UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Conference on Enforcement Policy ) Docket No. AD07-13-000 

REPORT ON ENFORCEMENT 

Prepared by the Staff of the 

Office of Enforcement 

Federal Energy Regulatory Commission 

Washington, D.C. 

November 14, 2007 

The opinions and views expressed in this staff report do not necessarily represent those of the Federal Energy 

Regulatory Commission, its Chairman or individual Commissioners, and are not binding on the Commission. 
TABLE OF CONTENTS 

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

II. EPAct 2005 Implementation ..................................................................................... 4

A. Background................................................................................................................ 4

B. Assuring Fairness in Enforcement............................................................................. 6

1. Policy Statement on Enforcement ..................................................................... 7

2. No-Action Letter Process .................................................................................. 8

3. Prohibition of Energy Market Manipulation..................................................... 8

4. Codifying Market Behavior Rules..................................................................... 9

5. Procedures for Contested Audits..................................................................... 10

6. Process for Assessing Civil Penalties.............................................................. 11

III. Division of Investigations Activities....................................................................... 11

A. Exercise of Prosecutorial Discretion ....................................................................... 13

1. Prior to Beginning an Investigation............................................................... 13

2. Prosecutorial Discretion in Practice—Self-Reports...................................... 14

B. Investigation Process ............................................................................................... 19

C. Disposition of Investigations Since October 2005.................................................. 21

IV. Division of Audits Activities................................................................................... 26

A. How the Division of Audits Conducts Audits......................................................... 27

B. Audits Since October 2005...................................................................................... 29

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

VI. Conclusion............................................................................................................... 33

Appendix A EPAct 2005 Civil Penalty Enforcement Actions 
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Conference on Enforcement Policy ) Docket No. AD07-13-000 

REPORT ON ENFORCEMENT 

I. Introduction

On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005)1

 went into 

effect, altering the regulatory role of the Federal Energy Regulatory Commission 

(Commission). Among other things, EPAct 2005 increased the Commission’s maximum 

civil penalty authority to $1 million per day per violation, expanded the scope of the 

statutory provisions to which civil penalty authority applies, and gave the Commission 

express jurisdiction to prohibit energy market manipulation and to enforce reliability 

standards for the bulk transmission system. 

Congress acted in light of claims of price manipulation during the Western energy 

crisis of 2000-2001. EPAct 2005 not only included stronger civil and criminal penalties 

to provide deterrents to violations, but also enacted a broad ban on market manipulation, 

and included provisions to increase transparency in energy markets. Taken together, 

 

1

 Energy Policy Act of 2005, P.L. No. 109-58, 119 Stat. 594 (2005). 
- 2 -

 

these changes in the Commission’s authority in EPAct 2005 expanded the Commission’s 

reach in competitive energy markets and placed increased emphasis on monitoring 

natural gas and electricity markets. By granting the Commission the ability to assess 

substantial civil penalties for virtually all violations of the Federal Power Act (FPA),2

 the 

Natural Gas Act (NGA),3

 and the Natural Gas Policy Act of 1978 (NGPA),4 Congress 

gave the Commission an important additional tool to enforce all of the statutes, orders, 

rules, and regulations it administers, and thus enhanced the Commission’s existing 

enforcement and compliance activities. 

In 2007, the Commission put the precepts of the October 2005 Policy Statement 

on Enforcement5

 into practical effect. Since January 2007, the Commission has issued 

twelve orders approving settlements that provide for payment of civil penalties under 

EPAct 2005, many of which resulted from self-reported violations. The Commission also 

has issued two orders to show cause why civil penalties should not be imposed for 

alleged market manipulation. Taken together, these orders illustrate the types of 

2

 16 U.S.C. § 791a et seq. (2000). 

3

 15 U.S.C. § 771 et seq. (2000). 

4

 15 U.S.C. § 3301 et seq. (2000).

5 Enforcement of Statutes, Orders, Rules, and Regulations, 113 FERC ¶ 61,068 

(2005). 
- 3 -

 

violations for which penalties are appropriate, and the broad range of remedies available 

to the Commission. 

To provide context for the Conference on Enforcement Policy scheduled for 

November 16, 2007, staff is releasing this report, the purpose of which is to offer insights 

into the evolution of the Commission’s enforcement program, and to show how the 

Commission uses its enforcement tools to encourage companies to develop effective 

compliance programs and to deter and punish misconduct. Staff also provides 

information on the process by which the Office of Enforcement handles self-reported 

violations, investigation of suspected violations, audits of compliance by regulated 

entities, and oversight of energy markets.6

 

All information obtained in connection with an investigation by the Commission’s 

Enforcement staff is non-public unless the Commission acts affirmatively to make it 

public, such as by issuing an order.7

 Because of the non-public nature of enforcement 

activity, this report presents necessarily general information on staff’s internal processes 

and investigations over the past two years to demonstrate that under the current 

6

 Enforcement staff acts under the direction of the Commission and pursuant to 

delegated authority to conduct investigations under the Commission’s rules related to 

investigations. 18 C.F.R. § 375.314; 18 C.F.R. Part 1b (2007). 

7

 18 C.F.R. § 1b.9 (2007). 
- 4 -

enforcement program allegations of violations are pursued in a balanced manner, 

prosecutorial discretion is exercised in appropriate circumstances, and the Commission 

strikes the appropriate balance between firm and fair. 

