UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

2009 REPORT ON ENFORCEMENT

Docket No. AD07-13-002 

Prepared by the Staff of the 

Office of Enforcement 

Federal Energy Regulatory Commission 

Washington, D.C. 

DECEMBER 17, 2009

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. 
 

 

2009 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. Brian Hunter Hearing..............................................................................................................................4 

2. Florida Blackout ........................................................................................................................................4 

3. Energy Transfer Partners .......................................................................................................................4 

4. NYISO Loop Flow......................................................................................................................................5 

5. Power Edge and Tower..........................................................................................................................5 

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

D. Self-Reports ...................................................................................................................................................................8 

1. Illustrative Self-Reports Closed With No Action....................................................................... 10 

2. Illustrative Self-Reports Converted to Investigations but Closed with No Action ...... 13 

E. Investigations ............................................................................................................................................................. 14 

1. Statistics on Investigations................................................................................................................ 14 

2. Illustrative Investigations Closed With No Action.................................................................... 17 

F. Reliability...................................................................................................................................................................... 17 

G. Enforcement Hotline ............................................................................................................................................... 18 

IV. Division of Audits...................................................................................................................................................... 19 

A. Overview....................................................................................................................................................................... 19 

B. Significant Matters ................................................................................................................................................... 19 

1. Southern Star .......................................................................................................................................... 20 

2. Southwest Power Pool ........................................................................................................................ 20 

3. NYISO......................................................................................................................................................... 20 

C. Audit Statistics ........................................................................................................................................................... 20 

D. Summary of Audit Results..................................................................................................................................... 21 
 

2009 Staff Report on Enforcement ii

1. Reliability .................................................................................................................................................. 21 

2. NYISO......................................................................................................................................................... 22 

3. Southwest Power Pool ........................................................................................................................ 22 

4. ISO New England Inc. .......................................................................................................................... 23 

5. Midwest Independent Transmission System Operator, Inc.................................................. 23 

6. El Paso Electric Company ................................................................................................................... 23 

7. Gas Tariff Compliance - Southern Star ......................................................................................... 23 

8. PUHCA 2005 - Allegheny Energy, Inc............................................................................................ 24 

9. Preservation of Records - Niagara Mohawk............................................................................... 24 

10. Fuel Adjustment Clause (FAC) - Wisconsin Electric Power Company............................... 24 

11. Order No. 890 Audits........................................................................................................................... 25 

V. Division of Financial Regulation.......................................................................................................................... 26 

A. Overview....................................................................................................................................................................... 26 

B. Significant Matters ................................................................................................................................................... 26 

1. Chief Accountant’s Comments on International Accounting Standards......................... 26 

2. Annual Report of Natural Gas Transactions (Form 552)........................................................ 27 

3. Quarterly Reporting Requirements for Intrastate Natural Gas Companies ................... 27 

4. Data Validation Program.................................................................................................................... 28 

C. Forms Administration and Data Collection .................................................................................................... 28 

1. Electric Quarterly Reports .................................................................................................................. 28 

2. Annual and Quarterly Financial Reports ......................................................................................29 

3. Annual and Quarterly Transactional and Operational Reports........................................... 30 

D. Regulatory Accounting........................................................................................................................................... 30 

1. Accounting Policy.................................................................................................................................. 30 

2. Help Desk and Outreach .................................................................................................................... 31 

3. Requests for Approval of the Chief Accountant ....................................................................... 31 

4. Certificate Proceedings....................................................................................................................... 31 

5. Merger and Acquisition Proceedings............................................................................................ 31 

6. Rate Proceedings................................................................................................................................... 31 

VI. Division of Energy Market Oversight................................................................................................................ 32 

A. Overview....................................................................................................................................................................... 32 

B. Market Assessments................................................................................................................................................ 32 

C. Domestic and Foreign Delegation Briefings.................................................................................................. 33 

D. Inter-Office Projects................................................................................................................................................. 33 

E. Agenda Items Support............................................................................................................................................ 33 

F. Ongoing Market Monitoring................................................................................................................................ 34 

VII. Conclusion................................................................................................................................................................... 35 

Appendix A – Office of Enforcement Organization Chart......................................................................................... 36

Appendix B – EPAct Civil Penalty Enforcement Actions in FY2009........................................................................ 37 
 

 

2009 Staff Report on Enforcement 1 

I. INTRODUCTION

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

(Commission) is issuing this report as directed by the Commission in the Revised Policy Statement on 

Enforcement.1

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

during Fiscal Year 2009 (FY2009),2

 including an overview and statistics on the activities of the four 

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

Financial Regulation (DFR) and Division of Energy Market Oversight (DEMO). 

 The FY2009 report continues to recognize 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 DOI is non-public, the 

majority of the information that industry receives about investigations comes from Commission orders 

that approve settlements, release staff reports, or order companies to show cause why conduct should not 

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

fraction of DOI’s activities. As in previous years, the FY2009 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 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. FY2009, the subject of this report, 

began on October 1, 2008 and ended on September 30, 2009. 

3

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

2009 Staff Report on Enforcement 2

II. OFFICE OF ENFORCEMENT PRIORITIES

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

efficient and sustainable energy services at a reasonable cost through appropriate regulatory and market 

means. 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 safe, reliable, and efficient energy infrastructure that serves the public 

interest. In order to further those goals, Enforcement’s four 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 four divisions. Enforcement will focus on matters 

involving: 

• Fraud and market manipulation; 

• Serious violations of the reliability standards; 

• Anticompetitive conduct; and 

• Conduct that threatens the transparency of regulated markets. 

 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 damage 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 will enforce these standards and focus particularly on cases resulting in actual harm, either 

through the loss of load or through some other means, as well as 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 will enforce other 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 in cases involving actual harm or a 

high risk of harm. 
 

2009 Staff Report on Enforcement 3

III. DIVISION OF INVESTIGATIONS

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 or referrals from organized markets, other agencies, or other offices within the 

Commission. 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.4

 In FY2009 DOI increased its focus on investigations of market manipulation, collected over $38 

million in civil penalties and nearly $39 million in disgorged profits through settlements, stepped up 

enforcement of reliability standards, and encouraged regulated entities to improve their compliance 

practices. Several manipulation cases reached significant milestones, including the first manipulation 

hearing before an Administrative Law Judge, significant settlements of alleged manipulation, and 

issuance of orders to show cause why penalties should not be imposed for alleged market manipulation. 

The Commission also authorized the release of two staff reports on investigations in which staff found no 

evidence of manipulation. 

 During FY2009 the Commission issued 22 orders approving settlements reached by DOI staff with 

the subjects of investigations. These 22 settlements resulted in the payment of $38,290,000 in civil 

penalties and an additional $38,694,188, plus interest, in disgorgement of unjust profits, as well as 

compliance monitoring reporting requirements in most cases. 

 DOI also focused on enforcement of reliability standards, including the publicly-disclosed 

investigation into the February 2008 Florida Blackout, which led to a $25 million settlement. DOI staff 

also coordinated with the compliance programs of the North American Electric Reliability Corporation 

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

46 Notices of Penalty that NERC filed with the Commission during FY2009 in which Regional Entities 

proposed monetary penalties totaling $1,366,000 for alleged violations of reliability standards. 

 With respect to compliance, on October 16, 2008, the Commission issued a Policy Statement on 

Compliance5

 that emphasized the importance of regulated entities developing adequate compliance 

measures. Where companies have active and effective compliance programs supported by senior 

management that identify, remediate, and report compliance lapses, the Commission may reduce or even 

eliminate penalties in certain cases. As part of its investigation of possible violations, DOI reviews the 

compliance measures taken by the subject of the investigation, and includes information on compliance 

with its recommendations to the Commission. 

 Additionally, DOI staff participated in Commission efforts to improve price transparency through 

Transparency Provisions of Section 23 of the Natural Gas Act, Order No. 704, FERC Stats. & Regs. ¶ 

31,260 (2007), and Pipeline Posting Requirements under Section 23 of the Natural Gas Act, Order No. 

720, FERC Stats. & Regs. ¶ 31,283 (2009). DOI staff also played a major role in Standards of Conduct 

for Transmission Providers, Order No. 717, FERC Stats. & Regs. ¶ 31,280 (2009), and the market 

monitor portions of Wholesale Competition in Regions with Organized Electric Markets, Order No. 719, 

FERC Stats. & Regs. ¶ 31,281 (2009). 

 

4

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

Statement, supra note 1. 5

 Compliance with Statutes, Regulations, and Orders, 125 FERC ¶ 61,058 (2008). 
 

2009 Staff Report on Enforcement 4

B. Significant Matters 

1. BRIAN HUNTER HEARING

 The first evidentiary hearing involving the Commission’s anti-manipulation authority was held before 

an Administrative Law Judge in August-September, 2009. Brian Hunter, Docket No. IN07-26-004 

(Cintron, ALJ). Brian Hunter, a trader then employed by Amaranth Advisors L.L.C., was alleged to have 

entered into trades that manipulated the NYMEX natural gas futures settlement prices for three months in 

early 2006, thereby affecting natural gas physical prices throughout the United States.6

 Testimony of 

expert and fact witnesses focused on why Hunter sold large numbers of natural gas futures contracts in 

the time periods involved, whether Hunter intended by his trading to affect natural gas prices, and how to 

assess the effect of Hunter’s trading in gas markets. An initial decision by the Administrative Law Judge 

is expected in December 2009. 

2. FLORIDA BLACKOUT

 DOI staff, coordinating with staff in other Commission offices, completed its investigation into the 

causes of the 2008 Florida blackout.7

 The event, which occurred on February 26, 2008, led to the loss of 

22 transmission lines, 4,300 MW of generation, and 3,650 MW of customer service or load. The event 

originated at the Flagami Substation on the Florida Power and Light Company (FPL) system when a field 

engineer was diagnosing a piece of transmission equipment that had previously malfunctioned. In 

September 2009, Enforcement, NERC, and FPL signed a Stipulation and Consent Agreement relating to 

alleged violations of Reliability Standards committed by FPL. The settlement was approved by the 

Commission on October 8, 2009.8

 Under the settlement, FPL was required to pay a $25 million civil 

penalty. FPL is also adding significant additional protection redundancy at several transmission stations 

and has committed to undertake numerous specific reliability enhancement measures. These measures 

include: enhancing its compliance program; enhancing training and certification requirements for 

operating employees; improving its frequency response; updating emergency operating procedures; 

providing additional staffing for Bulk Electric System analysis; and ensuring that specified equipment is 

properly inspected and maintained. FPL has also agreed to make quarterly progress reports to 

Enforcement and NERC and conduct an independent audit after one year following the Agreement to 

ensure compliance with the Agreement. 

 

3. ENERGY TRANSFER PARTNERS

 DOI staff concluded the order to show cause proceedings in Energy Transfer Partners, L.P., et al.

(ETP) and Oasis Pipeline, L.P., et al. (Oasis Pipeline) in FY2009. These cases arose from a Commission 

Order To Show Cause issued on July 26, 2007. DOI staff alleged that ETP violated the then-effective 

market behavior rules by manipulating wholesale natural gas prices over a multi-month period at the 

Houston Ship Channel trading point.9

 With respect to Oasis Pipeline, DOI staff alleged undue 

discrimination by an intrastate pipeline providing service under section 311 of the Natural Gas Policy Act 

of 1978 (NGPA). On February 27, 2009, the Commission approved a Joint Offer of Settlement in Oasis 

Pipeline requiring provision of NGPA 311 service on a first-come, first-served basis and specifying 

numerous enhancements to Oasis Pipeline’s electronic bulletin board to increase transparency and prevent 

 

6

 Co-respondents Amaranth Advisors and affiliates settled staff’s allegations shortly before trial with payment of $7.5 million in civil 

penalties. 

7

 2008 Florida Blackout, 122 FERC ¶ 61,244 (2008). 8

 Florida Blackout, 129 FERC ¶ 61,016 (2009). 9

 The alleged violations occurred before the January 2006 effective date of rules to implement the Commission’s anti-manipulation 

authority. ETP’s conduct, therefore, was alleged to have violated former Market Behavior Rule 2, codified at 18 C.F.R. § 284.403(a) 

(2005). Most of the alleged wrongful conduct also predated the Commission’s penalty authority it received pursuant to EPAct 2005. 
 

2009 Staff Report on Enforcement 5

undue discrimination.10 On September 21, 2009, the Commission approved a Joint Offer of Settlement in 

ETP, under which ETP was required to pay $30 million consisting of a $5 million civil penalty to the U.S. 

Treasury and $25 million into a disgorgement fund to be distributed to those harmed by ETP’s conduct. 

A Commission Administrative Law Judge will determine appropriate distributions from the fund.11 The 

settlement also requires ETP to adhere to a compliance program, with outside auditing of that program, 

for two years. 

