Report of the Compliance & Enforcement Committee

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This report of the Compliance & Enforcement Committee summarizes key federal enforcement and compliance developments in 2012 including certain decisions, orders, actions, and rules of the Federal Energy Regulatory Commission, the Commodity Futures Trading Commission, the Pipeline and Hazardous Materials Safety Administration, the Department of Energy, and the United States Department of Justice.*

I. THE FEDERAL ENERGY REGULATORY COMMISSION

A. Reports and Rules

1. Annual Enforcement Report

On November 15, 2012, the Federal Energy Regulatory Commission (FERC) Office of Enforcement issued its Annual Report of enforcement staffactivities in fiscal year 2012.1 The report highlighted the creation of the new Division of Analytics and Surveillance; initiation of sixteen investigations and closure of twenty-one investigations; nine settlements, five Orders to Show Cause, and seven Notices of Alleged Violations.2 The FERC settled cases for over $148 million in civil penalties and over $119 million disgorgement of unjust profits.3 Enforcement processed thirty-three full Notices of Penalty and twelve Spreadsheet Notices of Penalty including a total of 904 possible or confirmed violations.4

2. Division of Analytics and Surveillance

In February 2012, the FERC Office of Enforcement created the Division of Analytics and Surveillance (DAS) to "develop[] surveillance tools, conduct[] surveillance, and analyze[] transactional and market data to detect potential manipulation, anticompetitive behavior, and other anomalous activities in the energy markets."5 "In FY2012, DAS reviewed numerous instances of potential misconduct and referred matters" to the Division of Investigations.6 The FERC also issued Order No. 760, Enhancement of Electricity Market Surveillance and Analysis through Ongoing Electronic Delivery of Data from Regional Transmission Organizations (RTO) and Independent System Operators (ISO),7 and Order No. 768, Electricity Market Transparency Provisions of section 220 of the Federal Power Act (FPA), 8 to "enhance DAS's ability to conduct surveillance of the electric markets and to analyze individual market participant behavior."9 Order No. 760 requires RTOs/ISOs to deliver market data directly to the FERC, including "physical and virtual bids and offers, market awards, resource outputs, marginal cost estimates, shiftfactors, financial transmission rights, internal bilateral contracts, uplift, and interchange pricing."10 Order No. 768 requires "market participants that are excluded from [FERC] jurisdiction under FPA section 205, and have more than a de minimis market presence to file [Electric Quarterly Reports] with the [FERC]."11

B. Show Cause Proceedings

1. Barclays Bank, PLC

On October 31, 2012, the FERC issued an Order to Show Cause (OSC) to Barclays Bank PLC (Barclays) and four individuals, Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith (together, the individual traders), directing them to show cause why they did not violate section 1c.2 of the FERC's regulations and section 222 of the FPA.12 Barclays and the individual traders "are alleged to have violated section 1c.2 by manipulating the electricity markets in and around California from November 2006 to December 2008."13

Office of Enforcement Staff(OE Staff) initiated the investigation after the Enforcement Hotline received calls from market participants on the matter.14 OE Staffconcluded "that Barclays and the individual traders engaged in . . . loss-generating trading of next-day fixed-price physical electricity on the IntercontinentalExchange . . . to benefit Barclays' financial swap positions."15 In its "Enforcement StaffReport and Recommendation" to the FERC, Staff"allege[d] that Barclays and the individual traders engaged in a coordinated scheme to manipulate trading at four electricity trading points in the Western United States in certain months from November 2006 to December 2008."16 OE Staffproposed $34. …