II. EPAct 2005 Implementation 

A. Background

The Commission oversees aspects of the electric, natural gas, hydroelectric, and 

oil pipeline industries in the United States as authorized by administering the FPA, NGA, 

NGPA, and the Interstate Commerce Act (ICA).8

 In administering these statutes, the 

Commission has a number of enforcement tools at its disposal, including civil penalties, 

disgorgement, and the ability to condition, suspend, or revoke market-based rate 

authority, certificate authority, or other authorizations.9

 The Commission’s power to 

fashion equitable remedies such as disgorgement of unjust profits is especially effective 

in offering relief to those who are harmed by an entity’s misconduct.10 

 

(continued...) 

8 Interstate Commerce Act, 49 App. U.S.C. § 1, et seq. (2000). 

9

 113 FERC ¶ 61,068 at P 4. 

10 See Coastal Oil & Gas Corp. v. FERC, 782 F.2d 1249, 1253 (5th Cir. 1986); 

Consolidated Gas Transmission Corp. v. FERC, 771 F.2d 1536, 1549 (D.C. Cir. 1985); 

Gulf Oil Corporation v. FPC, 563 F.2d 588, 608 (3rd Cir. 1977), cert. denied, 434 U.S. 

1062, reh’g denied, 435 U.S. 981 (1978); Mesa Petroleum Co. v. FERC, 441 F.2d 182, 
- 5 -

 

With respect to civil penalties, prior to EPAct 2005, the Commission could assess 

civil penalties of up to $11,000 per day per violation for violations relating to Part I and 

sections 211-214 of Part II of the FPA,11 and $5,500 per day per violation for violations 

relating to the NGPA.12 While all of the other remedial tools were available, the 

Commission lacked civil penalty authority for matters arising under the other sections of 

Part II of the FPA and under any sections of the NGA.13 This limited the Commission’s 

ability to address and deter violations of many of the statutes, rules, and regulations it 

administers. 

In EPAct 2005, Congress extended the Commission’s civil penalty authority to all 

provisions of Part II of the FPA and all provisions of the NGA, including any rule or 

order issued under these statutes. Congress also increased the maximum per day, per 

violation penalty amount to $1,000,000 for violations of the NGA, NGPA, and Part II of 

187-88 (D.C. Cir. 1971); Niagara Mohawk Power Corp. v. FERC, 379 F.2d 153, 159 

(D.C. Cir. 1967). 

11 16 U.S.C § 823b(c) (2000). The original statutory penalty of $10,000 was 

adjusted for inflation by 18 C.F.R. § 385.1602(b) (2003). 

12 15 U.S.C. § 3414(b)(6)(A)(i). The original statutory penalty of $5,000 was 

adjusted for inflation by 18 C.F.R. § 385.1602(a) (2003). 

13 The Commission also has limited civil penalty and forfeiture authority for oil 

pipelines under ICA sections 6(10), 20(7), and 41(3), 49 App. U.S.C. §§ 6(10), 20(7), and 

41(3) (2000). 
- 6 -

the FPA.14 Moreover, the Commission retains its authority to order disgorgement of 

unjust profits and has the ability to condition, suspend, or revoke market-based rate 

authority, certificate authority, or blanket certificate authority. After EPAct 2005, the 

Commission has additional tools to encourage compliance with its statutes, rules, and 

regulations and to fashion the most appropriate and effective remedies and sanctions for 

each violation. 

B. Assuring Fairness in Enforcement

The Commission has issued a number of orders implementing its new authority 

under EPAct 2005 and has provided guidance to the public on how the new authority will 

be incorporated into the Commission’s enforcement functions. This has been a concerted 

effort on the part of the Commission to inform the public about the Commission’s 

 

14 Energy Policy Act of 2005, Pub. L. No. 109-58, §§ 1284(e), 314 (b)(1)(B), and 

314(b)(2), 119 Stat. 594 at 950 and 691 (2005), respectively. Under FPA Part II, the 

Commission can assess a penalty “of not more than $1,000,000 for each day that such 

violation continues.” FPA section 316A(b). Under the NGA, the Commission can assess 

a penalty “of not more than $1,000,000 per day per violation for as long as the violation 

continues.” NGA section 22(a). Under the NGPA, the Commission can assess a penalty 

“of not more than $1,000,000” and “each day of violation shall constitute a separate 

violation.” NGPA section 504(b)(6)(A) and (C). There was no change to the 

Commission’s existing FPA Part I civil penalty authority, under which the Commission 

can assess civil penalties of up to $11,000 “for each day that such violation or failure or 

refusal continues.” FPA section 31(c). There was no change to the Commission’s ICA 

remedial authority. 
- 7 -

approach to exercising its new authority, and to ensure that the Commission’s 

enforcement actions are fair. 

1. Policy Statement on Enforcement

On October 20, 2005, the Commission issued its Policy Statement on 

Enforcement15 to “provide guidance and regulatory certainty regarding our enforcement 

of the statutes, orders, rules, and regulations we administer.”16 The touchstone of the 

Policy Statement is that the Commission’s enforcement will be “firm but fair.”17 Among 

other things, the Policy Statement explains how compliance factors into the penalty 

assessment process. The Commission stressed that in employing its new civil penalty 

authority, it would consider mitigating factors when determining what remedies are 

appropriate for a particular violation. While the Commission emphasized that it is 

seeking “[v]igorous and even-handed enforcement,”18 it also made it clear that 

compliance, self-reporting, and cooperation with the Commission are very important. 

The Commission stated that it would credit an entity for its internal compliance plans and 

 

15 See supra note 5. 

16 Id. at P 1. 

17 Id. at P 1, 28. 

18 Id. at P 17. 
- 8 -

self-reporting of violations when determining what, if any, remedy would be appropriate 

for the violation. Thus, the Policy Statement makes it clear that the Commission 

continues to value and encourage effective compliance. 

