. “Nonmajor” is defined as having total gas sales or volume transactions exceeding 200,000 dekatherms. Form No. 2A respondents must 

provide CPA Certification by an independent certified public accountant. 

67 Form No. 6 is filed by oil pipeline carriers with annual jurisdictional operating revenues of $500,000 or more. Oil pipeline carriers 

with revenues more than $350,000 but less than $500,000 must file pages 1, 301, and 700; oil pipeline carriers with revenues less 

than $350,000 must file page 1 and page 700.Oil pipeline carriers submitting FERC Form No. 6 (annual jurisdictional operating 

revenues of $500,000 or more) must submit FERC Form No. 6-Q.

68 Form No. 60 contains financial information from centralized service companies subject to FERC jurisdiction. 69 FERC-61 is a filing requirement for service companies in holding company systems (including special purpose companies) that 

do not have to file FERC Form No. 60. 

70 Form No. 552 provides information on natural gas transactions. 71 FERC-730 is used by the Commission to determine the effectiveness of its rules and to provide it with an accurate assessment of

the state of transmission investment by public utilities. This annual report includes projections, information that details the level and 

status of transmission investment, and the reason for delay, if any. Public utilities that have been granted incentive based rate 

treatment for specific transmission projects under provisions of 18 CFR § 35.35 must file FERC-730. The report must conform to the 

format prescribed in Order No. 679, Appendix A. Filers are strongly encouraged to submit the FERC-730 electronically via eFiling. 72 Form No. 3-Q is a comprehensive quarterly financial and operating report which supplements Annual Report Forms No. 1 and 

No. 2 and is submitted for all “Major” and “Non-Major” Electric Utilities, Licensees, and Natural Gas Companies. 73 All public utilities are required to electronically file Electric Quarterly Reports 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 transaction information for short-term and long-term market-based power sales and cost-based power sales during the 

most recent calendar quarter.
 

2010 Staff Report on Enforcement 36

rate authorization of six sellers for failure to timely file their EQRs.74 Additionally, the Commission also 

notified two companies of the Commission’s intent to revoke their market-based rate authority for failure 

to file their EQRs; the 15 day compliance period expired on this notice as of October 6, 2010.75

F. Agenda Items: Transparency 

Market Oversight staff played an integral role in Commission efforts to increase transparency in the 

energy markets during FY2010. In particular, Market Oversight provided technical support for the 

following: 

1. Order No. 704-C Clarification Regarding Form No. 552 

In FY2010, the Commission issued Order No. 704-C granting clarification on several issues.76 In 

March 2010, Market Oversight held a technical conference to discuss Form No. 552; Market Oversight 

also spoke to numerous groups to understand market participant positions involving reporting 

requirements under Form No. 552. Wide open discussions regarding industry concerns resulted in the 

incorporation of some of the best ideas in Order No. 704-C, which revises Form No. 552 so as to (1) 

exempt from reporting any unexercised options to take gas under a take-or-release contract; (2) clarify the 

definition of exempt unprocessed natural gas transactions as those involving gas that is both not yet 

processed (to separate and recover natural gas liquids) and still upstream of a processing facility; (3) 

exempt from reporting cash-out and imbalance transactions, since they were burdensome to report and 

provided little market information; (4) drop reporting of transactions under blanket sales certificates, since 

this is burdensome to report and provides little market information (this has the effect of exempting small 

entities who were obligated to report solely by virtue of possessing a blanket sales certificate; and (5) 

make several non-substantive modifications to Form No. 552 in an effort to make it more user-friendly. 

The first filings under Order No. 704-C for calendar year 2009 were due on October 1, 2010. 

2. Order No. 720 Clarifications on Non-Interstate Pipeline Posting Requirements 

In FY2010, the Commission issued Order No. 720-A (January 21) which modified Order No. 720 to 

include a requirement that major non-interstate pipelines post information for receipt and delivery points 

at which design capacity is unknown.77 On July 21, the Commission issued Order No. 720-B, which 

clarified its regulations requiring (1) major non-interstate pipelines to post daily scheduled volume 

information and other data points, and (2) interstate pipelines to post information regarding the provision 

of no-notice service. These clarifications include establishing the compliance deadline for major noninterstate pipelines after the effective date of this rule and clarifying the requirement for interstate 

pipelines to update posted no-notice service volumes. Staff answered numerous questions from industry 

about implementation of the Order, which became effective on October 1, 2010. 

 

74 Electric Quarterly Reports, G&G Energy, Inc.; NCSU Energy, Inc.; Primary Power Marketing L.L.C. and WASP Energy, LLC, 130 

FERC ¶ 61,187 (2010); Electric Quarterly Reports, Strategic Energy Management Corp. and Solaro Energy Marketing Corporation, 

131 FERC ¶ 61,272 (2010). 

75 The Notice of Revocation was issued on 10/7/2010. Electric Quarterly Reports, BM2 LLC and DJGW, LLC, 132 FERC ¶ 61,251 

(2010).