4. NYISO LOOP FLOW

 In FY2009, staff concluded a non-public investigation into allegations of market manipulation in 

connection with Lake Erie loop flows. In light of the significance of the issues raised and the impact on 

regional transmission organizations in the area, the Commission authorized the public disclosure of the 

DOI staff report, and adopted staff’s findings and conclusions.12 The investigation began in May 2008, 

when the Market Monitoring and Performance Department of the New York Independent System 

Operator, Inc. (NYISO) referred allegations of market manipulation to Enforcement. The issues revolved 

around whether market participants engaged in manipulation with regard to inter-control area transactions 

that unlawfully exploited a seam in the pricing methods used by NYISO, PJM Interconnection, L.L.C., 

the Midwest Independent Transmission System Operator, Inc., and Ontario’s Independent Electricity 

System Operator. Because there are no transmission lines under or over Lake Erie, electricity flows are 

split with a portion of power flowing clockwise and a portion flowing counterclockwise around the lake. 

Loop flow, which refers to physical flows that differ from scheduled flows, can cause congestion on 

transmission lines and that congestion can affect market prices of electricity. After extensive discovery, 

staff determined that the market participants involved in the investigation did not commit any tariff 

violations, were openly responding to organized market price signals, were not artificially affecting 

congestion in order to raise prices, and did not have the requisite scienter to commit market manipulation. 

5. POWER EDGE AND TOWER

 In December 2007, PJM declared a major default by Power Edge LLC (Power Edge), one of its 

members, the costs of which would have to be socialized among other PJM members. Power Edge was 

an affiliate of Tower Research Capital, LLC and other companies in a family of hedge funds (collectively 

Tower). Power Edge’s default set off a series of proceedings both before the Commission and in the 

courts between PJM and Tower. Enforcement staff opened a non-public investigation to explore 

allegations of manipulation in PJM’s day-ahead and Financial Transmission Rights (FTR) markets. In the 

first phase of its investigation, staff examined whether Tower entities perpetrated a fraud upon PJM by 

entering into coordinated, offsetting positions in the market for FTRs by concentrating high-risk or losing 

positions in Power Edge, and deliberately causing Power Edge to default on its obligations, while holding 

profitable positions through other affiliates. Staff also examined whether Tower deliberately undercapitalized Power Edge. 

 DOI staff concluded that the evidence did not support the allegations but, rather, that Tower supplied 

additional capital to Power Edge to try and prevent its collapse and that Power Edge’s FTR positions 

became unprofitable because of abnormal weather and transmission outages during the second half of 

2007. While certain issues involving allegations of manipulation of PJM’s FTR market remain under 

investigation, the Commission issued an order denying PJM’s complaint with respect to the corporate 

fraud issues and released Enforcement staff’s report.13

 

 

10 Oasis Pipeline, L.P., 126 FERC ¶ 61,188 (2009). 11 Energy Transfer Partners, L.P., 128 FERC ¶ 61,269 (2009). 12 New York Independent System Operator, Inc., 128 FERC ¶ 61,049 (2009). 13 PJM Interconnection, LLC v. Accord Energy, LLC, 127 FERC ¶ 61,007 (2009), reh’g denied, 129 FERC ¶ 61,010 (2009). 
 

2009 Staff Report on Enforcement 6

C. Settlements 

 In FY2009, the Commission approved 22 settlement agreements entered into by Enforcement for total 

civil penalty payments of $38,290,00014 and disgorgement of $38,694,188, plus interest.15 In the 

investigations leading to 15 of these settlements, DOI staff found violations of the Commission’s natural 

gas pipeline open access transportation requirements. Of the remaining settlements, six involved 

violations of 18 C.F.R. Part 1c or natural gas Market Behavior Rule 2,16 and one pertained to a violation 

of a Parking and Lending (PAL) Rate Schedule in a Commission approved tariff. 

 The 15 settlements concerning open access transportation resulted from both self-reports of violations 

and from DOI staff investigations of abuses in capacity release transactions known as “flipping.”17 Many 

cases involved more than one violation—failure to adhere to the shipper-must-have-title requirement, 

flipping, and prohibited buy/sell transactions occurred in several settled cases. In addition to civil 

penalties ranging from $320,000 to $5 million, many settlements involved disgorgement of unjust profits 

and require the submission of compliance monitoring reports to Enforcement. 

 FY2009 settlements involving allegations of manipulation include all parties to Amaranth Advisors,

except for Brian Hunter, and ETP. The other Amaranth Advisors parties entered into a settlement, as 

noted above, for payment of a $7.5 million civil penalty, an amount that reflected the adverse financial 

circumstances of the settling parties. The ETP settlement, also noted above, totaled $30 million. The 

remaining four manipulation settlements involved conduct in bidding for valuable pipeline capacity on 

the Cheyenne Plains Gas Pipeline Company, LLC (Cheyenne) pipeline. DOI staff investigated groups of 

affiliated companies that submitted multiple bids for the capacity. Four of the groups entered into 

settlements with Enforcement resulting in civil penalty payments of $8,385,000 and disgorgement of 

nearly $3.9 million, plus interest.18 Two groups of companies that declined to settle are the subjects of 

orders to show cause currently pending before the Commission.19

The remaining settlement involved alleged violations by Columbia Gas Pipeline Company 

(Columbia) of its PAL service and certain matters arising out of an audit. Columbia Gas agreed to 

disgorge $9 million in profits to certain customers and to pay a civil penalty of $1 million. The 

Commission’s order also helped assure that local distribution companies receiving disgorgement amounts 

would flow them through to their ratepayers.20 

 Total settlements for FY2009 exceeded the number of settlements in FY2008 and FY2007 combined. 

In FY2008, staff entered into seven settlement agreements that were approved by the Commission, for 

total civil penalty payments of $19.95 million. In FY2007, staff entered into ten settlement agreements 

that were approved by the Commission, for total civil penalty payments of $32.5 million. Settlements 

approved in FY2009 are compared, by type of violation, with settlements in FY2008 and FY2007: 

 

14 This does not include the FPL $25 million settlement noted above, which occurred shortly after the close of FY2009. 15 A table of EPAct Civil Penalty Enforcement Actions in FY2009 is attached to this report as Appendix B. 16 18 C.F.R. § 284.403(a) (2005) (predating the promulgation of 18 C.F.R. Part Ic). 17 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. 

18 In re Tenaska Mktg. Ventures, In re ONEOK, Inc., In re Klabzuba Oil & Gas, F.L.P. and In re Jefferson Energy Trading, LLC, 126 

FERC ¶ 61,040 (2009). 

19 Seminole Energy Services, 126 FERC ¶ 61,041 (2009); Nat’l Fuel Mktg. Co., 126 FERC ¶ 61,042 (2009). 20 Columbia Gas Transmission Corp., 125 FERC ¶ 61,150 (2008). 
 

2009 Staff Report on Enforcement 7
 

2009 Staff Report on Enforcement 8

D. Self-Reports 

 Since issuance of the first Policy Statement on Enforcement,21 staff has received a total of 258 selfreports. This total is broken down by fiscal year as follows: 

 FY2006 -- 37 reports received 

 FY2007 -- 31 reports received 

 FY2008 -- 68 reports received 

 FY2009 -- 122 reports received 

 As these yearly totals demonstrate, the number of self-reports submitted to DOI have increased 

significantly from FY2007 to the present. 

 Of the 122 self-reports received in FY2009, staff closed 62 of them after an initial review and without 

opening an investigation, and one more was closed without sanctions after conducting an investigation. 

Staff’s initial review is pending for 45 of these self-reports and 14 have been or are being investigated, of 

which four have settled with sanctions. For comparison, in FY2008, staff received 68 self-reports. Staff 

closed 25 of them after an initial review, and three were closed without penalties after conducting an 

investigation. Thirty-three of the self-reports were investigated in FY2008, while seven were pending 

initial review. 

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

for which staff received self-reports for FY2009 and FY2008. As the charts demonstrate, self-reports 

related to the Commission’s natural gas pipeline open access requirements continue to represent a 

significant portion of all self-reports received by Enforcement. While the number of self reported open 

access violations decreased from FY2008 to FY2009, this category of self reports still accounts for a 

significant portion of all self-reports received in FY2009. 

 In FY2009 the number of self-reported Tariff or Open Access Transmission Tariff (OATT) violations 

increased significantly. In comparison to FY2008, this year staff received over ten times as many self 

reports of possible Tariff or OATT violations. Also, for the first time, staff received self-reports of 

possible violations of the Commission’s market behavior rules, NGPA Section 311 transportation 

requirements, material deviations from Commission approved tariffs, and violations of ISO or RTO 

requirements. 

 

21 Enforcement of Statutes, Orders, Rules, and Regulations, 113 FERC ¶ 61,068 (2005). 
 

2009 Staff Report on Enforcement 9
 

2009 Staff Report on Enforcement 10

1. ILLUSTRATIVE SELF-REPORTS CLOSED WITH NO ACTION

 Staff recognizes that it is beneficial to the public, and to regulated entities, to provide information 

regarding the circumstances in which staff determines that sanctions are not necessary. In its continued 

effort to promote and encourage the compliance efforts of regulated entities, the following illustrations 

summarize the circumstances surrounding some of the self-reports staff received in FY2009 that were 

closed with no action and the reasons why staff chose not to pursue enforcement action in these matters. 

These illustrations are intended to provide guidance to the public and to regulated entities, while still 

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

Transmission Service Practices. A public utility company (Company) self-reported violations of 18 

C.F.R. § 37.6(e)(1)(i), Company’s OATT, and Company’s Business Practices. Over the course of a year, 

Company sold non-firm point-to-point transmission service to neighboring customers at times when 

Company had reduced its available transfer capability to zero and cut service to firm customers on certain 

paths. These sales were made during times when the neighboring customers lost their transmission 

capabilities directly to serve a pocket of their respective native loads because of planned and unplanned 

transmission outages. These load pockets would have been stranded unless they were provided power 

using Company’s lines. The firm customers whose services were cut had reservations on the lines but, 

because of the location of the outage, the firm customers’ power was not deliverable to its final 

destination via that line. Company violated transmission service practice rules, but because Company 

was acting in the interest of reliability by serving customers who would have been stranded, and because 

the violations were: limited in volume; found, self-reported, and corrected; were not done for financial 

gain; and resulted in no harm to the market, staff closed the matter with no further action. 

Untimely QF Certification Filing. A paper production company (Company) had been selling electrical 

output of its 375 KW hydro turbine without having filed the appropriate Qualifying Facility (QF) selfcertification Form 556 from 2006 through 2008. Company believed that this failure to comply with the 

Commission’s regulations resulted from a misunderstanding of the difference between being exempt from 

licensing and being a QF. To remedy the situation on a prospective basis, Company filed the appropriate 

forms for self-certification of its QF status and self-reported its failure to certify timely. Staff concluded 

that this failure to timely file a self-certification Form 556 was unintentional, and that Company’s 

voluntary corrective filing was consistent with the Commission’s expectation that companies make 

curative out-of-time filings. Because the failure to file was not intentional, caused no harm, and because 

Company cured the error and reported it to staff, staff closed the matter with no further action. 

Unreserved Use Penalties. A utility company (Company) submitted a self-report to DOI staff after being 

assessed an unreserved use penalty by its transmission provider under the provisions of the provider’s 

Open Access Transmission Tariff. Company reported that it had been charged $704,275 in unreserved 

use penalties over a 47 hour period spanning 13 months. According to Company, these scheduling errors 

were inadvertent. Because Company has already paid these penalties to its transmission provider, staff 

determined that the self-report should be closed with no further action. 

Disclosure of Transmission Information. Employee of a natural gas transmission company (Company) 

inadvertently sent an e-mail with a non-public capacity posting to a marketing affiliate employee. The 

transmission employee intended to send the e-mail to a transmission employee with a similar name. The 

transmission employee immediately called the marketing affiliate employee with instructions not to open 

the e-mail. Even though the marketing affiliate employee had not opened the e-mail, Company treated 

the incident as an improper disclosure and posted the incident and the e-mail on its website. Company 

also reconfigured its mail servers so that transmission employees and marketing affiliate employees are 

accessed separately to help ensure that similar incidents do not occur. Staff concluded that Company 

quickly recognized and took action to correct the mistake, that the incident was inadvertent, and that 

Company immediately took steps to prevent future occurrences. Because there was no harm or unjust 
 

2009 Staff Report on Enforcement 11

profits, no intent, and no involvement of senior management, and because this was an isolated compliance 

issue that was immediately addressed, the matter was closed with no further action. 