2. No-Action Letter Process

On November 18, 2005, the Commission provided an opportunity for regulated 

entities to seek informal staff advice regarding whether a transaction would be viewed by 

staff as constituting a violation of certain orders or regulations.19 In the No-Action Letter 

Order, the Commission implemented a new procedure, supplementing existing staff 

consultation opportunities,20 by which an entity may seek informal staff advice whether 

staff would recommend no action regarding a particular transaction, practice, or situation 

related to Standards of Conduct for Transmission Providers, the Market Behavior Rules, 

the Prohibition of Energy Market Manipulation, or Codes of Conduct. To date, staff has 

provided nine No-Action Letters regarding both electricity and natural gas transactions. 

3. Prohibition of Energy Market Manipulation

On January 19, 2006, the Commission issued Order No. 670 adopting rules to 

 

19 Interpretive Order Regarding No-Action Letter Process, 113 FERC ¶ 61,174 at 

P 1 (Nov. 18, 2005), modified 117 FERC ¶ 61,069 (2006). 

20 See 18 C.F.R. § 388.104 (2007). 
- 9 -

implement the provisions of EPAct 2005 prohibiting energy market manipulation.21 

Because EPAct 2005 was modeled on section 10(b) of the Securities Exchange Act of 

1934,22 the Commission modeled its anti-manipulation rule23 after SEC Rule 10b-5.24 

As the Commission explained, this was done to utilize the decades of precedent in 

securities litigation and adapt those precedents to the prohibition of market manipulation 

in wholesale natural gas and electricity markets, assisting market participants in 

understanding what is expected of them in their market dealings. 

4. Codifying Market Behavior Rules

On February 16, 2006, the Commission, following through on the adoption of the 

new anti-manipulation rules in Order No. 670, rescinded Market Behavior Rules that 

were no longer necessary.25 Recognizing that EPAct 2005 provided a “catch-all” antifraud provision, the Commission eliminated duplication and potential confusion about the 

 

21 Prohibition on Energy Market Manipulation, Order No. 670, 114 FERC ¶ 

61,047 at P 2 (Jan. 19, 2006). 

22 15 U.S.C. § 78j(b) (2000). 

23 18 C.F.R. Part 1c (2007). 

24 17 C.F.R. § 240.10b-5 (2007). 

25 Investigation of Terms and Conditions of Public Utility Market-Based Rate 

Authorizations, 114 FERC ¶ 61,165 (2006) (electric sales); Amendments to Codes of 

Conduct for Unbundled Sales Service and for Persons Holding Blanket Marketing 

Certificates, Order No. 673, FERC Stats. & Regs. ¶ 31,207 (2006) (natural gas sales). 
- 10 -

behavior expected of market participants by prospectively rescinding the previous 

prohibition on manipulation.26 The result is one uniform and clear standard for market 

manipulation in Order No. 670 against which all entities will be judged. At the same 

time, the Commission codified certain Market Behavior Rules that remained important, 

such as the requirement to follow organized market rules and not to make false or 

misleading statements to the Commission.27

5. Procedures for Contested Audits

On February 17, 2006, the Commission issued Order No. 675 to expand 

procedural protections for certain persons subject to non-financial audits who dispute 

findings or proposed remedies in draft audit reports.28 The enhanced procedures, 

including under certain circumstances trial-type procedures, are comparable to those 

available in financial audits. In addition, the Commission discussed the role of audits in 

 

26 Investigation of Terms and Conditions of Public Utility Market-Based Rate 

Authorizations, 105 FERC ¶ 61,218 (2003), reh’g denied, 107 FERC 61,175 (2004) 

(electric sales); Amendments to Blanket Sales Certificates, Order No. 644, 105 FERC ¶ 

61,217 (2003), reh’g denied, 107 FERC ¶ 61,174 (2004) (natural gas sales). 

27 Conditions for Public Utility Market-Based Rate Authorization Holders, Order 

No. 674, FERC Stats. & Regs. ¶ 31,208 (2006) (codification of Market Behavior Rules 1, 

3, 4, and 5 for electric market-based rate sellers). 

28 Procedures for Disposition of Contested Audit Matters, Order No. 675, FERC 

Stats. & Regs. ¶ 31,209, order on reh’g, Order No. 675-A, FERC Stats. & Regs. ¶ 31,217 

(2006). 
- 11 -

the Commission’s enforcement program. 

6. Process for Assessing Civil Penalties

On December 21, 2006, the Commission issued an administrative statement 

providing a comprehensive review of the statutory requirements associated with the 

imposition of civil penalties under Parts I and II of the FPA, the NGA, and the NGPA.29 

Each statute is somewhat different, and the Commission outlined the process it would 

follow in assessing civil penalties under each of the statutes. The Penalty Process Order 

not only sets forth the penalty assessment process, but also explains the rights of the party 

against whom the Commission may propose to assess a penalty, and explains the 

administrative and judicial procedures to be provided in each case.30

III. Division of Investigations Activities

EPAct 2005 increased both the Commission’s jurisdiction and its penalty 

authority, thereby increasing the importance of the Commission’s enforcement program. 

 

29 Statement of Administrative Policy Regarding the Process for Assessing Civil 

Penalties, 117 FERC ¶ 61,317 (Dec. 21, 2006) (Penalty Process Order). 

30 Certain aspects of the procedures for assessing civil penalties have been 

challenged by Energy Transfer Partners, L.P. (ETP), in an on-going order to show cause 

and penalty assessment matter in Docket No. IN06-3-002. That matter is currently 

pending before the Commission. 
- 12 -

 

Given the scope and reach of the Commission’s enforcement authority, it is important for 

the public to have an understanding of how the Office of Enforcement’s (OE) Division of 

Investigations (DOI) resolves self-reported violations and initiates and pursues 

investigations of possible violations. 

