FERC Issues Enforcement Report for 2024

This week FERC, the US Federal energy regulator, published (click here) its 2024 Enforcement Report which covers the activities of the FERC’s Office of Enforcement for the last year. The 91-page report may be found here. The comprehensive annual report summarises FERC’s enforcement activities over the fiscal year ending 30 September 2024. Below we extract and/or sign-post several notable elements from the report although those focussed on US power and gas market compliance may wish to review the full report in more detail.

As a reminder, FERC’s enforcement priorities for FY2024 focused on the following:

• Fraud and market manipulation;
• Serious violations of the Reliability Standards;
• Anticompetitive conduct;
• Threats to the nation’s energy infrastructure and associated impacts on the environment and surrounding communities; and
• Conduct that threatens the transparency of regulated markets.

The FY2024 highlights are summarised as follows:

• FERC enforcement staff opened 30 new investigations (compared with 19 in FY2023), while bringing 10 pending investigations to a close without further action;
• FERC enforcement staff negotiated 12 settlements that were approved by the Commission, 11 of which resolved investigations for a total of approximately USD $78.58 million comprising of USD $16.68 million in civil penalties and USD $61.9 million in disgorgements;
• The final remaining Commission-approved settlement involved one district court litigation case being resolved resulting in USD $2.3 million in civil penalties;
• FERC’s Division of Audits and Accounting (DAA) completed 10 audits of public utility, natural gas, and oil companies covering a wide array of topics;
• The above audits resulted in 55 findings of non-compliance and 240 recommendations for corrective actions, the majority of which were implemented within six months;
• The above resulted in approximately USD $46 million in refunds and other recoveries;
• The DAA also acted or advised on 371 proceedings in total comprising 134 accounting filings requesting approval of a proposed accounting treatment or financial reporting matter, and 237 rate, pipeline certificate, merger and acquisition, and debt and security issuance proceedings;
• FERC received Electric Quarterly Report (EQR) submittals from nearly 3,500 entities each quarter over the fiscal year.
• The Division of Analytics and Surveillance (DAS) staff identified and reviewed numerous instances of potential misconduct which resulted in DAS opening a surveillance inquiry or an in-depth review of a market participant’s conduct;
• Surveillance screens for natural gas produced approximately 16,426 screen trips resulting in 16 natural gas surveillance inquiries but no referrals to the Division of Investigations (DOI) for investigation;
• DAS closed 19 natural gas surveillance inquiries in total and was continuing its analytic work on two of them at the end of the fiscal year;
• Surveillance screens for the electricity market produced approximately 619,416 screen trips resulting in 47 surveillance inquiries and seven referrals to the DOI for investigation;
• DAS closed 30 electric surveillance inquiries with no referrals and is continuing its analytic work on 10 of them at the end of the year;
• DAS also worked on and/or provided analytical support on approximately 65 investigations with the DOI and 10 other matters involving inquiries or litigation;
• DAS staff reviewed over 2.6 million transactions filed through FERC’s EQRs by all market-based rate holders selling wholesale energy in the bilateral markets.

The part of the report on the DOI contains a section starting on page nine (as numbered) entitled Significant Pending Matters which contains several useful timeline summaries covering the “state of play” for several cases under investigation. For example, on page 12 an update is provided on the long-running saga involving Total Gas & Power North America which dates back to 2016. FERC cites the interjection of the June 2024 Supreme Court decision in SEC v. Jarkesy and its impact on this enforcement action which was stayed by FERC following the Supreme Court’s decision while it examines the relevance of the Jarkesy case.

Market Monitor Referrals (see page 40 as numbered) refer to the various ISO and RTO Market Monitors that perform the critical role of surveilling organized electricity markets to detect potential violations (including market manipulation, anticompetitive behaviour, and tariff noncompliance) – Market Monitors are required by the regulation to make a non-public referral to FERC when they have reason to believe that a market violation has occurred. In FY2024, FERC received 18 new Market Monitor referrals, of which at least eight involved potential market manipulation and at least nine involved potential tariff violations. Fifteen of these Market Monitor referrals became the sources for investigations opened this fiscal year illustrating the effectiveness of collaboration between the various ISO/RTOs and FERC.

Under the section on the Division of Audits and Accounting (DAA) starting on page 45 as numbered, the “Compliance” section on page 47 provides useful commentary on compliance programmes. Specifically, the DAA summarises what it believes the strongest compliance programmes include:

• A proactive programme that:

1. Equips staff and management with sufficient training, education, tools, and other resources, such as well-publicized policies and procedures, to detect issues in a timely manner and to correct or prevent non-compliance;
2. Stays abreast of compliance trends by reviewing FERC orders and audit reports and evolves based on these trends and other developments in the industry.