Failure to Submit Required Filings. Several affiliated companies (Companies) that provide interstate gas 

transportation service under section 311 of the Natural Gas Policy Act of 1978 and Subpart C of Part 284 

of the Commission’s regulations failed to comply with certain requirements of Part 284. Specifically, two 

of the Companies failed to submit Form 549 annual reports identifying shippers, volumes, and revenues 

associated with interstate transportation under section 284.126(b) of the Commission’s regulations, 18 

C.F.R. § 284.126(b) (2009). In addition, one Company failed to revise its Statement of Operating 

Conditions in violation of a 1999 Commission order. Finally, an affiliated interstate pipeline that 

provides interstate transportation service under Subpart A of Part 284 failed to file a Form 549B annual 

peak day capacity report required by section 284.13(d)(2) of the Commission’s regulations, 18 C.F.R. § 

284.13(d)(2) (2009). Staff concluded that Companies did not intentionally fail to submit the required 

filings. Staff noted that Companies discovered the violations and promptly self-reported the violations to 

DOI. Because there was no indication that the violations caused harm, and because Companies 

performed a thorough review of pertinent Commission filing requirements to ensure compliance and 

updated their compliance tracking tool to prevent the violations from recurring, staff closed the matter 

with no further action. 

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

electric utility company (Company) self-reported that it conducted an internal review of its short-term 

power sales transactions and discovered that it had mislabeled some market-based rate transactions as 

cost-based rate transactions and inaccurately reported the transactions in its EQR submittals to the 

Commission. Company also discovered that it overcharged some in-state customers when it assessed 

these customers market-based rates instead of cost-based rates. Company performed a comprehensive 

review of its EQR submittals for all of its market-based rate transactions and filed amended EQRs 

accurately to reflect its transactions. Company also submitted an affidavit confirming that it refunded 

$267,218 plus interest to the in-state customers that were overcharged. Additionally, Company 

implemented detailed compliance procedures that included mandatory training and software replacements 

to prevent violations in the future. Because there was no economic harm or economic benefit from the 

EQR violations after the refunds were made, and because Company promptly refunded the overcharged 

amounts, staff closed the matter with no further action. 

Shipper-must-have-title violation. A natural gas company (Company) delivering gas to certain industrial 

facilities executed contracts and transaction confirmations showing the point of sale of natural gas as the 

receipt point on an interstate pipeline rather than the delivery point. The gas was shipped on capacity 

held by Company, resulting in a shipper-must-have-title violation. Company submitted a detailed selfreport that explained that the designated point of sale was intended to be upon delivery, but that 

unfamiliar contract forms were used and incorrectly filled out. While the error continued for some time, 

when it was discovered it was immediately corrected and a comprehensive report was submitted. In 

addition, Company submitted information showing that it had in place a regular and comprehensive 

training program on transportation requirements, including specifically the shipper-must-have-title 

requirement, and documented that the employees responsible for completing the documents had received 

the training. Because the gas was delivered to the contracting counterparty, because the identification of 

the point of title transfer was the result of unfamiliarity with the form contracts, and because Company 

had provided the relevant employees with comprehensive training on transportation requirements, staff 

closed the matter with no further action. 

Buy/sell violation. During post-Hurricane Ike restarting of Gulf of Mexico offshore facilities, a natural 

gas company (Company) purchased gas supply from a producer. Both Company and the producer had 

capacity on offshore pipeline facilities, and Company nominated the gas to flow on its capacity. The 

producer requested that its capacity be used. A Company scheduler, aware of the shipper-must-have-title 

requirement, sold the gas back to the producer, which transported it on the producer’s capacity, and 

repurchased the gas from the producer after transportation. Another Company employee reviewing 

transaction paperwork noticed the buy/sell and informed a Company officer, who immediately stopped 
 

2009 Staff Report on Enforcement 12

the transaction and restructured it to purchase the gas in the first instance after transportation. The 

buy/sell lasted only six days and involved less than 11,000 Dth of natural gas. Company made a prompt 

and complete self-report. Because the transaction occurred in the confusion of restarting offshore service, 

because the Company’s supervision and review of transactions discovered the violation in less than one 

week, and because the violation involved de minimis quantities, staff closed the matter with no further 

action. 

Shipper-must-have-title violation. As a result of training employees on natural gas transportation 

requirements, a trading and marketing company (Company) discovered a transaction in which Company 

was using interruptible pipeline capacity of an affiliate company to transport gas owned by Company. 

The violation lasted about four months and was limited to the Henry Hub area. Upon learning of the 

violation, Company immediately changed the transportation arrangements to comply with the shippermust-have-title requirement and provided additional training for its staff. Company promptly reported the 

violation and submitted complete information about the incident. Because the violation was for a limited 

period of time, involved only interruptible capacity within the Henry Hub area, and involved an affiliate’s 

capacity rights, and because Company acted promptly upon discovery to end the violation, staff closed 

the matter with no further action. 

Buy/sell violations. Following attendance at a conference at which a Commission representative spoke 

about enforcement and compliance, a marketing company (Company) became aware that it had engaged 

in a buy/sell transaction for six days related to moving gas into storage, and another buy/sell for 35 days 

related to resolving imbalances. Company initiated a self-report two days later and restructured the 

transactions to avoid the violation. Company voluntarily undertook a review of its transportation-related 

activities for other possible buy/sell violations and reported certain additional transactions to staff. Upon 

review, staff determined that the storage-related transaction was a buy/sell but that the other transactions 

were not violations. Because the scope of the violation was limited, and the violation was corrected 

immediately upon discovery, and because the potential for harm was small in these circumstances, staff 

closed the matter with no further action. 

Misuse of NGPA Section 311 facility. A company with limited pipeline operations (Company) was 

authorized to construct a compressor station under NGPA Section 311 for use in service on behalf of 

qualifying shippers. Some years ago, following a merger with another company with larger pipeline 

operations, Company decided to file an application to authorize NGA service through the compressor 

station. The application, however, was never filed. Company did not closely monitor contracts to assure 

that all service rendered through the compressor station was “on behalf of” qualifying entities. Recently, 

Company prepared the certificate application and discovered that it could not substantiate that all prior 

service had met the “on behalf of” requirement. Company self-reported the circumstances it had 

discovered, and also filed a certificate application. Because some documentation did indicate that at least 

some service rendered through the compressor station met the “on behalf of” requirement, and because 

certificate authority was sought and granted, staff closed the matter with no further action. 

Price Reporting Guidelines. A company with a blanket marketing certificate (Company) self-reported 

that it had not reported its natural gas transactions to price index publishers consistent with the 

Commission’s price reporting guidelines. Price Discovery in Natural Gas and Electric Markets, 104 

FERC ¶ 61,121, as clarified, 105 FERC ¶ 61,282 (2003), as further clarified, 112 FERC ¶ 61,040 (2005). 

A blanket certificate holder must conform to those guidelines if reporting prices. 18 C.F.R. § 284.403 

(2009). Company noted the following noncompliance: 1) it reported next-day but not next-month 

transactions; 2) it did not have an independent audit focused on price reporting; 3) it did not have 

confidentiality agreements with all price index developers; and, 4) it reported transactions only for points 

at which a price index publisher had established price indices and not all transactions at all trading 

locations. After follow-up discussions with staff, Company corrected its protocols for reporting. Because 

Company corrected its practices, the omissions were relatively minor, and because there was no evidence 

of intentional misconduct, staff closed the matter with no further action. 
 

2009 Staff Report on Enforcement 13

Software Coding Error by RTO. During a standard software validation review on an unrelated matter, an 

RTO discovered that the software code for calculating estimated exposure for real time energy, day ahead 

energy, congestion and losses was using a 366-day rolling average instead of the 365-day rolling average 

required by RTO’s tariff. RTO promptly corrected the software code and self-reported the violation. 

RTO ran an analysis to determine the financial impact of the violation and determined that it was 

insignificant. RTO reported the error to stakeholders, none of whom expressed concern. RTO also 

posted notification of the error on its website. Because the error was inadvertent, because there was no 

indication of harm from the violation, and because the RTO promptly and openly corrected the error and 

notified the Commission staff and market participants, staff closed the matter with no further action. 

Filing of Jurisdictional Transmission Agreements. Following an internal regulatory compliance review, a 

public utility company (Company) identified several jurisdictional transmission and interconnection 

agreements that Company had failed to file with the Commission under section 205 of the Federal Power 

Act (FPA). Additionally, some of these agreements were not properly reflected in Company’s Electric 

Quarterly Reports (EQRs). Company self-reported the violations and provided a detailed explanation of 

how the violations occurred and new compliance procedures implemented by Company to ensure that 

similar violations did not recur. Additionally, Company promptly re-submitted EQRs to account for the 

prior omissions. Because there was no harm to the market, there was no evidence of fraud or intent to 

avoid compliance with the Commission’s regulations, and Company quickly and comprehensively 

conducted an internal investigation and self-reported the violations, and because Company voluntarily 

adopted a satisfactory compliance program, staff closed the matter with no further action. 

2. ILLUSTRATIVE SELF-REPORTS CONVERTED TO INVESTIGATIONS BUT CLOSED WITH NO ACTION

 The following illustrations provide a short summary of the circumstances surrounding some of the 

self-reports staff received in FY2009 for which investigations were opened but, upon investigation, were 

closed with no action. 

Tariff Violation. Staff conducted an investigation after an electric utility company (Company) selfreported that it failed to convert a one-year experimental study review process to permanent status. After 

the review should have expired, Company continued to study and approve requests under the 

experimental process. In addition to the self-report, Company also filed a tariff waiver and sought the 

permanent approval of the review process. The Commission granted the waiver, thus retroactively 

approving the studies that were erroneously completed while the review process was not Commissionapproved. Because the Commission approved the waiver request and the experimental review process 

also allowed for a more efficient study review, staff closed the matter with no further action. 

Oversubscription of Firm Capacity and Posting Violations. A natural gas company (Company) submitted 

a self-report to Enforcement staff addressing: 1) oversubscription of firm capacity on its system; 2) 

omissions with respect to its transactional and discount postings; and 3) improper execution of discount 

rate contracts. Staff required Company to submit monthly reports detailing how it was managing the 

oversubscription and to notify staff immediately if daily nominations exceeded certificated capacity. 

Company’s oversubscription problem was eliminated after it placed a new compressor station into 

service, which increased Company’s system capability. Company also submitted an affidavit describing 

the corrections Company has taken and the steps in place for the future to assure that postings would be 

done for the future, and demonstrated that the error in executing discount contracts did not have any 

substantive effect. Because Company appropriately identified and managed its oversubscription problem 

and did not deny or reduce any firm service requests, and because Company took adequate steps to 

eliminate posting errors and correct the ministerial errors in discount rate contracts, staff closed the matter 

with no further action. 

Posting Violations and Oversubscription of Firm Capacity. After an internal review and investigation, 

Company A submitted a self-report to staff acknowledging that it participated as a replacement shipper in 

certain capacity release transactions. Company B, the releasing shipper in these transactions, also 
 

2009 Staff Report on Enforcement 14

submitted a self-report to staff. Staff concluded that the transactions between Company A and Company 

B violated the Commission’s competitive bidding requirements by failing to post required information on 

the terms of the release and by continuing the transactions on a month-to-month basis without posting the 

release for competitive bidding. Nonetheless, because the violations did not result in unjust profits or 

harm to the market and were of limited scope and duration, and because both companies put adequate 

compliance measures in place to insure that no other similar violations would occur in the future, staff 

closed the matter with no further action. 

Shipper-Must-Have-Title Violation. A services company (Company) that purchases natural gas and sells 

it to affiliated companies for use at power plants self-reported shipper-must-have-title violations. Staff 

investigated and confirmed that over the course of three and a half years, Company transported 

approximately 2.7 Bcf of natural gas in violation of the Commission’s shipper-must-have-title 

requirement. Of the 2.7 Bcf of gas, 70 percent of the gas was associated with interruptible contracts. 

Because the violation was limited in volume and duration; found, self-reported and corrected by 

Company; and presented no harm to the market, staff closed the matter with no further action. 

E. Investigations 

 During FY2009, staff observed trends in the types and sources of non-self-report investigations it 

conducted. First, staff opened fewer investigations than it did in FY2008. In FY2008 staff opened 48 

investigations and in FY2009 staff opened 10 investigations. Seven of the ten investigations opened in 

FY2009 involve market manipulation. Generally speaking, market manipulation investigations are more 

complex and require significantly greater staff resources than other types of investigations. 

1. STATISTICS ON INVESTIGATIONS

 Of the ten investigations staff opened this fiscal year, seven investigations involve market 

manipulation, four investigations implicate violations of 18 C.F.R. § 35.41(b) (2009) of the 

Commission’s market behavior rules, three investigations address tariff violations, two investigations 

pertain to open access transportation and one investigation relates to violations of NERC’s reliability 

standards. As indicated in the chart below, half of the investigations opened this year entail more than 

one type of violation. 
 

2009 Staff Report on Enforcement 15

 In FY2009, four of the investigations staff opened 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.22 Three of the four investigations opened this fiscal year 

as a result of MMU referrals involve alleged market manipulation. While the four MMU referrals 

received this year are fewer than the 14 referrals received in FY2008, preliminary investigations resulting 

from referrals still account for a significant percentage of Enforcement staff’s investigations. To date, 

Enforcement has received 21 referrals from MMUs, 19 of which were converted to preliminary 

investigations. 