The Commission’s regulations allow Enforcement staff to conduct investigations 

relating to any matter subject to the Commission’s jurisdiction.31 The DOI staff initiates 

investigations from information received through a variety of sources, both internal and 

external. Internally, DOI may receive information through OE’s Division of Audits, 

OE’s Division of Energy Market Oversight, other Commission offices, or from the 

Commission itself. Indeed, DOI may be the source of an investigation based upon 

information learned, for example, in the course of another investigation. Externally, DOI 

may receive information from a self-report, the Enforcement Hotline, a referral from a 

Market Monitoring Unit for an Independent System Operator or Regional Transmission 

Organization, a tip, a complaint, or a referral from another government agency. All 

31 18 C.F.R. §§ 1b.3 and 375.314 (2007). Under the Commission’s regulations 

governing investigations, DOI staff can conduct a preliminary investigation or, if 

compulsory process is required, seek an order from the Commission commencing a 

formal investigation. See 18 C.F.R. §§ 1b.5 and 1b.6 (2007). Except for the subpoena 

authority available to staff in a formal investigation, preliminary and formal 

investigations are handled in the same manner. 
- 13 -

information and documentation received during an investigation, as well as the existence 

of an investigation, is treated as non-public; under the regulations as noted, only the 

Commission can authorize the public disclosure of the existence of an investigation or 

information obtained during an investigation.32 

A. Exercise of Prosecutorial Discretion 

1. Prior to Beginning an Investigation

Prior to beginning an investigation, DOI reviews the information received 

regarding the potential violations or suspicious activity. In many instances, DOI consults 

publicly or commercially available sources of data or Commission staff experts to gain a 

better understanding of events surrounding the activity being reviewed. In some 

situations, this review provides an explanation of the activity or otherwise indicates that 

no further inquiry is needed. Indeed, in many circumstances companies are never 

contacted or informed that there was an allegation that the company had engaged in 

improper activity.33 

In other situations, DOI contacts the entity involved in the alleged violation or 

 

32 18 C.F.R. § 1b.9 (2007). 

33 If the violation is self-reported, of course, DOI staff discusses the nature of the 

violation with the company in the course of receiving the self-report. 
- 14 -

suspicious activity to obtain information first-hand. Often this information assists DOI in 

learning about the events and determining what happened and what role different persons 

played in the events, which enables DOI to determine whether an investigation is 

warranted. Not all such matters are opened as investigations. On the other hand, there 

are instances in which DOI proceeds immediately with an investigation and sends data 

requests to obtain information and documents to review. 

Deciding how to resolve a matter or whether to initiate an investigation involves 

the exercise of prosecutorial discretion. Among the factors taken into account are the 

following: 

3⁄4 Nature and seriousness of the alleged violation 

3⁄4 Nature and extent of the harm, if any 

3⁄4 Efforts made to remedy the violation 

3⁄4 Whether, if known, the alleged violations were widespread or isolated 

3⁄4 Whether, if known, the alleged violations were willful or inadvertent 

3⁄4 Importance of documenting and remedying the potential violation to advance 

Commission policy objectives 

3⁄4 Likelihood of the conduct reoccurring 

3⁄4 Amount of detail in the allegation or suspicion of wrongdoing 

3⁄4 Likelihood that staff could assemble a legally and factually sufficient case 

3⁄4 Compliance history of the alleged wrongdoer 

3⁄4 Staff resources 

2. Prosecutorial Discretion in Practice—Self-Reports

Illustrative of the exercise of prosecutorial discretion in deciding when to begin an 
- 15 -

investigation is the fact that 37 of the 74 self-reports of violations received since October 

2005 have been closed without conducting an investigation or imposing a sanction. Five 

self-reports are still in the initial stage of review. Of the 32 self-reports for which 

investigations were opened, eight were closed without further action, 12 were settled with 

the payment of civil penalties, and 12 are still pending as investigations. 

DOI reviews each self-report to determine whether the matter is of sufficient 

gravity to open an investigation, or whether the matter may be disposed of with 

correction and compliance. Often, DOI staff determines that the self-reported matter is a 

violation of a minor nature and does not warrant an investigation, such as where the 

company brings its conduct into compliance and/or voluntarily undertakes increased 

internal procedures, training, and oversight to prevent the reoccurrence of the 

misconduct. In these situations, staff resolves the self-report without considering civil 

penalties or monetary sanctions. However, even minor violations could merit further 
- 16 -

 

investigation if DOI is unable to determine if the company fully intends to bring its 

conduct into compliance and undertake enhanced internal procedures, training, and 

oversight, as may be necessary to prevent the reoccurrence of the violation. Examples of 

first-time self-reported violations which were closed with no action include: 

3⁄4 Incidental disclosure of confidential information in violation of the Standards 

of Conduct where no use was made of the information 

3⁄4 Failure to update or post organizational charts as required by the Standards of 

Conduct 

3⁄4 Failure to file interlocking position/Form 561 filings34

3⁄4 Failure to comply with provisions of a prior settlement 

3⁄4 Minor violations related to market-based rate authorizations 

3⁄4 Failure to make certain filings required by the regulations 

3⁄4 Failure to post required information on websites or OASIS 

The types of self-reported violations resolved without the need for an investigation 

are graphically illustrated below: 

34 The filing requirements for authority to hold certain interlocking positions, 

found in 18 C.F.R. Part 45 (2007), arise from section 305 of the FPA, 16 U.S.C. § 825d 

(2000). Civil penalty authority does not extend to the provisions of section 305 of the 

FPA. 16 U.S.C. § 825o-1, amended by Energy Policy Act of 2005, Pub. L. No. 109-58, § 

1284(e), 119 Stat. 594, 980 (2005). 
- 17 -

It is important to recognize, however, that not every violation falling into one of 

these categories means that an investigation will not be opened or that a sanction will not 

be imposed. Rather, in these instances, staff determined that the total circumstances 

warranted not proceeding with an investigation. In other instances, the particular facts 

may warrant opening an investigation to confirm the information provided in the selfreport and to obtain additional information concerning the scope, seriousness, and effect 

of the violations. In that regard, the way a company presents a self-report can materially 

assist Enforcement staff in deciding whether the matter can be closed on the basis of 

corrective actions taken or whether the matter warrants opening an investigation. 