76 Transparency Provisions of Section 23 of the Natural Gas Act, Order No. 704, 73 Fed. Reg. 1,014, FERC Stats. & Regs. ¶ 31,260 

(2007), order on reh’g, Order No. 704-A, 73 Fed. Reg. 55,726, FERC Stats. & Regs. ¶ 31,275 (2008), order on reh’g, Order No. 

704-B, 125 FERC ¶ 61,302 (2008), order on reh’g, Order No. 704-C, 75 Fed. Reg. 35,632, 131 FERC ¶ 61,246 (2010). 77 Pipeline Posting Requirements under Section 23 of the Natural Gas Act, Order No. 720, 73 Fed. Reg. 73494 (December 2,2008), 

FERC Stats. & Regs. 31,283 (2008), Order No. 720-A, 75 Fed. Reg. 5178 (Jan. 21, 2010), 130 FERC ¶ 61,040 (2010), Order No. 

720-B, 75 Fed. Reg. 44,893 (July 30, 2010), 132 FERC ¶ 61,057 (2010).
 

2010 Staff Report on Enforcement 37

3. Electric Transparency Notice of Inquiry 

On January 21, 2010, the Commission issued a Notice of Inquiry (Docket No. RM10-12-000) 

seeking comment on whether the EQR filing requirements should extend to publicly owned utilities, 

municipal utilities, public utility districts, rural cooperatives, and federal entities pursuant to the electric 

market transparency provisions of section 220 of the FPA.78 Additionally, the Commission sought 

comment on whether FERC should consider other refinements to the existing EQR filing requirements 

including reporting the trade date and type of rate; reporting resale of financial transmission rights in 

secondary markets; standardizing the unit for reporting energy and capacity transactions; and omitting the 

time zone from the contract section of the EQR. Comments were due March 30, 2010; staff is currently 

evaluating submitted comments and considering whether to issue a Notice of Proposed Rulemaking. 

 

 

78 Electricity Market Transparency Provisions of Section 220 of the Federal Power Act, Notice of Inquiry, 75 Fed. Reg. 4,375 (Jan 

27, 2010), FERC Stats. & Regs. ¶ 35,565 (2010).
 

2010 Staff Report on Enforcement 38

VI. CONCLUSION ONCLUSION 

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, orders, rules, and regulations 

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 customers. The Division of Investigations will 

continue to focus its efforts on helping to ensure the reliability of the bulk power system and keeping 

markets transparent, free, and competitive. The Division of Audits will continue to work closely with 

entities to improve compliance, while Market Oversight examines and monitors the structure and 

operation of natural gas and electric markets. 
 