 Staff closed a total of 36 investigations in FY2009 as compared to 22 during FY2008. Of the 36 

investigations closed this fiscal year, six investigations, or 17 percent, were closed with no finding of a 

violation. In eight, or 22 percent of the investigations, staff found a violation, but the investigation was 

closed with no sanctions. Finally, 22, or 61 percent of the investigations, were concluded through 

settlement. For comparison purposes, in FY2008 seven investigations, or 32 percent, were closed with 

staff finding no violation. Also during FY2008, eight investigations, or 36 percent, were closed with a 

finding of a violation, but closed with no sanctions and seven investigations, or 32 percent, were 

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

FY2007 through FY2009 and also highlight the types of violations that staff examined for those 

investigations that were closed without sanctions from FY2007 to FY2009. 

 

22 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). 
 

2009 Staff Report on Enforcement 16
 

2009 Staff Report on Enforcement 17

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. 

False or misleading communications to RTO. Staff investigated whether an electric company (Company) 

violated section 35.41(b) of the Commission’s regulations, which prohibits false or misleading 

communications from market sellers to Commission-approved RTOs. Staff concluded that, while a 

communication from Company to an ISO which provided a specified capacity commitment turned out to 

be inaccurate, Company had good reason to believe that its communication was correct when made. The 

ISO assessed a deficiency charge against Company, which contained a penalty component that was timely 

paid by Company. Staff concluded that these events presented no demonstrable financial harm to the 

market and Company generated no unjust profits. The investigation was therefore closed without 

sanctions. 

FPA 203 violation. Staff investigated an electric company’s (Company) failure to make timely filings 

pursuant to section 203 of the Federal Power Act (FPA). The divestiture of Company’s public utility 

holdings, which triggered the need for an FPA 203 filing, resulted from a cease and desist order issued by 

the Securities and Exchange Commission (SEC) calling for the divestiture of jurisdictional assets. As 

soon as Company was informed of the need to make the section 203 filings it worked to remedy the 

situation by preparing an application and bringing the matter to the attention of staff. Staff determined 

that Company’s failure to file timely pursuant to FPA 203 was corrected, presented no demonstrable 

financial harm to the market, and generated no unjust profits. The investigation was therefore closed 

without sanctions. 

Flipping violations. A natural gas company (Company) self-reported two sets of flipping transactions. 

Company’s flipping transactions involved releasing capacity at a discount for alternating months to two 

entities in violation of the posting and bidding requirements for discounted rate firm capacity at 18 C.F.R. 

§ 284.8 (2009). Because Company acted proactively after the violations were uncovered and the total 

volume transported by the replacement shippers through the flipping releases was approximately 2/3 of a 

Bcf, the investigation was closed without sanctions. 

F. Reliability 

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

Program, NERC files Notices of Penalty with the Commission that reflect violations of the Reliability 

Standards found by NERC or one of the eight Regional Entities after investigation. Each Notice of 

Penalty 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 Notice of Penalty becomes effective by operation of law thirty days after 

filing with the Commission if the Commission takes no action within that time to either request more 

information or 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, as occurred in the Florida 

Blackout matter discussed earlier.23 Several such investigations are pending. 

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

Counsel (OGC) to review the Notices of Penalty as they are filed and determine whether to recommend 

 

23 2008 Florida Blackout, 122 FERC ¶ 61,244 (2008); Florida Blackout, 129 FERC ¶ 61,016 (2009). 
 

2009 Staff Report on Enforcement 18

that the Commission take action or decline further review. This fiscal year all 97 violations in 46 Notices 

of Penalty submitted by NERC became effective without further review by the Commission. By 

comparison, staff reviewed 105 violations in 37 Notices of Penalty filed by NERC in FY2008, all of 

which became effective thirty days after filing without further review by the Commission. In FY2009, 

there were 24 zero dollar penalties and 22 non-zero penalties totaling $1,336,000. The largest single 

penalty of FY2009, which arose from a settlement between FPL Energy, LLC, and SERC, is $250,000 

and related to violations of reliability standards PRC-005-1 (protections system maintenance and testing) 

and CIP-001-1 (sabotage reporting).24

 

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. 

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. 

 In FY2009, Enforcement received 509 Hotline calls and inquiries, and a total of 485 Hotline matters 

were resolved. The most common category of call concerned landowner complaints about natural gas 

pipeline construction (274). 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 FY2009, 

one Hotline call was converted to a preliminary investigation. 

 

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

2009 Staff Report on Enforcement 19

IV. DIVISION OF AUDITS

A. Overview 

 The Division of Audits within the Office of Enforcement (DA) operates and maintains an audit 

program that is instrumental in ensuring that jurisdictional companies and entities comply with statutes 

and Commission orders, rules, and regulations by conducting an array of audits. DA continues to 

promote and ensure compliance through its audit process. During the course of an audit, DA staff works 

closely with jurisdictional companies to bring them into compliance with statutes and Commission rules, 

regulations, orders and polices. Staff discusses and provides compliance guidance informally to 

jurisdictional companies during the course of the audit engagement and areas of noncompliance, if 

applicable, are discussed throughout the audit engagement. 

 DA staff promotes compliance primarily through transparency and outreach. Audit transparency is 

bolstered through public postings on the Commission’s eLibrary system of audit commencement letters 

and final audit reports and through information about the audit process posted on the Commission’s 

website.25 The public disclosure of these documents provides the public, jurisdictional entities, and others 

with information about compliance areas that the Commission is emphasizing. Also, transparency and 

outreach provide jurisdictional entities with 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, 26 and feedback from reliability observation audits. Outreach efforts are another 

way DA staff provides compliance guidance to the public and jurisdictional companies. Outreach 

includes discussing compliance topics with company officials and industry representatives. Also, DA 

staff participates in phone conferences and ad hoc meetings to address specific compliance concerns 

received from jurisdictional companies. 

B. Significant Matters 

 In FY2009, DA staff joined OER staff to observe 12 reliability audits conducted by the eight 

Regional Entities and three Agreed-Upon Procedures (AUP) audits27 conducted on behalf of NERC. 

These audits focused on the compliance of Bulk-Power system users, owners, and operators with 

mandatory reliability standards. As observers, DA’s and OER’s role on these reliability audits was to 

understand the Regional Entity audit process and to engage in discussions with Regional Entity audit 

teams, which usually included a NERC participant, to examine lessons learned about audit processes, 

methods, and techniques. Also, DA and OER participated with NERC and its outside contractor on three 

AUP engagements in which NERC evaluated the Regional Entity’s performance under its delegation 

agreement, using a selected set of AUPs developed to assess compliance. On each of these 15 audits, DA 

staff collaborated with the Regional Entities and NERC, and provided feedback based on DA’s audit 

experience on ways to enhance the organizations’ processes. 

 

25 The Office of Enforcement Audit Process is available at http://www.ferc.gov/enforcement/audits/audit-process.pdf. 26 The Frequently Asked Questions page on the FERC website is available at http://www.ferc.gov/o12faqpro/default.asp?. 27 In the field of public accounting, the American Institute of Certified Public Accountants narrowly defines an audit as a specific type 

of financial engagement. Since a reliability audit falls outside that narrow scope and NERC contracted out its auditing function to a 

public accounting firm, NERC instead contracted for a specific type of “audit” known as an Agreed-Upon Procedures (AUP) 

engagement. However, the steps required in these AUP engagements conducted by an outside contractor are identical to the steps

NERC would have taken had it conducted the audits itself. 
 

2009 Staff Report on Enforcement 20

 Other notable audits in FY2009 included the following jurisdictional companies: Southern Star 

Central Gas Pipeline, Inc. (Southern Star), Southwest Power Pool Regional Transmission Organization 

(SPP-RTO), and New York Independent System Operator (NYISO). 

1. SOUTHERN STAR

 As a result of the Southern Star audit,28 which found noncompliance with respect to filing with the 

Commission contracts with material deviations, staff developed a list of Frequently Asked Questions 

(FAQs) to address contracts containing material deviations from the forms of service agreement in 

pipelines’ tariffs. The compliance guidance resulting from the FAQs helped jurisdictional companies and 

industry officials to comply with the Commission’s requirements for the filing of contracts with material 

deviations. 

2. SOUTHWEST POWER POOL

 DA discovered some weaknesses with certain aspects of SPP-RTO’s compliance with its OATT, 

standards of conduct, and administrative policies for travel. As a result of the weaknesses, the 

Commission required SPP-RTO to adopt corrective measures to strengthen and develop its policies and 

procedures for notifying customers and market participants of tariff-related problems, market participant 

audits, travel, board member selections, and nonmonetary gratuities.29

 

 

3. NYISO

 In the NYISO audit,30 DA staff addressed concerns about the independence of NYISO’s internal 

MMU due to its reporting relationship and responsiveness to NYISO’s CEO. This audit also disclosed 

that NYISO failed to consistently notify the Commission and market participants on a timely basis when 

NYISO discovered tariff-related problems. The Commission required NYISO to address independence 

concerns with the MMU, as well as the problem with NYISO not timely notifying market participants and 

the Commission of tariff-related problems. 

C. Audit Statistics 

 In FY2009, DA completed 33 audits of public utilities and natural gas pipeline and storage 

companies. The audits consisted of nonfinancial and financial audits. Twenty-eight of the audits were 

nonfinancial audits and focused on ensuring jurisdictional entities’ compliance with regional transmission 

organization and independent system operators’ RTO/ISO tariff requirements; compliance with reliability 

delegation agreements and compliance monitoring and enforcement programs (CMEPs); Open Access 

Transmission Tariffs (OATTs); gas tariff requirements; preservation of records; market-based rates; and 

Open Access Same-time Information Systems (OASIS). The remaining five audits were financial and 

addressed: RTO/ISO accounting and reporting regulations; affiliated transactions and the Public Utility 

Holding Company Act of 2005 (PUHCA 2005); and Fuel Adjustment Clauses (FACs). 

 

 These 33 audits resulted in 112 recommendations for corrective action and included $2.8 million in 

monetary recoveries from accounting and billing adjustments. DA staff continues to require that 

jurisdictional companies implement compliance plans to ensure that Commission regulatory requirements 

are met, including those undertaken for the comprehensive training of employees, periodic self-auditing, 

and establishing and monitoring of processes, practices, and procedures. To assess whether corrective 

 

28 Southern Star Central Gas Pipeline, Inc., 125 FERC ¶ 61,082 (2008). 29 Southwest Power Pool, Inc., 127 FERC ¶ 61,119 (2009). 30 New York Independent System Operator, Inc., 127 FERC ¶ 61,120 (2009). 
 

2009 Staff Report on Enforcement 21

actions are properly implemented by jurisdictional companies and entities, on occasion, DA staff 

conducts a post-audit site visit to examine whether the subject of the audit has implemented DA’s 

recommendations. DA staff tracks all audit recommendations to ensure that they are implemented. 

D. Summary of Audit Results 

 The following illustrations highlight the results of several major categories of audits completed in 

FY2009. 

1. RELIABILITY

 During FY2009, DA staff conducted an independence audit of SPP and, as previously mentioned, 

participated as observers on 12 nondocketed reliability audits the Regional Entities conducted of the 

users, owners, and operators of the Bulk-Power System throughout the United States. Also, as noted 

above, DA staff observed audits conducted by NERC and its outside contractor of three Regional Entities’ 

performance under their respective delegation agreements. 

Southwest Power Pool – Regional Entity. This audit was completed with a Commission order approving 

the audit report on January 15, 2009 in Docket No. PA08-2-000.31 In the audit of SPP, DA staff sought to 

determine SPP’s compliance with its Bylaws and Delegation Agreement between NERC and SPP, and the 

conditions included in relevant Commission orders. The audit identified three main areas of concern: 1) 

the lack of SPP-Regional Entity independence from SPP-RTO; 2) the need to improve trustees’ oversight 

of Regional Entity functions to prevent conflicts of interest and to ensure SPP-Regional Entity’s 

independence; and 3) the adequacy of SPP-Regional Entity implementation of certain aspects of the 

Compliance Monitoring and Enforcement Program (CMEP). SPP-Regional Entity promptly acted to 

correct the three main areas of concerns the audit identified. Significant corrective measures included 

hiring a regional manager to oversee all delegated functions of SPP-Regional Entity and to serve as the 

primary representative to NERC, and implementing numerous process and control procedures to address 

independence concerns. DA staff will conduct a post-audit site visit to SPP when all recommendations 

have been followed and all corrective actions have been properly completed. 

Reliability Audits – Order No. 693. As noted, DA staff, in conjunction with OER staff, participated in 

eight audits, one from each of the reliability regions, in which the RE conducted a compliance audit 

pursuant to Order No. 69332 mandatory reliability standards that were actively monitored in the NERC 

2009 CMEP. DA staff addressed audit processes and procedures the Regional Entity employed, while 

OER staff focused on the technical rigor demonstrated. On January 15, 2009, the Commission issued an 

order in Docket No. AD09-3-000, which provided guidance on conducting compliance audits to NERC 

and the eight Regional Entities.33 The guidance, which derived from staff’s audit observations, covered 

several areas of improvements in three main areas: audit team leadership and training, pre-audit 

procedures, and procedures during the course of a compliance audit. 