Enforcement staff’s experience since the issuance of the Policy Statement is that a 

good self-report will give staff prompt notice that the company is reviewing a compliance 

problem, and an expected timeframe for a full report on the matter. While the time to 

complete a review may vary depending on the nature and complexity of the issues, and 
- 18 -

whether the company performs its review using company personnel or bringing in outside 

counsel or consultants, in good self-reports the company keeps Enforcement staff timely 

apprised of the progress made. 

Enforcement staff finds it helpful if the self-report is submitted in writing, along 

with copies of documents relevant to the matter being reported and sufficient information 

for Enforcement staff to understand the circumstances of how and why the violation 

occurred, along with the identity of the key personnel involved in the violation. Good 

self-reports also detail the steps taken to cure the violation and to prevent any recurrence. 

In addition to the written report, Enforcement staff finds that an in-person meeting to 

discuss the reported violations is a valuable way of informing staff and giving staff an 

opportunity to explore the facts. 

Enforcement staff also learns of possible violations through the Enforcement 

Hotline. The Hotline provides a confidential means for any person to bring information 

concerning violations to the attention of Enforcement staff. DOI staff will review the 

information received through the Hotline, similar to the review staff conducts in the case 

of a self-reported violation. In some instances, DOI staff resolves the Hotline matter 

without recommending any sanction, even where a violation has occurred. If the 

information points to a violation of sufficient gravity, however, DOI staff will conduct an 

investigation of the matter reported. For example, the show cause proceeding against 

Energy Transfer Partners pending before the Commission began as the result of a Hotline 
- 19 -

call.35 

B. Investigation Process

In instances when DOI staff opens an investigation, whether pursuant to a selfreport or otherwise, the Commission is notified and DOI staff pursues the facts through 

normal discovery methods of data requests, document production, interviews, and 

depositions. The time required will, of course, depend on many factors, including the 

complexity of the facts and the type of alleged violations. During this process, DOI staff 

stays in contact with those being investigated. Typically in the course of an investigation 

staff and the company will meet on one or more occasions to discuss the matters being 

investigated and the relevant facts, data, and analysis. Ultimately, staff may determine 

that no violation occurred, or may conclude that the evidence is insufficient to warrant 

further investigation, or that based on all of the circumstances no further action is 

warranted. If so, staff notifies the company that the investigation is closed, and discusses 

with or otherwise advises the Commission of its decision. 

If staff reaches the conclusion that a violation occurred, staff shares its views, 

including both the relevant facts and its legal theories, with the company. This may be 

 

35 See Energy Transfer Partners, L.P., 120 FERC ¶ 61,086 (2007). 
- 20 -

 

done either orally or in writing, and staff will provide the company with an opportunity to 

respond and to furnish staff with any additional relevant information before staff 

confirms its conclusion.36 This exchange can result in new and relevant information 

being provided to staff, upon which staff may reconsider its view of the matter. In some 

situations, this process has resulted in staff closing an investigation without seeking 

sanctions, or substantially altering staff’s position with respect to the appropriate 

sanction. 

In short, DOI staff candidly discloses its theory of the case and makes every effort 

to be sure it has all the facts and has considered the company’s views fully before staff 

makes any recommendation. Where DOI staff reaches a conclusion that a violation has 

occurred but the company continues to maintain that there is no violation, the company 

may be given the opportunity to make a submission directly to the Commission prior to 

action being taken against the company.37 Only after completing a full exchange of facts 

and views with the company does staff recommend that the Commission issue an order to 

show cause. 

36 A company can submit statements and documents at any time during the course 

of an investigation to explain its position or to provide information relevant to the matter 

under investigation. 18 C.F.R. § 1b.18 (2007). 

37 18 C.F.R. § 1b.19 (2007). 
- 21 -

Staff keeps the Commission apprised of the progress of investigations and 

settlement negotiations. Settlement negotiations with staff provide the company with still 

another opportunity to make its views known and may involve several meetings. When 

staff and the company are able to agree in principle on the terms of the settlement, staff 

prepares a stipulation and consent agreement, but receives input from the company. The 

settlement is then submitted to the Commission for approval. 

C. Disposition of Investigations Since October 2005

Since October of 2005, Enforcement staff has closed or completed action on 64 

investigations.38 Of the 64 investigations, 47 were closed without any action taken, that 

is, without sanctions. In 25 instances, there was insufficient evidence of a violation, and 

in the remaining 22 instances staff found a violation but closed the matter without a 

sanction. Of the remaining investigations, 15 have resulted in 13 settlements39 involving 

the payment of civil penalties or other monetary remedies, the filing of compliance plans, 

 

38 Enforcement staff is committed to prompt action on matters it investigates. 

Approximately 75 percent of investigations are completed within one year. Twenty of 

the 64 investigations were self-reports that were converted into investigations and 

ultimately settled or closed with no action. 