• The active involvement of senior management to emphasize the importance of compliance and the allocation of funds necessary to maintain a robust compliance programme;
• A designated compliance officer and compliance committee, charged with development and oversight of compliance activities and metrics, that assesses programme effectiveness;
• The active involvement of internal audit and monitoring functions to routinely assess compliance with tariff provisions and FERC rules, orders, and regulations, to foster a strong and sustainable culture of commitment to compliance on an enterprise-wide basis;
• A policy and culture of seeking guidance from FERC as necessary to ensure compliance, including an effective process to self-report non-compliance identified through internal oversight activities.

The section on the Division of Analytics and Surveillance (DAS) starting on page 70 as numbered, provides some useful updates on the so-called “Enhanced Surveillance Matters”, as well as surveillance activities on gas and electricity markets:

Enhanced Surveillance Matters:

• DAS conducts enhanced surveillance surrounding disruptive events such as periods of unusually high prices in the wholesale natural gas or electricity markets, or dramatic weather events that impact those markets;
• DAS’s enhanced surveillance may involve:

1. Seeking additional data from ICE and/or market participants to augment its normal data feeds;
2. Conducting outreach to market participants, other Federal agencies, or state regulators; and/or
3. Developing new screening methods that utilize additional data or account for the changes in the markets caused by an ongoing event;
4. Depending on the events under review, this enhanced surveillance may involve coordinated efforts by both the natural gas and electricity surveillance teams.

• DAS did not open any new enhanced surveillance matters in FY2024 but continued its analyses related to Winter Storm Elliott and the Winter of 2022/2023.

Gas Market Surveillance:

• FERC reviewed and dismissed most of the 16,426 screen trips as consistent with concurrent conditions;
• FERC however documented 1,541 surveillance alerts that ranged in severity from low to high concern – persistent concerns resulted in DAS opening a surveillance inquiry;
• DAS closed the five pending inquiries from FY2023 with no referral, opened 16 new natural gas surveillance inquiries, closed 14 of the FY2024 inquiries, and did not refer any of them to the DOI for investigation;
• Two of the above inquiries initiated in FY2024 remain open with DAS staff continuing its analytic work.

Electricity Market Surveillance:

• During FY2024 FERC ran monthly and weekly screens to identify patterns in ISO/RTO markets by monitoring the interactions between bids and cleared physical and financially settled electricity products;
• The screens identify financial transmission rights (FTRs) and swap-futures that settle against nodes that are affected by transmission constraints where market participants also trade virtuals, generate electricity, purchase electricity, or move power between Balancing Authorities;
• FERC continued in FY2024 to refine its processes for screening to detect:

1. Uneconomic virtual transactions by node, zone, and constraint;
2. Potential day-ahead and real-time market congestion manipulation that would benefit FTRs in the ISO/RTO markets, synthetic real-time FTRs, swap-futures positions for physical load, and generation portfolios;
3. Anomalies in physical offer patterns, particularly in non-price based parameters;
4. Abnormal out-of-market payments;
5. Irregularities in capacity market sell offers;
6. Loss-making physical fixed-price offer strategies in bilateral electricity markets; and
7. Bolstered tools used to view patterns of behaviour on a portfolio basis, across Balancing Authority borders and jurisdictional commodities.

 RegTrail Insights

Firms active in US ISO/RTO markets are strongly advised to consider the above focus areas outlined by FERC in their own internal surveillance initiatives.

• DAS ran and reviewed 101 electric surveillance screens each month during FY2024 with monthly, hourly, and intra-hour sub-screens, and ran reports for over 46,000 hub and pricing nodes within the six ISOs/RTOs;
• DAS also screened non-ISO/RTO markets and cross-ISO/RTO portfolio trades for potential manipulation;
• In reviewing screen trips, often communicating with the ISO/RTO Market Monitors, DAS identified 47 instances of market behaviour that required further analysis through a surveillance inquiry;
• Of the 47 electricity market surveillance inquiries, seven were referred to DOI for investigation, 30 were closed with no referral, and ten remain open with DAS staff continuing its analytic work.

We signpost the six mini-case studies presented in the section titled “Illustrative DAS Surveillance Inquiries Closed with No Referral” on page 79 as numbered for further reading. The six mini-case studies provide useful examples of enforcement scenarios on both gas and power markets where FERC had decided not to proceed with an investigation.

We also signpost “Appendix B - FY2024 Civil Penalty Enforcement Actions” on pages 84 – 89 which provides a tabularised summary of all 2024 FERC enforcement cases.