Reliability Audits (Critical Information Protection) – Order No. 706. DA staff worked closely with OER 

staff on four Order No. 70634 audits during FY2009. Order No. 706 audits deal with new, mandatory 

Critical Information Protection (CIP) reliability standards. These standards became auditable beginning 

July 1, 2009, although some entities agreed to allow themselves to be audited in advance. Two of the 

entities audited were ISOs (which perform a multitude of reliability functions), one was a Reliability 

Coordinator (RC) and the fourth was both a Balancing Authority (BA) and a Transmission Operator 

 

31 Southwest Power Pool, Inc., 126 FERC ¶ 61,045 (2009). 32 Mandatory Reliability Standards for the Bulk-Power System, Order No. 693, FERC Stats. & Regs. ¶ 31,242 (2007), order on 

reh’g, Order No. 693-A, 120 FERC ¶ 61,053 (2007). 33 Compliance with Mandatory Reliability Standards, 126 FERC ¶ 61,038 (2009). 34 Mandatory Reliability Standards for Critical Infrastructure Protection, Order No. 706, 122 FERC ¶ 61,040 (2008), order on reh’g, 

Order No. 706-A, 123 FERC ¶ 61,174 (2008), order on clarification, Order No. 706-B, 126 FERC ¶ 61,229 (2009), order denying 

request for clarification, Order No. 706-C, 127 FERC ¶ 61,273 (2009). 
 

2009 Staff Report on Enforcement 22

(TOP). During the first year of the program, the Regional Entities audited only entities performing the 

RC, BA, and TOP reliability functions. Given the nature of the entities audited, a high level of 

compliance was anticipated and, in general, the audits demonstrated these organizations’ preparedness. 

Agreed-Upon Procedures Engagement. DA staff observed NERC audits of Regional Entities for 

performance under delegation agreements, using a selected set of AUPs developed to assess compliance. 

The AUPs allow an impartial, third party consultant to audit the Regional Entities. To date, NERC and its 

auditing consultant have audited three of the eight Regional Entities: ReliabilityFirst Corporation, SERC 

Reliability Corporation, and the Midwest Reliability Organization. DA and OER staff members have 

attended all AUP engagements. Their participation included observing work performed by a consulting 

firm which focused on quantifying compliance with the procedures and processes of the NERC CMEP 

program. Also, DA staff observed NERC’s examination of confidential data handling and sample audit 

reviews that require confidential treatment and specialized industry-specific knowledge. To date, AUP 

engagements have not revealed any significant concerns as to how the Regional Entities have performed 

their duties under their delegation agreements. Numerous exceptions have been reported, but they have 

been relatively minor. Given the new programs that have been put into place, such exceptions are not 

surprising. It is anticipated that most exceptions found to date have already been eliminated from the 

processes and procedures as the programs matured or can be addressed by tightening up adherence of the 

Regional Entity to specific program requirements. 

2. NYISO

 DA audited NYISO in Docket No. PA08-3-00035 to determine whether NYISO complied with a select 

set of its responsibilities under its tariffs and agreements, including: 1) the NYISO Agreement, 2) the 

Membership Agreement, 3) the Market Services Tariff, and 4) the OATT. NYISO employs a hybrid 

market-monitoring structure. In this audit, DA staff looked at market monitor independence, among other 

items. The Commission issued an order approving this audit report that makes recommendations 

intended to improve the independence of NYISO’s market monitor, as well as NYISO’s notification of 

market participants of tariff filings, and the timing of NYISO’s Commission filings.36 NYISO 

implemented corrective actions to address audit staff’s independence concerns and notification 

requirements to the Commission and market participants. 

3. SOUTHWEST POWER POOL

 The audit evaluated Southwest Power Pool – Regional Transmission Organization’s (SPP-RTO) 

compliance with: 1) SPP’s Bylaws; 2) the SPP Membership Agreement; 3) transmission provider 

obligations described in SPP’s OATT; and 4) other Commission-approved obligations and 

responsibilities. 37 The audit report found that SPP did not: notify its customers of its inability to complete 

system-impact and facilities studies before OATT-specified deadlines; conduct any audits of participants 

in its energy imbalance service market to determine their compliance with data-retention requirements, as 

required by SPP-RTO’s OATT; and follow its travel policy for the use of chartered or private aircraft, 

including verification of costs it was charged for the use of a plane owned by its Chief Executive Officer 

and Chief Financial Officer (CFO). Also, DA staff recommended that SPP-RTO adopt standards of 

conduct governing nonmonetary gratuities and review potential conflicts of interest affecting board 

members who are also affiliated with a law firm doing business with public utilities operating in the SPP 

service territory, and a member of a company that insures nuclear power plants operated by SPP 

members. SPP is implementing DA’s recommended corrective actions to address these audit findings.38

 

35 New York Independent System Operator, Inc., 127 FERC ¶ 61,120 (2009). 36 Id. 37 Southwest Power Pool, Inc. Regional Transmission Organization, 127 FERC ¶ 61,119 (2009). 38 Id.
 

2009 Staff Report on Enforcement 23

4. ISO NEW ENGLAND INC.

 In Docket No. FA09-6-000, DA staff evaluated ISO New England Inc.’s (ISO-NE) compliance with 

Commission accounting regulations in the Uniform System of Accounts (USofA) under 18 C.F.R. Part 

101 (2009), financial reporting requirements in FERC Form Nos. 1 and 3-Q, and related regulations.39

 

The audit found that ISO-NE incorrectly classified its pension liability in account 254, Other regulatory 

liability. According to Commission accounting policies, ISO-NE should have classified this pension 

liability in account 228.3, Accumulated provision for pensions and benefits. ISO-NE promptly modified 

its accounting policies to correctly classify its pension liability. 

5. MIDWEST INDEPENDENT TRANSMISSION SYSTEM OPERATOR, INC.

 In Docket No. PA08-28-000, DA staff audited Midwest Independent Transmission System Operator, 

Inc. (MISO).40 The audit evaluated MISO’s compliance with aspects of: 1) the Open Access 

Transmission and Energy Market Tariff, 2) the Transmission Facilities Owners (TO) Agreement, 3) the 

Agreement between MISO, MISO Balancing Authorities, and the MISO Independent Market Monitor 

(IMM), 4) Commission accounting and reporting requirements, and 5) other Commission-approved 

obligations and responsibilities. DA found no areas of noncompliance. 

6. EL PASO ELECTRIC COMPANY

 On August 12, 2009, DA completed the audit of El Paso Electric Company (EPE) in Docket No. 

PA09-3-000.41 This audit evaluated company compliance with the terms and conditions of its OATT. 

The audit found four areas of noncompliance. First, EPE did not timely refund $1,741,169 representing 

transmission service deposits and accrued interest to seven transmission customers, as required by its 

OATT. Also, EPE should have classified the liability for the deposits in account 235 and accrued interest 

in account 237, instead of account 253. Second, EPE incorrectly calculated the load-ratio share used to 

determine monthly demand charges for its network customers under its OATT, which resulted in EPE 

overcharging its network customers by $18,339 for network load demand. Third, EPE’s merchant 

function did not include an attestation for all its requests to temporarily terminate and redesignate a 

network resource. Finally, EPE used a network resource during a two-month period in which the 

designation term for this resource had expired. During this period of expiration, EPE did not demonstrate 

that it had committed to purchase firm energy to support the continued designation of the 25 MW that had 

expired. Further, EPE did not require its merchant function, consistent with EPE’s OATT, to provide 

written notice for a change in a network resource designation. EPE undertook several corrective 

measures to successfully implement the recommendations in the audit report. 

7. GAS TARIFF COMPLIANCE - SOUTHERN STAR

 The Commission issued an order approving the Southern Star Central Gas Pipeline, Inc. (Southern 

Star) audit report. 42 This audit examined whether Southern Star was complying with Commission 

policies and regulations on capacity auctions, fuel retention, lost and unaccounted-for gas retention, 

contracts, index of customers filings, FERC Form No. 11 filings, certain FERC Form No. 2 information, 

Web postings, crediting of penalty collections, and cash management.43 The audit revealed that Southern 

Star did not: 1) file with the Commission all contracts containing material deviations from the form of 

service agreement in its tariff, 2) file all the requisite information in its index of customers or post the 

index in a format required by regulations, 3) post for bid capacity expiring under one contract, as required 

 

39 ISO New England, Inc., Letter Order, Docket No. FA09-6-000 (August 25, 2009). 40 Midwest Indep. Transmission Sys. Operator, Inc., Letter Order, Docket No. PA08-28-000 (June 9, 2009). 41 El Paso Electric Co., Letter Order, Docket No. PA09-3-000 (August 12, 2009). 42 Southern Star Central Gas Pipeline, Inc., 125 FERC ¶ 61,082 (2008). 43 Id.
 

2009 Staff Report on Enforcement 24

by its FERC-approved tariff, 4) comply with certain requirements when it filed its FERC Form No. 2 with 

the Commission, and 5) post its Transactional and Available Capacity Reports to comply with 

Commission regulations. Southern Star adopted and implemented DA’s recommended corrective actions. 

8. PUHCA 2005 - ALLEGHENY ENERGY, INC.

 In Docket No. FA08-3-000, DA initiated an audit of Allegheny Energy, Inc. (Allegheny Energy) and 

evaluated its compliance with FERC’s: 1) accounting, recordkeeping, and reporting requirements for 

holding and service companies under 18 C.F.R. Part 366 (2007), 2) preservation of records requirements 

for holding and service companies under 18 C.F.R. Part 368 (2007), and 3) USoA for centralized service 

companies.44 DA staff found four areas of noncompliance: Allegheny Energy did not allocate enough 

costs to two of its jurisdictional companies, TrAILCo and PATH; Allegheny Energy used two costallocation methods to allocate and bill costs to two of its affiliated companies that were not reported to the 

Commission in Allegheny Energy’s 2006 FERC Form No. 60; Allegheny Energy’s FERC Form No. 60 

contained several reporting deficiencies; and Allegheny Energy did not properly classify some expenses it 

incurred in carrying out its operations. Allegheny completed all of audit staff’s recommended corrective 

actions. 

9. PRESERVATION OF RECORDS - NIAGARA MOHAWK

 DA staff initiated an audit of Niagara Mohawk Power Corporation (NiMo) in Docket No. PA08-7-

00045 based on a Commission directive to “examine Niagara Mohawk’s current practices, procedures, and 

agreements in effect to evaluate whether Niagara Mohawk is fully complying with the requirements for 

filing of rate schedules and tariffs under 18 C.F.R. Part 35 (2007) and the Commission’s preservation of 

records requirements for public utilities under 18 C.F.R. Part 125 (2007).”46 DA staff found that NiMo’s 

failure to comply with Commission requirements was mainly the result of insufficient controls employed 

by the company. For example, DA staff found that NiMo had no formal procedure for reviewing whether 

contract revisions would trigger different filing requirements; NiMo’s failure to produce documentation to 

support rate schedule filings was the result of a record preservation system with insufficient controls. 

NiMo’s Electric Quarterly Report (EQR) filings included a number of errors, primarily as a result of 

NiMo’s failure to adhere fully to guidance for such filings. To comply now and in the future, DA staff 

recommended that NiMo continue processes it had already begun, including: evaluating existing 

procedures, developing new procedures as warranted, enhancing training, and conducting periodic selfauditing. 

10. FUEL ADJUSTMENT CLAUSE (FAC) - WISCONSIN ELECTRIC POWER COMPANY

 DA staff completed the audit of Wisconsin Electric Power Company (WEPCO), Docket No. FA08-

15-000,47 to determine whether the company was complying with Commission accounting and reporting 

regulations as to the calculation of the FAC. DA identified three areas of noncompliance, with WEPCO 

improperly recovering costs through its FAC. These areas of noncompliance related to costs associated 

with interim storage for spent nuclear fuel and management fees. The audit resulted in $1,038,357.19 in 

refunds and interest to wholesale fuel-adjustment clause customers for the cost of dry casks used for the 

interim storage of spent nuclear fuel assemblies. WEPCO was also required to correct accounting entries 

to properly classify the costs and management fees associated with the dry casks. 

 

44 Allegheny Energy, Inc., Letter Order, Docket No. FA08-3-000 (November 13, 2008). 45 Niagara Mohawk Power Corp., Letter Order, Docket No. PA08-7-000 (January 21, 2009). 46 Niagara Mohawk Power Corp., 121 FERC ¶ 61,104, at P 25 (2007). 47 Wisconsin Elec. Power Co., Letter Order, Docket No. FA08-15-000 (December 3, 2008). 
 