39 The order accepting the settlement in In Re Entergy, Inc., 118 FERC ¶ 61,027 

(2007), resolved three separate investigations of violations self-reported by Entergy. 
- 22 -

and other remedial steps,40 and two investigations have resulted in show cause orders.41 

It is significant that more than 70 percent of OE’s investigations have not resulted in 

penalties, even though in almost half of those investigations staff found a violation. Staff 

frequently exercises judgment to resolve more minor infractions with voluntary 

compliance measures rather than penalties. 

The following table summarizes the investigations closed since October 2005: 

 

40 Twelve of the settlements since October 2005 include civil penalties resulting 

from EPAct 2005 authority. These settlements are listed on Appendix A. The other 

settlement in this period is a settlement of a hydroelectric matter under FPA Part I civil 

penalty authority, AmerenUE, 117 FERC ¶ 61,001 (2006). 

41 Amaranth Advisors LLC, 120 FERC ¶ 61,085 (2007); Energy Transfer Partners, 

L.P., 120 FERC ¶ 61,086 (2007). 
- 23 -

Matters investigated by staff but closed without action fall into many categories. 

Some are allegations of a serious nature, such as market manipulation, but are 

investigations in which staff concludes no manipulation occurred. In others, there is 

insufficient evidence to proceed, or ambiguity as to the requirement which was allegedly 

violated. Other investigations present issues where significant Commission goals or 

policies are not implicated and no demonstrable harm occurred. In such investigations, 

staff frequently closes investigations after action by the company to remedy the violation 

and to take steps to assure future compliance. 

For example, in one instance staff investigated whether certain market participants 

were in violation of the provisions of an organized electricity market tariff. The 

investigation revealed that the tariff provision was not enforceable as written, although 

the conduct with which the provision was concerned was undesirable. Enforcement staff 

brought this to the attention of the organized market operator, which responded by filing 

a tariff change to solve the problem prospectively. Another example involves a company 

that operated certain gas facilities in two states in such a way as to fall within the 

Commission’s jurisdiction under the NGA, but the company did not have a certificate of 

public convenience and necessity. The company made the appropriate filings with the 

Commission to clarify its jurisdictional status, and staff closed the matter without seeking 

sanctions. 

The following are examples of matters which have been investigated and in which 
- 24 -

violations have been found, but as to which staff determined not to recommend a penalty: 

3⁄4 Errors by pipelines in posting available capacity on their websites or EBBs 

3⁄4 Disclosure of confidential information in violation of the Standards of 

Conduct and as to which no adverse use was made of the information 

3⁄4 Failure to update or post organizational charts as required by the Standards of 

Conduct 

3⁄4 Failure to post required information on websites or OASIS 

3⁄4 Minor violations of tariff, license, or certificate requirements, or of the 

Standards of Conduct 

The distribution of matters where violations were found but resolved without 

sanctions is shown below: 

Again, it is important to note that just because a violation falls into one of these 

categories does not automatically mean that every such violation will not warrant a 

sanction. Rather, the totality of the relevant circumstances must be examined in each 

situation. 
- 25 -

 

As noted, in most investigations as to which Enforcement staff has sought civil 

penalties the investigations were resolved by settlement.42 Since January 2007, the 

Commission has issued twelve orders approving stipulations and agreements between 

Enforcement staff and companies to resolve a wide variety of violations. In most cases 

the company admitted the violations as part of the settlement. All twelve settlements 

resulted in the payment of civil penalties, and some also involved disgorgement or other 

monetary remedies.43 The range of sanctions—from $300,000 to $10 million—reflects 

the wide variety in the type and seriousness of the violations. These investigations also 

show the Commission’s willingness to approve civil penalty amounts appropriate for the 

seriousness of the violations yet significantly less than the maximum possible penalties. 

Furthermore, the goal of promoting industry compliance is an important factor in 

the manner in which DOI has approached settlements. All but two of the settlements 

approved by the Commission included a one or two year compliance plan, to ensure 

future compliance with the Commission’s rules.44 

(continued...) 

42 The Commission has noted that the preferred method of resolving such 

violations is by settlement. Penalty Process Order at P 2. 

43 See Appendix A. 

44 The two settlements that did not include a compliance plan or report involved 

one-time matters that did not present a concern that the conduct would be repeated. In re 

Gexa Energy, L.L.C., 120 FERC ¶ 61,175 (2007), involved unauthorized wholesale sales 
- 26 -

Finally, the Commission has issued two orders to show cause why the 

Commission should not impose substantial civil penalties for alleged violations of the 

Market Behavior Rules or the prohibition on energy market manipulation. These matters 

are pending before the Commission, so the final outcomes of these proceedings have yet 

to be determined. The show cause orders and the proposed civil penalties, however, 

stand in sharp contrast to the settled cases. Market manipulation, which is alleged to 

have occurred as a result of intentional actions of the respondents in those cases and with 

the involvement of senior management, may require more significant action, including 

the possibility that penalties could be assessed near or at the maximum. 

IV. Division of Audits Activities

As with DOI, it is important to understand how Enforcement’s audit staff 

examines the conduct of regulated entities and the role that audits play in encouraging 

compliance with Commission requirements. The Office of Enforcement’s Division of 

Audits (DOA) is instrumental in promoting industry compliance with Commission 

requirements. These audits provide the Commission with an objective assessment of 

 

of electricity and failure to seek prior approval of acquisition of assets by another 

company; the company that committed the violations no longer exists. In re Columbia 

Gulf Transmission Company, 119 FERC ¶ 61,174 (2007), involved a failure to comply 

with a Commission order to permit an interconnection; the interconnection was built and 

placed into operation during the course of the investigation. 
- 27 -

industry compliance with various aspects of the Commission’s rules, regulations, and 

statutory requirements. DOA plans, conducts, and reports the results of audits of 

jurisdictional companies in the electric power, natural gas, and oil pipeline industries. 

