In May, two “loophole” penalty orders were issued regarding recent fraud and manipulation investigations conducted by the Federal Energy Regulatory Commission’s (FERC) Office of Enforcement (OE), which are discussed below. What will June bring? To start, on June 3, the House of Representatives Energy and Commerce Subcommittee on Energy and Power heard testimony, including from new OE Director Larry R. Parkinson, reviewing draft legislation designed to revamp FERC’s enforcement program to ensure that FERC’s actions are fair and transparent. Parkinson said that FERC’s investigative process is “one of the most transparent, if not the most transparent, in the federal government.” At the same time, as requested by several senators last year, the U.S. Department of Energy’s Inspector General is investigating the fairness of recent FERC enforcement efforts.
FERC Issues Order Assessing Civil Penalties to Powhatan, et al.
On May 29, 2015, FERC issued an Order Assessing Civil Penalties against Powhatan Energy Fund, LLC and its affiliates as well as against Dr. Houlian Chen, Powhatan’s chief trader, for violating FERC’s anti-manipulation rule. Specifically, FERC found Powhatan violated section 222 of the Federal Power Act (FPA) and section 1c.2 of the Commission’s regulations by designing and implementing a scheme to engage in fraudulent up-to congestion (UTC) transactions in PJM Interconnection LLC’s (PJM) energy markets to garner excessive amounts of certain credit payments to transmission customers, known as marginal loss surplus allocation (MLSA). FERC found that from June 1 to August 3, 2010, Powhatan implemented its fraudulent trading scheme by intentionally placing a high volume of “round-trip” UTC trades that canceled each other out by placing the first leg of the trade from locations A to B, and simultaneously placing a second leg of equal volume from locations B to A. This OE investigation was initiated after PJM referred a market participant’s complaint to OE regarding the unusually high volumes of transmission reservations on PJM’s OASIS. PJM’s independent market monitor submitted a similar referral to OE.