2009 Staff Report on Enforcement 25

11. ORDER NO. 890 AUDITS

 DA staff completed 20 audits involving jurisdictional companies’ compliance with posting 

requirements in Order No. 890.48 With the issuance of Order Nos. 890, 890-A, and 890-B,49 DA staff 

focused on testing compliance with tariff provisions governing Open Access Same-Time Information 

Systems (OASIS) postings, network resource facilities credits, redispatch and conditional firm service, 

and use of network service. DA performed comprehensive OATT audits to be vigilant in ensuring that 

OATT requirements are followed in a nondiscriminatory manner. These audits resulted in several posting 

deficiencies, and DA verified that the jurisdictional companies corrected their posting problems. 

 

48 Preventing Undue Discrimination and Preference in Transmission Service, Order No. 890, FERC Stats. & Regs. ¶ 31,241, order 

on reh’g, Order No. 890-A, FERC Stats. & Regs. ¶ 31,261 (2007), order on reh’g, Order No. 890-B, 123 FERC ¶ 61,299 (2008) 

order on reh’g, Order No. 890-C, 126 FERC ¶ 61,228 (2009). 49 Id.
 

2009 Staff Report on Enforcement 26

V. DIVISION OF FINANCIAL REGULATION

A. Overview 

 The Division of Financial Regulation (DFR) provides support in ensuring that jurisdictional rates 

remain just and reasonable and not unduly discriminatory or preferential. DFR is structured into two 

divisions: forms administration and data collection, and regulatory accounting. DFR supports the 

Commission’s mission through its market monitoring activities, the development and monitoring of costbased rates, and the Commission’s enforcement efforts by requiring that important financial and market 

information be recorded in a useful form and be transparent to the Commission and the public.50

 DFR staff administers, analyzes and ensures compliance with the filing requirements for the Electric 

Quarterly Report (EQR) and the FERC financial forms filed by jurisdictional companies. On an ongoing 

basis and in support of the Commission’s market-based rate program, DFR analyzes the price, volume, 

and contract data for market-based rate sales to determine whether reported sales indicate that a seller 

may be charging excessive rates. Transactions that are outside expected ranges, as defined by the market, 

are investigated. Sellers that routinely charge high market-based rate prices relative to other sellers are 

identified and their sales further analyzed. 

 DFR also houses the Chief Accountant of the Commission, who is responsible for compliance with 

the Commission’s Uniform System of Accounts, ensuring that companies keep their books and records in 

a format that is useful to the Commission and the industry so that rates remain just and reasonable. 

During FY2009, DFR staff directed accounting input and inserts to rate filings, including highly complex 

and controversial incentive rate filings, rate proceedings and Section 203 merger and consolidation 

filings. 

B. Significant Matters 

1. CHIEF ACCOUNTANT’S COMMENTS ON INTERNATIONAL ACCOUNTING STANDARDS

 During FY2009, DFR staff submitted comments to the Securities and Exchange Commission related 

to its Roadmap for the Potential Use of Financial Statements Prepared in Accordance With International 

Financial Reporting Standards (IFRS) by U.S. Issuers, addressing major issues affecting regulated utilities 

and natural gas and oil pipeline companies should such a proposal be adopted. 

 In particular, FERC’s Chief Accountant advised that most of the entities under FERC’s jurisdiction 

file financial information with FERC prepared in accordance with U.S. Generally Accepted Accounting 

Principles (GAAP) with certain departures to recognize the economic effects of regulation. Therefore, the 

Chief Accountant noted that the SEC’s proposal regarding the adoption of International Financial 

 

50 Currently, DFR administers the following: FERC Form No. 1 (Annual Report for Major Electric Utilities, Licensees and Others) (18 

C.F.R. § 141.1 (2009)); FERC Form No. 1-F (Annual Report of Nonmajor Public Utilities, and Licensees) (18 C.F.R. § 141.2 (2009)); 

FERC Form No. 2 (Annual Report for Major Natural Gas Companies) (18 C.F.R. § 260.1 (2009)); FERC Form No. 2-A (Annual 

Report for Nonmajor Natural Gas Companies) (18 C.F.R. § 260.2 (2009)); FERC Form No. 552 (Annual Report of Natural Gas 

Transactions) (18 C.F.R. § 260.401 (2009)); FERC Form No. 3-Q (Quarterly Report of Oil Pipeline Companies; referring to quarterly 

filings of FERC Form Nos. 1, 1-F, 2, and 2-A for the first, second and third quarters) (18 C.F.R. § 141.400 (2009)); FERC Form No. 

6 (Annual Report of Oil Pipeline Companies) (18 C.F.R. § 357.2 (2009)); FERC Form No. 6-Q (referring to quarterly filings of FERC 

Form No. 6 for the first, second and third quarters) (18 C.F.R. § 357.4 (2009)); FERC Form No. 60 (Annual Report by Centralized

Service Companies) (18 C.F.R. § 366.23(a)(1) (2009)); FERC-61 Narrative Description of Service Company Functions (18 C.F.R. § 

366.23(a)(2) (2009)); and, FERC-730 Reports of Transmission Investment Activity (18 C.F.R. § 35.35(h) (2009)); FERC Form No. 

552 (Annual Report of Natural Gas Transactions) (18 C.F.R. § 260.401 (2009)). 
 

2009 Staff Report on Enforcement 27

Reporting Standards (IFRS) will have a significant impact on energy companies regulated by the 

Commission. Under current international accounting standards, cost-based rate regulated entities would 

not be able to reflect the economic effects of regulation on their publicly issued financial statements as 

currently permitted under U.S. GAAP pursuant to Statement of Financial Accounting Standards (SFAS) 

No. 71, Accounting for the Effects of Certain Types of Regulation, and its predecessor, the Addendum to 

Accounting Principles Board (APB) Opinion No. 2. 

 Accordingly, to the extent that the SEC adopts IFRS, the Chief Accountant urged the SEC to 

encourage the International Accounting Standards Board (IASB) to adopt an accounting standard similar 

to SFAS No. 71 that would permit cost-based rate regulated entities to reflect the rate actions of regulators 

in their financial statements.51

 Rate-regulated entities currently report hundreds of billions of dollars in cost and revenue/gain 

deferrals to recognize the economic effects of regulator actions. Without an equivalent SFAS No. 71 

standard, these entities may be required to derecognize reported deferrals, which could have a dramatic 

impact on earnings, equity and capital structure, dividends, debt covenants, and rate making. Further, 

cost-based rate regulated entities’ results of operations as reported in financial statements to FERC could 

differ greatly from the results of operations reported in the same companies’ publicly issued financial 

statements, leading to inconsistency and potential investor confusion. 

 In response to comments received from the industry and regulators, in December 2008, the IASB 

resolved to add a project on rate regulated activities to its agenda and the matter is pending. 

2. ANNUAL REPORT OF NATURAL GAS TRANSACTIONS (FORM 552)

 In response to requests by industry officials, DFR, DOI, and DEMO staff conducted a series of 

widely attended teleconferences with industry officials and trade associations to provide answers to 

numerous questions and guidance to assist the gas industry in complying with the Commission’s 

requirements established in Order No. 704.52 In addition, DFR, DOI, and DEMO staff developed a list of 

Frequently Asked Questions regarding Form No. 552 that has been posted on the Commission’s website. 

The guidance in this posting provides details on reporting requirements, fixed price trades, energy 

management agreements, exchange for physical transactions, physical basis transactions, NYMEX 

Trigger and NYMEX Plus transactions, cashouts, unprocessed gas, pre-bidweek transactions and take or 

release contracts. 

3. QUARTERLY REPORTING REQUIREMENTS FOR INTRASTATE NATURAL GAS COMPANIES

 On August 26, 2009, the Commission issued a notice requesting comments on proposed standardized 

electronic information collection on contract reporting requirements to be used by Natural Gas Policy Act 

 

51 Under cost of service ratemaking, a regulator establishes rates that a rate-regulated entity may charge its customers. The 

resulting rate is based on costs incurred plus a reasonable return. A rate regulator may require that costs incurred in one period be 

deferred and recovered from customers over a future period in order to smooth the resultant rate over time. Similarly, a rate 

regulator may require revenues or gains realized in the current period to be returned or refunded to customers over a future period. 

Cost of service ratemaking relies on accurate cost and revenue data that reflects a company’s true economic position in order to 

establish just and reasonable rates. Adoption of sound and uniform accounting standards are particularly important for cost-based, 

rate regulated entities, because of the degree of reliance that must be placed on financial statement information for purposes of 

accurate cost-based pricing. Without reliable financial statements that depict the economic substance of the rate regulator’s actions 

on the regulated entity, federal and state regulators, customers, and stakeholders would not be able to accurately determine the 

costs that relate to a particular time period, service, or line of business; to assess whether a given utility has previously been given 

the opportunity to recover certain costs through rates; or to compare how the cost of one utility relates to that of another. 

52 Transparency Provisions of Section 23 of the Natural Gas Act, Order No. 704, FERC Stats. & Regs. ¶ 31,260 (2007), order on 

reh’g, Order No. 704-A, FERC Stats. & Regs. ¶ 31,275 (2008), order dismissing reh’g, Order No. 704-B, 125 FERC ¶ 61,302 (2008). 

Order No. 704 has its genesis in EPAct 2005. EPAct 2005 added section 23 of the Natural Gas Act (NGA), 15 U.S.C. § 717t-2 

(2006) to authorize the Commission “to facilitate price transparency in markets for the sale or transportation of physical natural gas 

in interstate commerce, having due regard for the public interest, the integrity of those markets, and the protection of consumers.” 
 

2009 Staff Report on Enforcement 28

section 311 and Hinshaw pipelines.53 The NOPR proposes to: 1) require the existing annual section 

284.126(b) transactional reports to be filed on a quarterly basis; 2) require that the reports include certain 

additional types of information and cover storage transactions as well as transportation transactions; 3) 

establish a procedure for the section 284.126(b) reports to be filed in a uniform electronic format and 

posted on the Commission’s web site; and 4) require that those reports be public and may not be filed 

with information redacted as privileged. 

 As a result of this rulemaking, DFR developed a new form that is intended to capture the data and 

make it easily accessible to the public with the information presented in a clear and transparent manner. 

By notice issued on July 16, 2009, this new form is available for public comment prior to becoming 

final.54

4. DATA VALIDATION PROGRAM

 In December 2008, DFR implemented a series of data validation checks in the submission software 

for FERC Form Nos. 1, 2, 6 and 60 that are intended to improve the accuracy and quality of the financial 

information filed with the Commission. The automated data checks notify filers of errors in their 

submissions prior to filing and help to ensure compliance with the Commission’s filing requirements. 

 

C. Forms Administration and Data Collection 

 DFR staff administers, analyzes and ensures compliance with the Commission’s filing requirements 

regarding jurisdictional sales, financial statements, and operational data. 

1. ELECTRIC QUARTERLY REPORTS

 On April 25, 2002, the Commission issued Order No. 2001, a final rule requiring public utilities to 

file EQRs summarizing data about their currently effective contracts and wholesale power sales made 

during each calendar quarter.55 EQR data is public and is made available for use on the Commission’s 

website. Although the primary purpose of requiring public utilities to file EQRs is to satisfy the FPA 

section 205(c) requirement to have rates on file in a convenient form and place, EQRs are also helpful in 

monitoring the market. For example, EQRs play a critical role in the Commission’s oversight of the 

market-based rate program, which relies on the dual requirement of an ex ante finding of the absence of 

market power and sufficient post-approval reporting requirements, including the EQR. 

 DFR staff reviews over 1,200 EQR filings each quarter for accuracy and completeness. DFR staff 

determines whether sellers have timely complied with the requirements set forth in Order No. 2001 and 

whether that data is accurate and reliable. To accomplish this task, DFR staff developed software tools to 

identify anomalies in the data. Once identified, DFR contacts filers to determine whether the data is 

correct and, if not, assists filers in revising their EQRs to come into compliance with Commission 

requirements. During FY2009, DFR staff contacted over 650 filers regarding issues with their EQRs. 

The vast majority of these issues were resolved and, as appropriate, the EQRs were revised to address 

concerns. 

 When necessary, DFR advises the Commission on remedial action to be taken in response to 

uncorrected EQR deficiencies. In FY2009, the Commission revoked the market-based rate authorization 

 

53 Notice Requesting Comments on Proposed Standardized Electronic Information Collection and Extending Time for Comments on 

Notice of Proposed Rulemaking, 128 FERC ¶ 61,187 (2009). 54 Contract Reporting Requirements of Intrastate Natural Gas Companies, FERC Stats. & Regs. ¶ 32,644 (2009) (NOPR). 55 Revised Public Utility Filing Requirements, Order No. 2001, FERC Stats. & Regs. ¶ 31,127, reh’g denied, Order No. 2001-A, 100 

FERC ¶ 61,074, reh’g denied, Order No. 2001-B, 100 FERC ¶ 61,342, order directing filing, Order No. 2001-C, 101 FERC ¶ 61,314 

(2002), order directing filing, Order No. 2001-D, 102 FERC ¶ 61,334 (2003). 
 