Audits vary in type, scope, and objectives, but primarily focus on materially relevant 

compliance issues associated with significant Commission initiatives. 

A. How the Division of Audits Conducts Audits

DOA staff develops an annual audit plan that identifies the audit topic, overall 

objectives, and the method of selecting each audit. DOA selects possible audit 

candidates using a variety of methods, including considering information from a 

monitoring activity, analysis of information from internally developed screens, obtaining 

input from program offices and agency officials, and mandates from the Commission. 

The majority of the audits conducted by the Commission over the past four years were of 

companies selected without any knowledge or allegation of any specific wrongdoing. 

DOA’s goal is to evaluate whether a jurisdictional company is in compliance with the 

applicable rules and regulations and, where compliance is deficient, to recommend 

corrective actions and suggest preventive measures to avoid problems in the future.45 

 

(continued...) 

45 More information on the DOA audit process is posted on the Commission’s 

website at http://www.ferc.gov/legal/maj-ord-reg/land-docs/order2004/resources/audit-
- 28 -

 

DOA’s approach is proactive, and the audits usually will focus on compliance areas of 

material interest such as the Open Access Transmission Tariff or the Market-Based Rate 

Authority requirements. 

When DOA selects a company for audit, the Director of OE releases a public 

commencement letter to the company, describing the purpose and scope of the audit and 

its authority. Then, using several techniques such as observations, inquiry, site visits, 

interviews, and testing, DOA staff collects sufficient data to reach findings and 

conclusions, which may result in staff reporting audit findings and making specific 

recommendations. DOA staff also analyzes information it gathers from publicly 

available records. Once the staff has completed its audit fieldwork, it provides the 

company with a draft audit report and discusses any preliminary findings with the 

company to ensure that staff’s audit report is fair, accurate, complete, and objective. 

Depending on the circumstances, this may be an iterative process, as DOA staff and the 

company work through the relevant information to a common understanding of the extent 

to which the company’s compliance may be deficient. 

The company then has the opportunity to comment on the draft audit findings and 

recommendations as well as the facts in the audit report. If the audited company disputes 

process.pdf. 
- 29 -

any of the findings, it may follow the procedures set forth in the Commission’s 

regulations. Through either a Commission order or delegated authority, the Commission 

will issue a final audit report with the Commission’s findings and the company’s 

response. 

While DOA and DOI are separate divisions, they serve complementary functions 

within the Office of Enforcement. One purpose of the audit process is to ensure and 

increase compliance with the Commission’s rules, regulations, and statutory 

requirements. Thus, evidence received during an audit that indicates that a violation may 

have occurred may be shared with DOI for a further review of the facts involved. 

Depending on the nature of the matter, it may be resolved through the audit, or it may 

become the subject of a separate investigation. 

B. Audits Since October 2005

Since October 20, 2005, DOA has completed 151 audits, comprised of 71 

financial audits and 80 operational audits. Theses audits focused on the following topics: 

3⁄4 Multi-scope audits, which included a focus on at least two of these topics: 

Standards of Conduct, Code of Conduct, Open Access Transmission Tariffs, Fuel 

Adjustment Clause, Market Based Rate Authority, Electric Quarterly Reporting, 

and Records Retention 

3⁄4 Annual Charges 

3⁄4 Blanket Authorizations for Mergers and Acquisitions 

3⁄4 Electric Quarterly Reporting 

3⁄4 Independence 
- 30 -

3⁄4 Index of Customers 

3⁄4 Interlocking Directorates 

3⁄4 Inventory Accounting 

3⁄4 Market-based Rate Gas Storage Reporting 

3⁄4 FERC Form Nos. 1 and 2 

3⁄4 Nuclear Decommissioning 

3⁄4 Price Index 

3⁄4 Records Retention 

These audits resulted in 319 recommendations to the companies audited and all of the 

recommendations have been implemented. These recommendations included structural 

and procedural changes in a variety of matters to improve compliance with Commission 

requirements. 
- 31 -

In addition to the immediate corrective action taken on the audit 

recommendations, some audits have resulted in stringent compliance plans that required 

the creation of robust compliance programs. Generally, an audit results in a compliance 

plan when the recommendations made will be implemented over a long period of time. 

The purpose of compliance plans is to ensure that the company is focusing on compliance 

by implementing the recommendations and informing DOA of its progress. DOA tracks 

the companies’ performance with these compliance plans through quarterly compliance 

reports. 

Each compliance plan is unique to the circumstances. Examples of the steps 

companies have taken as a result of a compliance plan include conducting periodic 

internal audits related to the areas of noncompliance, refunds, making corrective 

accounting entries, and filing tariff revisions. 

V. Division of Energy Market Oversight Activities

A significant part of the mission of the Office of Enforcement is comprehensive 

monitoring of energy markets. To that end, OE’s Division of Energy Market Oversight 

(DEMO) operates a Market Monitoring Center with comprehensive and highly 

interactive capabilities to observe activity in key energy markets. 

DEMO staff examines prices in all of the key natural gas and electric markets, 

both physical and financial, in detail every day. This includes price movements in natural 
- 32 -

gas and electricity markets, hubs, and exchanges around the country and the interaction 

between gas and electric markets for each region of the country. In addition to the 

primary focus on natural gas and electricity, DEMO staff also monitors prices in related 

commodity markets, such as coal, oil, emissions allowances, and natural gas outside 

North America. 