2010 Staff Report on Enforcement 39

APPENDIX PPENDIX A:ORGANIZATION GANIZATION CHART 

Office of the Director

Norman C. Bay, Director

Larry D. Gasteiger, Deputy Director 

Roger Morie, Reliability Enforcement Counsel

Administration 

Staff

Denice Smith, Chief

Market Oversight Branch 1

Thomas Rieley, Acting Chief

Investigations Branch 1

Demetra Anas, Chief

Audits Branch 2

Stephen Flanagan, Chief

Investigations Branch 2

Ted Gerarden, Chief

Investigations Branch 3

John Kroeger, Chief

Audits Branch 1

Gerald Williams, Chief

Audits Branch 3

Elizabeth Taylor, Chief

Division of Investigations

Larry Parkinson, Director

Lee Ann Watson, Dep Dir

Kathryn Kuhlen, Senior Counsel

Division of Audits

Bryan Craig, Director and Chief 

Accountant

Timothy Smith, Dep Dir

Division of Energy

Market Oversight

Jerome Pederson, Director

Steven Reich, Dep Dir

Matthew Hunter, Senior Adviser

Laura Vallance, Legal Counsel

Investigations Branch 4

Daniel Mullen, Chief

OFFICE OF 

ENFORCEMENT

Audits Branch 4

Brian Harrington, Chief

Investigations Branch 5

Lauren Rosenblatt, Chief

Audits Branch 5

Teresina Stasko, Chief

Regulatory Accounting 

Branch

Steven Hunt, Chief

Market Oversight Branch 4

Christopher Ellsworth, Chief

Market Oversight Branch 6

Narmada Nanjundan, Chief

Market Oversight Branch 5

Narmada Nanjundan, Acting Chief

Market Oversight Branch 2

Janel Burdick, Acting Chief

Market Oversight Branch 3

Steven Michals, Chief

Reliability Committee

Roger Morie, Chair

Market Oversight Branch 7

Sean Collins, Chief

Office of the Director

Norman C. Bay, Director

Larry D. Gasteiger, Deputy Director 

Roger Morie, Reliability Enforcement Counsel

Administration 

Staff

Denice Smith, Chief

Market Oversight Branch 1

Thomas Rieley, Acting Chief

Investigations Branch 1

Demetra Anas, Chief

Audits Branch 2

Stephen Flanagan, Chief

Investigations Branch 2

Ted Gerarden, Chief

Investigations Branch 3

John Kroeger, Chief

Audits Branch 1

Gerald Williams, Chief

Audits Branch 3

Elizabeth Taylor, Chief

Division of Investigations

Larry Parkinson, Director

Lee Ann Watson, Dep Dir

Kathryn Kuhlen, Senior Counsel

Division of Audits

Bryan Craig, Director and Chief 

Accountant

Timothy Smith, Dep Dir

Division of Energy

Market Oversight

Jerome Pederson, Director

Steven Reich, Dep Dir

Matthew Hunter, Senior Adviser

Laura Vallance, Legal Counsel

Investigations Branch 4

Daniel Mullen, Chief

OFFICE OF 

ENFORCEMENT

Audits Branch 4

Brian Harrington, Chief

Investigations Branch 5

Lauren Rosenblatt, Chief

Audits Branch 5

Teresina Stasko, Chief

Regulatory Accounting 

Branch

Steven Hunt, Chief

Market Oversight Branch 4

Christopher Ellsworth, Chief

Market Oversight Branch 6

Narmada Nanjundan, Chief

Market Oversight Branch 5

Narmada Nanjundan, Acting Chief

Market Oversight Branch 2

Janel Burdick, Acting Chief

Market Oversight Branch 3

Steven Michals, Chief

Reliability Committee

Roger Morie, Chair

Market Oversight Branch 7

Sean Collins, Chief

Effective: November 8, 2010 
 

2010 Staff Report on Enforcement 40

APPENDIX PPENDIX B: FY2010 CIVIL PENALTY ENFORCEMENT NFORCEMENT ACTIONS79

SUBJECT OF 

INVESTIGATION AND 

ORDER AND DATE 

TOTAL PAYMENT 

(CIVIL PENALTY OR 

DISGORGEMENT) 

EXPLANATION OF PAYMENTS AND 

COMPLIANCE PLANS 

RRI ENERGY, INC., RRI ENERGY

WHOLESALE GENERATION, LLC,

132 FERC ¶ 61,267 (SEPTEMBER

27, 2010)

$750,000 Civil Penalty Civil penalty and compliance reporting resulting

from violations of open access transportation

policies, including competitive bidding requirements

for long‐term, discounted rate capacity releases, and

the prohibition on buy/sell transactions.

SOUTH JERSEY GAS CO., SOUTH

JERSEY RESOURCES GROUP, LLC,

132 FERC ¶ 61,266 (SEPTEMBER

27, 2010)

$950,000 Civil Penalty

$120,551 Disgorgement

Civil penalty and compliance reporting resulting

from violations of open access transportation

policies, including competitive bidding requirements

for long‐term, discounted rate capacity releases, the

shipper‐must‐have‐title requirement, and the

prohibition on buy/sell transactions.

IN RE PORTLAND GENERAL ELECTRIC

CO., 131 FERC ¶ 61,224 (JUNE 4,

2010)

$375,000 Civil Penalty Civil penalty and compliance reporting resulting

from violations of Open Access Transmission Tariff,

section 205 of FPA, and then‐section 358.5(c)(5) of

Commission Regulations.

IN RE NOBLE ENERGY, INC., 130

FERC ¶ 61,175 (March 12,

2010)

$4,000,000 Civil Penalty

$160,487 Disgorgement

Civil penalty and compliance reporting resulting

from violations of open access transportation

policies, including circumvention of the posting and

bidding requirements for released capacity, flipping,

the shipper‐must‐have‐title requirement, and

violations of the prohibition on buy‐sell transactions.

FLORIDA BLACKOUT, 130 FERC ¶

61,163 (MARCH 5, 2010)

$350,000 Civil Penalty Civil penalty against Florida Reliability Coordinating

Council, Inc. resulting from violations of Mandatory

Reliability Standards for the Bulk‐Power System,

Order No. 693,

FERC Stats. & Regs. ¶ 31,242 (2007).

FLORIDA BLACKOUT, 129 FERC ¶

61,016 (OCTOBER 8, 2009)

$25,000,000 Civil Penalty Civil penalty against Florida Power & Light resulting

from violations of Mandatory Reliability Standards

for the Bulk‐Power System, Order No. 693,

FERC Stats. & Regs. ¶ 31,242 (2007).

 

79 A list of all EPAct 2005 civil penalty orders is available at http://www.ferc.gov/enforcement/civil-penalties/civil-penalty-action.asp.