2009 Staff Report on Enforcement 29

of eight sellers for failure to timely file their EQRs.56 The Commission also notified 12 companies of the 

Commission’s intent to revoke their market-based rate authority for failure to file their EQRs. 

 The uses of EQR data are wide and varied. EQR data is particularly useful in monitoring markets for 

indications that market power is being exercised. On an ongoing basis, DFR analyzes price, volume, and 

contract data to determine whether reported sales indicate that a seller may be charging excessive rates. 

In addition, DFR staff extracts price information from the EQRs to assist in corroborating or refuting 

evidence submitted by sellers seeking to obtain or retain market-based rate authority. For example, this 

price information can be a critical factor in performing a Delivered Price Test,57 which only considers 

supplies from sellers that are selling power near the market price. DFR has also used EQR data to assist 

the Commission in addressing on-the-record protests claiming inadequate supplies in the Northwest. 

EQR data is also used by DFR staff to determine whether sellers are complying with mitigation measures 

that limit the price a seller may lawfully charge (e.g., $400 rate cap in California). This monitoring of 

reported transactions helps ensure that rates continue to be just and reasonable. 

 DFR staff also uses EQR data to provide critical information regarding market trends such as the 

volume of physical transactions in a particular market compared to the volume of financial transactions, 

prices for short-term sales verses long-term sales, and long-term contracting by qualifying facilities. 

Currently, DFR staff is also accumulating data on the reassignment of transmission capacity. This 

information will provide the Commission with important information regarding its policy of removing 

price caps on transmission reassignments and what effect, if any, that policy has on developing a market 

for such reassignments. 

 In FY2009, DFR staff worked collaboratively with staff from the California Independent System 

Operator (CAISO) and companies that operate in CAISO to map the codes charged by the CAISO to the 

Commission’s EQR reporting requirements. This effort was intended to facilitate the EQR filing process 

for companies that operate in CAISO and improve the quality of the data reported in the EQR. 

2. ANNUAL AND QUARTERLY FINANCIAL REPORTS

 The Commission requires companies subject to its jurisdiction to submit annual and quarterly 

financial reports. The Commission uses these financial reports for a variety of purposes, including 

establishing cost-based rates. The Commission, as well as the industry, also uses the data reported in the 

financial reports to consider whether existing rates continue to be just and reasonable. Accordingly, the 

accuracy of financial reports is an important aspect of monitoring the markets. During FY2009, over 500 

filers submitted annual financial reports as well as quarterly financial reports. DFR contacted about 150 

filers regarding issues with their submittals. 

In February 2007, the Commission issued a Notice of Inquiry (NOI) seeking comments from filers 

and users of various financial forms, including FERC Form Nos. 6 (Annual Report of Oil Pipeline 

Companies) and 6-Q (Quarterly Report of Oil Pipeline Companies), addressing whether the forms should 

be modified.58

 Interested parties filed comments addressing possible modifications to the forms. 

Commission staff also conducted a public workshop to discuss the topic. The Commission concluded 

that FERC Form Nos. 6 and 6-Q continue to provide sufficient information to allow shippers to file a 

complaint requesting a determination of the justness and reasonableness of a pipeline’s rates. 

Accordingly, the Commission concluded that no changes to FERC Form Nos. 6 and 6-Q were warranted. 

 

56 Electric Quarterly Reports, Flat Earth Energy, LLC, 125 FERC ¶ 61,203, (2008); Electric Quarterly Reports, Knedergy, LLC and 

Westbank Energy Capital, LLC, 127 FERC ¶ 61,148 (2009); Electric Quarterly Reports, PowerGrid Systems, Inc., 127 FERC ¶ 

61,290 (2009); Electric Quarterly Reports, Energy Algorithms, LLC; Forest Energy Partners, LLC; Norge Power Marketing 

Corporation and Ohms Energy Company, LLC, 128 FERC ¶ 61,139, (2009). 57 The Delivered Price Test is a market power analysis tool used by the Commission in determining whether a seller possesses 

market power. 

58 Assessment of Information Requirements for FERC Financial Forms, FERC Stats. & Regs. ¶ 35,554 (2007) (Notice of Inquiry). 
 

2009 Staff Report on Enforcement 30

On December 18, 2008, the Commission issued a notice terminating the proceeding in its review of 

FERC Form Nos. 6 and 6-Q.59 

3. ANNUAL AND QUARTERLY TRANSACTIONAL AND OPERATIONAL REPORTS

 On December 26, 2007, as discussed above, the Commission issued a Final Rule in Order No. 704,60 

which amended Part 260 of its regulations to require that certain natural gas market participants file 

annually FERC Form No. 552, Annual Report of Natural Gas Transactions. DFR staff designed and 

tested the new form and database, developed data validation checks and released the new form for filing. 

In addition, DFR staff developed a list of Frequently Asked Questions on Form No. 552 to assist filers. 

 In FY2009, approximately 1,100 filers submitted a Form No. 552. DFR contacted about 300 filers 

regarding issues with their submittals. DFR staff drafted a list of the most common filing errors and 

continues to work with companies to determine if they are required to file the Form No. 552. 

 As noted previously, the Commission issued a NOPR on Contract Reporting Requirements of 

Intrastate Natural Gas Companies,61 and subsequently issued a Notice requesting comments on the 

standardized electronic information collection.62 The proposed collection would collect quarterly natural 

gas transportation and storage data. DFR staff created an extensive appendix detailing proposed data 

elements, data dictionary and instructions to the new collection, which were publicly noticed for 

comment. 

D. Regulatory Accounting 

 FERC requires that electric utilities, natural gas companies and oil pipelines subject to its jurisdiction 

keep financial and related records in accordance with the rules and regulations contained in the applicable 

Uniform System of Accounts. DFR staff develops and maintains uniform regulations and requirements 

for accounting, financial reporting, and preservation of records. In addition, DFR staff advises the 

Commission on current accounting issues affecting jurisdictional industries and reviews Exposure Drafts 

and other publications of the Financial Accounting Standards Board for items that may impact the 

Commission or jurisdictional entities. DFR staff provides expert accounting advice to the electric, gas, 

and oil industries with regard to meeting the Commission’s accounting requirements. DFR staff also 

reviews the proposed accounting submissions from entities in certificate and merger and acquisition 

proceedings. 

1. ACCOUNTING POLICY

 DFR advises the Commission on current accounting issues affecting jurisdictional industries and 

reviews Exposure Drafts and other publications of the Financial Accounting Standards Board for items 

that may impact the Commission or jurisdictional entities. As discussed above, during FY2009, DFR 

staff submitted comments to the Securities and Exchange Commission related to its Roadmap for the 

Potential Use of Financial Statements Prepared in Accordance With International Financial Reporting 

Standards (IFRS) by U.S. Issuers, addressing major issues affecting regulated utilities and natural gas and 

oil pipeline companies should such a proposal be adopted. 

 

59 Review of FERC From Nos. 6 and 6-Q, FERC Stats. & Regs. ¶ 35,561 (2008). 60 Transparency Provisions of Section 23 of the Natural Gas Act, Order No. 704, FERC Stats. & Regs. ¶ 31,260 (2007), order on 

reh’g, Order No. 704-A, FERC Stats. & Regs. ¶ 31,275 (2008), order dismissing reh’g, Order No. 704-B, 125 FERC ¶ 61,302 (2008). 61 Supra note 54. 62 Supra note 53. 
 

2009 Staff Report on Enforcement 31

2. HELP DESK AND OUTREACH

 DFR responds on a daily basis to questions raised by jurisdictional entities and industry stakeholders 

and consultants. These inquiries are directed to DFR from the Commission’s Compliance Help Desk, the 

Office of External Affairs, the Enforcement Hotline, other offices within the Commission or directly from 

interested parties. In responding to more than 120 such questions during FY2009, DFR provided informal 

staff advice on all aspects of the Commission’s accounting, financial reporting, and record retention 

regulations. 

 Additionally, DFR staff oversees accounting liaison activities with the Financial Accounting 

Standards Board and 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, DFR staff helps provide regulatory 

certainty on accounting and reporting matters and thereby reduce regulatory risk to the energy companies 

regulated by the Commission. 

3. REQUESTS FOR APPROVAL OF THE CHIEF ACCOUNTANT

 DFR staff reviews and responds to all requests for approval of the Chief Accountant. The requests 

span the breadth of the Commission’s accounting and reporting requirements and regulations for electric, 

natural gas, oil, and centralized service companies and may involve anything from routine filings 

requiring approval to unique topics involving issues of first impression, items of questionable 

interpretation, or implementation of new or evolving generally accepted accounting principles. During 

FY2009, DFR responded to 185 requests for approval of the Chief Accountant. 

4. CERTIFICATE PROCEEDINGS

 DFR staff is responsible for identifying deficiencies in proposed accounting and recommending 

appropriate corrections. DFR staff’s review of accounting in certificate filings provides greater certainty 

to pipelines by providing upfront guidance on accounting entries prior to the pipeline seeking 

Commission approval. In FY2009, DFR staff reviewed 50 natural gas pipeline certificate applications for 

embedded accounting issues in pipeline construction, purchase, and abandonment transactions. 

5. MERGER AND ACQUISITION PROCEEDINGS

 DFR staff reviews all merger and acquisition filings made under section 203 of the FPA, to ensure 

that the proposed accounting is in conformance with the Commission’s regulations. As part of this 

process, DFR works with the Office of the General Counsel in preparing the orders that address any 

potential accounting concerns raised in the application. During FY2009, DFR staff reviewed 110 merger 

and acquisition filings. 

6. RATE PROCEEDINGS

 DFR staff provides accounting insight and support to electric and natural gas rate filings before the 

Commission. These filings may involve a whole host of issues requiring accounting input, including 

allowance for funds used during construction, construction work in progress recovery in rate base, 

recovery of pre-commercial costs, cost allocations, and taxes. During FY2009, DFR staff participated in 

about 30 rate proceedings. 
 

2009 Staff Report on Enforcement 32

VI. DIVISION OF ENERGY MARKET OVERSIGHT

A. Overview 

 The Division of Market Oversight (DEMO) within the Office of Enforcement is responsible for the 

oversight and analysis of the nation’s natural gas and electric power markets as well as related financial 

markets. DEMO continuously examines and monitors the structure and operations of these markets to 

maintain situational awareness and identify problems and market events as they arise. DEMO develops 

and disseminates its analysis through daily morning meetings in the Division’s Market Monitoring Center 

to review market issues and events, internal publications, presentations at open Commission meetings and 

other public conferences, material posted on the Oversight Website, and briefings for industry and foreign 

delegations. DEMO’s outreach efforts also include monthly calls with State commissions, as well as 

meetings with market stakeholders 

 Regular monitoring of energy markets is designed, in part, to identify potentially inappropriate market 

participant behavior, such as anomalous market outcomes that can not be readily explained by supply and 

demand fundamentals (e.g., price differences across locations that are not consistent with historical 

patterns and known external forces). DEMO staff researches such anomalies to determine, among other 

things, whether there are indications of possible fraud. If fraud or manipulation is detected, DEMO refers 

the matter to DOI for further investigation. DEMO staff provides technical advice and support to DOI, 

particularly in investigations of potential market manipulation. 

B. Market Assessments 

 DEMO makes periodic informational assessments which are presented at Commission meetings and 

publicly available on the FERC website, including an annual presentation of the State of the Markets 

Report, assessments of the past and upcoming summer and winter seasons, and other topical reports 

deemed of importance by the Commission. In FY2009, the following assessments were made: 

2008/2009 Winter Energy Market Assessment, October 16, 2008. This assessment discussed the large 

swings in natural gas and oil prices experienced during 2008. High prices were attributed in part to 

physical fundamentals (including low storage inventories and warm weather), but more so to financial 

fundamentals consistent with the prices of other commodities. The winter was forecasted to see the 

building of above average storage inventories, a mild weather outlook, robust growth in gas production 

(due to shale plays) and reduced natural gas imports. This presentation is available at 

http://www.ferc.gov/market-oversight/mkt-views/2008/10-16-08.pdf. 

2008 State of the Markets Report Presentation, April 16, 2009. This assessment reiterated the underlying 

financial conditions responsible for the run up in gas prices in the first half of 2008; however, the 

precipitous decline in natural gas prices which followed was attributed to large improvements in 

production and pipeline infrastructure combined with a large reduction in demand caused by the 

recession. The financial crisis was cited as causing a sharp contraction in the financial electricity and 

natural gas markets, signified by an increased cost of and reduced access to capital. Significantly lower 

gas cost had the effect of altering regional electricity supply stacks, posing operational challenges for 

RTOs which were already adjusting to accommodate increasing wind resources on their systems. This 

presentation is available at http://www.ferc. gov/market-oversight/st-mkt-ovr/som-rpt-2008.pdf. The 

2008 State of the Markets Report was issued on September 2, 2009 and is available at 

http://www.ferc.gov/market-oversight/st-mkt-ovr/2008-som-final.pdf. 
 