The Commission’s market monitoring is unique in the combination of data sources 

it examines. In addition to data that are submitted directly to the Commission, such as 

the Electric Quarterly Report, DEMO staff collects and compares data that are publicly or 

commercially available. Some such information is public and available online for free, 

such as bid, offer, and clearing prices from Regional Transmission Organizations (RTO) 

or Independent System Operators (ISO). Other information is commercially available 

transaction data from exchanges or markets or from companies that collect price, 

transaction, or activity information of various sorts, such as transactions on the New York 

Mercantile Exchange and the IntercontinentalExchange or pipeline operations data 

gathered from the postings of interstate gas pipelines. 

DEMO staff shares its work within OE and the Commission and also shares data 

broadly with other regulatory bodies and the public. Some of the staff analyses are 

posted on the Commission’s website for the benefit of the public, including Market 

Snapshot Reports, periodic State of the Markets Reports, seasonal assessments of energy 

markets, and a wide variety of reports, analyses, and useful data. In addition to the 
- 33 -

review done within OE, DEMO staff works closely with other program offices in the 

Commission, as well as with other federal agencies, both to help fellow regulators and to 

obtain useful information from other agencies. 

DEMO staff studies price movements in the context of broader market conditions, 

and highlights price changes that appear to be an aberration or inconsistent with market 

fundamentals. Price movements without ready explanation are reviewed in greater depth 

to determine the reason for the movement. Where no explanation is found, OE 

investigates to determine whether market manipulation may be present. OE oversight of 

energy markets was the genesis of the show cause order issued by the Commission in the 

Amaranth matter. In that instance, DEMO staff’s market monitoring detected unusual 

and unexplained patterns in NYMEX pricing. 

VI. Conclusion 

Enforcement of the statutes, orders, rules, and regulations administered by the 

Commission continues to focus on encouraging compliance, aided by the recent 

expansion of the Commission’s civil penalty authority. Commission staff focuses on 

compliance as its goal. To reach that goal and to be consistent with the Commission’s 

policies, prosecutorial discretion is exercised in appropriate cases as part of an overall 

effort to bring about improved compliance by all companies subject to Commission 

requirements. 
 

Appendix A 

EPAct 2005 Civil Penalty Enforcement Actions 

SUBJECT OF 

INVESTIGATION AND 

ORDER AND DATE 

TOTAL PAYMENT EXPLANATION OF PAYMENTS (CIVIL 

PENALTY UNDER THE NGA, FPA, OR NGPA; 

DISGORGEMENT OF PROFITS; OTHER 

PAYMENTS) AND COMPLIANCE PLANS 

IN RE BP ENERGY COMPANY,

121 FERC ¶ 61,088 (October 

25, 2007) 

$7,000,000 Civil penalty and compliance monitoring plan resulting 

from self-reported violations of competitive bidding 

regulations, shipper-must-have-title requirement, and 

prohibition on buy/sell arrangements. 

IN RE MGTC, INC., 121 FERC

¶ 61,087 (October 25, 2007) 

$300,000 Civil penalty and compliance report resulting from 

self-reported violations of the shipper-must-have-title 

requirement. 

IN RE GEXA ENERGY, L.L.C.,

120 FERC ¶ 61,175 (August 

21, 2007) 

$500,000 

$12,481.41 

Civil penalty and disgorgement resulting from a selfreport of violations of the FPA. 

IN RE CLECO POWER, LLC, ET 

AL., 119 FERC ¶ 61,274 (June 

12, 2007) 

$2,000,000 Civil penalty and a 1-2 year compliance plan resulting 

from a self-report for a violation of a 2003 Settlement 

agreement by sharing 9 employees and sharing 

prohibited market info between different Cleco 

companies. 

IN RE COLUMBIA GULF 

TRANSMISSION COMPANY, 119

FERC ¶ 61,174 (May 21, 2007) 

$2,000,000 Civil penalty resulting from a Commission referral for 

a violation of a Commission order to allow installation 

of a receipt interconnection. 

IN RE CALPINE ENERGY 

SERVICES, L.P., 119 FERC ¶

61,125 (May 9, 2007) 

$4,500,000 Civil penalty and a 1-2 year compliance plan resulting 

from a self-report for violations of shipper-must-havetitle requirements. 

IN RE BANGOR GAS COMPANY,

118 FERC ¶ 61,186 (March 7,

2007) 

$1,000,000 Civil penalty and a 1 year compliance plan resulting 

from a self-report for violations of shipper-must-havetitle requirements. 

IN RE PACIFICORP, 118 FERC ¶

61,026 (January 18, 2007) 

$10,000,000 Civil penalty and a 1 year compliance plan resulting 

from a self-report for violations of OATT and 

Standards of Conduct. 

IN RE SCANA CORPORATION,

118 FERC ¶ 61,028 (January 

18, 2007) 

$9,000,000 

$1,800,000 

Civil penalty, disgorgement, and a 1 year compliance 

plan resulting from a self-report for violations of 

OATT. 

IN RE ENTERGY SERVICES,

INC., 118 FERC ¶ 61,027

(January 18, 2007) 

$2,000,000 Civil penalty and a 1-2 year compliance plan resulting 

from a self-report for violations of OATT and 

Standards of Conduct OASIS posting requirements. 

IN RE NORTHWESTERN 

CORPORATION, 118 FERC ¶

61,029 (January 18, 2007) 

$1,000,000 Civil penalty and a 2 year compliance plan resulting 

from a hotline call for violations of Business Practice 

Standards for OASIS Transactions. 

IN RE NRG ENERGY, INC., 118

FERC ¶ 61,025 (January 18, 

2007) 

$500,000 Civil penalty and a 1 year compliance plan resulting 

from a self-report for violations of ISO-NE Market 

Rule 1 and the Commission’s Market Behavior Rules 1 

and 3.