Since January 2021, Federal Energy Regulatory Commission (FERC or the Commission) regulated market participants and practitioners alike have anticipated how FERC may approach its enforcement mission under the stewardship of Chairman Richard Glick following his appointment as chair by US President Joseph Biden.
The Office of Enforcement has continued to pursue investigations of market participants’ activities as well as settlements to resolve investigations, and thus far, the Commission has approved five settlements and has issued an order assessing penalties and three orders to show cause. Most market participants and practitioners have expected FERC to take an aggressive approach in investigating and penalizing instances of misconduct in light of prior comments by Chairman Glick, and FERC confirmed those expectations in its May 20 open meeting.
During the open meeting, Chairman Glick reaffirmed his focus on enforcement efforts and, in turn, the agency’s commitment to aggressively pursuing and investigating allegations of misconduct. In a press release issued contemporaneously with the meeting, Chairman Glick stated, “This Commission takes very seriously our responsibility to ensure that FERC jurisdictional markets operate competitively and free from fraudulent schemes that harm other market participants and impose excessive, unjust costs on consumers.” Chairman Glick’s comments reflect his response to his previously stated concern about the agency’s commitment to enforcement—questioning at FERC’s November 2020 open meeting whether the Commission had “gone AWOL at this point.” Chairman Glick’s affirmation is significant because it reflects the direction the energy industry can expect from FERC and its Office of Enforcement under the Biden-Harris administration.
FERC demonstrated its commitment to investigating and penalizing fraud and manipulation by issuing a show cause order that directs GreenHat Energy LLC and its owners to explain why they should not pay a total of $229 million in civil penalties and disgorge nearly $13.1 million in unjust profits for alleged electric market manipulation. FERC’s Office of Enforcement alleges that the GreenHat parties violated the Federal Power Act and PJM Interconnection LLC’s tariff and operating agreement by engaging in a manipulative scheme in the financial transmission rights (FTR) market.
Over the course of three years, GreenHat acquired the largest FTR portfolio in PJM and subsequently defaulted on the portfolio. GreenHat’s scheme generated $179 million in losses, which were borne by all other PJM members. FERC’s Office of Enforcement alleges that GreenHat’s scheme is a form of fraud where the actors acquire assets with no intent to pay for them and try to turn the assets into immediate cash for themselves.
FERC has also continued to focus its attention on investigating whether market participants submitted complete, accurate, and timely information to regional transmission organizations (RTOs) and independent system operators (ISOs) in connection with their participation in organized markets. Earlier this year, FERC approved two settlements resolving investigations into whether the market participant violated the Commission’s regulations and the RTO/ISO’s tariff by providing inaccurate data to the RTO/ISO that did not reflect the capability or costs of the market participant’s assets. In one case, as a result of the inaccurate data, the market participant received inflated make-whole payments and was required to pay disgorgement to the ISO to compensate market participants.
These recent settlements, show cause orders (and the size of the proposed civil penalties), and orders assessing civil penalties serve as a good reminder that FERC continues to pursue and investigate potential misconduct. Enforcement remains a top priority for Chairman Glick and FERC, and the industry should expect to see further enforcement activity and developments in the coming months.