2009 Staff Report on Enforcement 33

 

2009 Summer Energy and Reliability Market Assessment, May 21, 2009. This assessment discussed the 

effect of continued additions of wind resources. The need in some regions for the procurement of more 

ancillary services was cited as a result, although no reliability concerns were expected. Low expected 

summer electric and natural gas prices were expected due to the recession, the abundance and 

transportability of natural gas, and the increased tendency of generators to displace coal-fired generation 

with units burning natural gas. This presentation is available at http://www.ferc.gov/marketoversight/mkt-views/2009/05-21-09.pdf. 

C. Domestic and Foreign Delegation Briefings 

 DEMO hosts a variety of domestic and foreign delegations of regulators and industry participants 

interested in energy markets and how staff monitors them. DEMO conducted the following briefings in 

FY2009: 

Twenty-five domestic briefings. These included briefings to three Congressional delegations, ten groups 

of delegates from federal or state agencies (one of which included the Secretary of the Interior), four 

delegations from industry, four groups of university students, and one charitable organization. 

Eleven presentations to foreign delegations. These included delegations from China, Canada, Italy, 

Singapore, Australia, Poland, Korea, Brazil, and Kosovo, as well as regional delegations from Latin 

America and Southeast Asia. Each briefing was tailored to the particular interests of the visiting 

delegation. 

D. Inter-Office Projects 

 DEMO staff often work with staff from other offices within the Commission on a variety of multidisciplinary projects. During FY2009, staff completed the following three major public projects: 

Annual Report on Demand-Response and Advanced Metering. DEMO staff provided data concerning 

demand response programs in existence on statewide or local bases. This report fulfilled the 

Commission’s reporting requirement pursuant to section 1252(e)(3) of the Energy Policy Act of 2005. 

This report is available at http://www.ferc.gov/legal/staff-reports/sep-09-demand-response.pdf. 

Estimation of Existing and Projected Grid-Interconnected Renewable and Demand-Side Resources. This 

analysis was performed in furtherance of the creation of the Commission’s Strategic Plan for FY2009-

FY2014, available at http://www.ferc.gov/about/strat-docs/FY-09-14-strat-plan-print.pdf. 

Smart Grid Standards Policy Statement. DEMO staff made contributions in furtherance of the 

Commission’s Smart Grid Standards Policy Statement, available at http://www.ferc.gov/whatsnew/comm-meet/2009/071609/E-3.pdf. 

E. Agenda Items Support 

 DEMO staff supported Commission efforts with respect to multiple orders issued by the Commission 

during FY2009. In particular, DEMO provided technical support for the Commission’s transparency 

efforts in natural gas market reporting (Order No. 552) and requiring non-interstate pipelines to post 

scheduled flows (Order No. 720). Additionally, given DEMO’s charge of monitoring the RTO’s market 

monitors, staff also assessed the related compliance filings associated with Order No. 719. 
 

2009 Staff Report on Enforcement 34

F. Ongoing Market Monitoring 

 DEMO staff continuously examines the structure, operation and interaction of natural gas and electric 

markets. As developments warrant, DEMO staff initiates projects designed to better understand 

phenomena which arise in evolving markets. Staff may also initiate analyses based upon the request of 

the Chairman, other Commissioners, or other offices within the Commission. During FY2009, such 

projects included analyses of virtual bidding and FTRs in RTO markets, the separation of natural gas 

pricing from physical fundamentals due to financial trading, and a review of RTO/ISO Credit Policies. 

DEMO is continuously striving to improve its monitoring efforts to enhance its contributions to the 

Commission and to the Office of Enforcement. 
 

2009 Staff Report on Enforcement 35

VII. CONCLUSION

 

Energy policy, markets and the industry itself are continuously evolving, and the activities of the 

Office of Enforcement in FY2009 likewise have changed. As discussed in this Report, the Office of 

Enforcement increased its efforts to promote compliance with the Commission’s statutes, orders, rules, 

and regulations by investigating a wide variety of matters, focusing on market manipulation, stepping up 

activity related to the reliability of the nation’s Bulk Power System, settling significant cases, increasing 

transparency through reporting requirements, briefing regulators and market participants, identifying 

instances of non-compliance, and providing technical assistance to the Commission on rule-makings and 

special projects. The information in this Report is provided to encourage entities subject to Commission 

requirements to develop strong internal compliance programs, specifically with respect to avoiding 

market manipulation and ensuring the reliability of the nation’s Bulk Power System. 
 

2009 Staff Report on Enforcement 36

APPENDIX A – OFFICE OF ENFORCEMENT ORGANIZATION CHART
 

2009 Staff Report on Enforcement 37

APPENDIX B – CIVIL PENALTY ENFORCEMENT ACTIONS IN FY2009

63

SUBJECT OF INVESTIGATION 

AND ORDER AND DATE 

TOTAL PAYMENT 

CIVIL PENALTY, 

DISGORGEMENT, 

OTHER 

SUMMARY OF CONDUCT 

Energy Transfer Partners, L.P.,

128 FERC ¶ 61,269  (September

21, 2009)

$5,000,000 Civil Penalty

$25,000,000 Disgorgement

Civil penalty resulting from violations of

market behavior rule 18 C.F.R. § 284.403(a)

(2005).

Enserco Energy, Inc., 128 FERC

¶ 61,173  (August 24, 2009)

$1,400,000 Civil Penalty Civil penalty resulting from violations of the

Commission's open access transportation

program, including, improper release and

acquisition of discounted rate capacity

through flipping transactions, and violations

of the shipper‐must‐have‐title requirement.

In re Amaranth Advisors, 128

FERC ¶ 61,154  (July 8, 2009)

$7,500,000 Civil Penalty Civil penalty resulting from violations of 18

C.F.R. § 1c.1 (Natural Gas Anti‐Market

Manipulation Rule).

In re Southern Company Services,

Inc., 128 FERC ¶ 61,013  (July 8,

2009)

$350,000 Civil Penalty Civil penalty and compliance reporting

resulting from violations of buy‐sell

transactions and shipper‐must‐have‐title

requirements.

In re Wasatch Oil & Corp. and

Wasatch Energy LLC, 127 FERC ¶

61,322  (June 30, 2009)

$320,000 Civil Penalty Civil penalty and compliance reporting

resulting from violations of § 284.8(h)

posting and bidding requirements,

improper release and acquisition of

discounted rate capacity through flipping

transactions.

In re ProLiance Energy, LLC, 127

FERC ¶ 61,321  (June 30, 2009)

$3,000,000 Civil Penalty

$195,959.44 Disgorgement

Civil penalty and compliance reporting

resulting from violations of § 284.8(h)

posting and bidding requirements,

improper release and acquisition of

discounted rate capacity through flipping

transactions, violations of shipper‐must‐

have‐title requirements and violations of

buy‐sell transaction rules.

In re Sequent Energy

Management, L.P. and Sequent

Energy Marketing, L.P., 127 FERC

¶ 61,320  (June 30, 2009)

$5,000,000 Civil Penalty

$53,728.18 Disgorgement

Civil penalty and compliance reporting

resulting from violations of § 284.8(h)

posting and bidding requirements,

improper release and acquisition of

discounted rate capacity through flipping

transactions, violations of shipper‐must‐

have‐title requirements and violations of

buy‐sell transaction rules.

 

63 A list of all EPAct civil penalty orders is available at http://www.ferc.gov/enforcement/civil-penalties/civil-penalty-action.asp. 
 

2009 Staff Report on Enforcement 38

In re Piedmont Natural Gas Co.

Inc., 127 FERC ¶ 61,319  (June 30,

2009)

$1,250,000 Civil Penalty Civil penalty and compliance reporting

resulting from violations of § 284.8(h)

posting and bidding requirements,

improper release and acquisition of

discounted rate capacity through flipping

transactions.

In re Puget Sound Energy, 127

FERC ¶ 61,070  (April 22, 2009)

$800,000 Civil Penalty Civil penalty and compliance reporting

resulting from violations of 18 C.F.R. §

284.8(h) posting and bidding requirements,

improper release and acquisition of

discounted rate capacity through flipping

transactions and self‐reported violations of

shipper‐must‐have‐title requirements.

In re Anadarko Petroleum Corp.,

127 FERC ¶ 61,069  (April 22,

2009)

$1,100,000 Civil Penalty

$232.423.40 Disgorgement

Civil penalty, disgorgement and compliance

reporting resulting from violations of 18

C.F.R. § 284.8(h) posting and bidding

requirements, improper release and

acquisition of discounted rate capacity

through flipping transactions.

In re Louisville Gas and Electric

Co., 127 FERC ¶ 61,068  (April 22,

2009)

$350,000 Civil Penalty Civil penalty and compliance reporting

resulting from violations of 18 C.F.R. §

284.8(h) posting and bidding requirements,

improper release and acquisition of

discounted rate capacity through flipping

transactions.

In re Jefferson Energy Trading,

LLC, Wizco, Inc., Golden Stone

Resources, LLC, 126 FERC ¶

61,040  (January 15, 2009)

$585,000 Civil Penalty Civil penalty and compliance reporting

resulting from violations of 18 C.F.R. § 1c.1,

in connection with an attempt to engage in

multiple affiliate bidding to impair the pro

rata allocations in an auction.

In re Klabzuba Oil & Gas, F.L.P.,

126 FERC ¶ 61,040  (January 15,

2009)

$300,000 Civil Penalty Civil penalty and compliance reporting

resulting from violations of 18 C.F.R. § 1c.1,

in connection with an attempt to engage in

multiple affiliate bidding to impair the pro

rata allocations in an auction.

In re ONEOK, Inc., 126 FERC ¶

61,040  (January 15, 2009)

$4,500,000 Civil Penalty

$1,914,945 Disgorgement

Civil penalty, disgorgement and compliance

monitoring resulting from violations of 18

C.F.R. § 1c.1, in connection with the

submission of multiple affiliate bids to

impair the pro rata allocation mechanism in

an auction.  Also violations of shipper‐must‐

have‐title requirements and open access

transportation requirements.

In re Tenaska Marketing

Ventures, 126 FERC ¶ 61,040  

(January 15, 2009)

$3,000,000 Civil Penalty

$1,972,842 Disgorgement

Civil penalty, disgorgement and compliance

monitoring resulting from violations of 18

C.F.R. § 1c.1, in connection with the

submission of multiple affiliate bids to

impair the pro rata allocation mechanism in

an auction.
 

2009 Staff Report on Enforcement 39

In re DCP Midstream, LLC, 125

FERC ¶ 61,359  (December 23,

2008)

$360,000 Civil Penalty Civil penalty and compliance monitoring

reporting resulting from self‐reported

violations of the shipper‐must‐have‐title

requirement.

Sempra Energy Trading LLC, 125

FERC ¶ 61,360  (December 23,

2008)

$400,000 Civil Penalty

$7,959 Disgorgement

Civil penalty, disgorgement, and

compliance monitoring reporting resulting

from self‐reported violations of the

shipper‐must‐have‐title requirement.

In re Cornerstone Energy, Inc.,

125 ¶ FERC 61,234  (November

26, 2008)

$325,000 Civil Penalty

$121,825 Disgorgement

Civil penalty and disgorgement resulting

from self‐reported violations of the

shipper‐must‐have‐title requirement.

In re NorthWestern Corporation

and NorthWestern Services, LLC.,

125 FERC ¶ 61,233  (November

26, 2008)

$450,000 Civil Penalty Civil penalty and compliance monitoring

reporting resulting from self‐reported

violations of the shipper‐must‐have‐title

requirement and failure to obtain a

certificate of public conveyance and

necessity under section 7 of the NGA.

Columbia Gas Transmission Corp.

and Columbia Gulf Transmission

Co., 125 FERC ¶ 61,150 (Nov. 6,

2008)

$1,000,000 Civil Penalty

$9,000,000 Disgorgement

Civil penalty, disgorgement, and

compliance monitoring reporting resulting

from tariff violations relating to Parking and

Lending (PAL) services and Commission

regulations regarding firm and interruptible

transportation services and the

independent functioning rule.   

In re Integrys Energy Services,

Inc., 125 FERC ¶ 61,089  (October

24, 2008)

$800,000 Civil Penalty

$194,506 Disgorgement

Civil penalty, disgorgement, and a 1 year

compliance monitoring plan resulting from

a self‐report for violations of shipper‐must‐

have‐title requirements and circumvention

of the posting and bidding requirements for

released capacity.

In re Enbridge Marketing (U.S.)

L.P., 125 FERC ¶ 61,088  (October

24, 2008)

$500,000 Civil Penalty Civil penalty and compliance report

resulting from self‐reported violations of

the shipper‐must‐have‐title requirement.