FERC Issues Penalty Assessment in Vitol CAISO Market Manipulation Proceeding

Mark R. Haskell, George D. Billinson, and Lamiya N. Rahman

The Federal Energy Regulatory Commission issued an Order Assessing Civil Penalties, imposing approximately $1.5 million in civil penalties on Vitol Inc. and one million dollars in penalties on a Vitol trader. In a departure from prior cases, the Commission assessed penalties well below Enforcement Staff’s recommended six-million-dollar penalty for the company, in light of the individual trader’s significant involvement in the alleged scheme. The next step for Respondents wishing to challenge the Order will be de novo review in federal district court.

On October 25, 2019, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an Order Assessing Civil Penalties (“Order”), imposing civil penalties of $1,515,738 against Vitol Inc. (“Vitol”) and one million dollars against Federico Corteggiano, a Vitol trader, in connection with an alleged market manipulation scheme in the California Independent System Operator Corporation’s (“CAISO”) markets.[i] Additionally, the Commission ordered Vitol to disgorge unjust profits, plus interest, of $1,227,143.

As we have previously discussed, the Commission began this proceeding by issuing an Order to Show Cause and Notice of Proposed Penalty to Respondents on July 10, 2019. In that order, the Commission directed Vitol and Corteggiano to show cause why they should not be assessed civil penalties of six million dollars and $800,000, respectively, and why Vitol should not be required to disgorge unjust profits of $1,227,143, plus interest. Respondents elected to have the Commission assess an immediate penalty if it finds a violation and then proceed with de novo review before a federal district court.

In the instant Order, the Commission found that Vitol and Corteggiano (collectively, “Respondents”) violated the anti-manipulation prohibitions in the Federal Power Act (“FPA”) and FERC’s Anti-Manipulation Rule[ii] through a cross-market scheme in which Respondents sold power at a loss in the CAISO wholesale electric market to avoid greater losses in Vitol’s positions in a separate financial product—congestion revenue rights (“CRRs”).[iii]

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[i] Vitol Inc., Order Assessing Civil Penalties, 169 FERC ¶ 61,070 (2019).

[ii] FPA § 222 (2012); 18 C.F.R. § 1c.2 (2019).

[iii] Specifically, the Commission found Respondents intentionally engaged in fraudulent physical energy imports during the period October 28-November 1, 2013, at the Cascade intertie to relieve congestion at Cragview, which in turn lowered the Cragview locational marginal price (“LMP”) and economically benefitted Vitol’s CRRs sourced at that location. Order at P 34.

FERC Issues Show Cause Order Proposing $6.8M in Civil Penalties to Vitol Inc. and Individual Trader and $1.2M Disgorgement for Alleged CAISO Market Manipulation

Mark R. Haskell, George D. Billinson, and Lamiya N. Rahman

Recently, FERC issued an Order to Show Cause why Vitol Inc. and its co-director of financial transmission rights trading should not be found to have engaged in market manipulation by selling physical power in CAISO at a loss to eliminate expected losses on Vitol’s Congestion Revenue Rights. Within 30 days of the date of the Order, Respondents must show cause why they should not be found to have committed market manipulation, pay civil penalties, and disgorgement, as well as make an election under FPA § 31(d)(1) whether to proceed before an Administrative Law Judge or opt to have FERC assess a penalty and then proceed with de novo review by a federal district court.

On July 10, 2019, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an Order to Show Cause and Notice of Proposed Penalty[1] to Vitol Inc. (“Vitol”) and Vitol’s co-head of financial transmission rights (“FTR”) trading, Federico Corteggiano (“Corteggiano”), (together, “Respondents”), directing the Respondents to show cause why they should not be found to have violated the anti-manipulation provisions of the Federal Power Act (“FPA”)[2] and the Commission’s regulations.[3]

The Order arises from allegations by FERC’s Office of Enforcement (“Enforcement”) that Respondents engaged in a “cross-product market manipulation scheme” by selling physical power at a loss in the California Independent System Operator (“CAISO”) day-ahead market to avoid even greater losses on their positions in a separate financial product—congestion revenue rights (“CRRs”). Enforcement’s factual allegations and legal analysis, resulting from an investigation into Respondents’ trading, are detailed in the Enforcement Staff Report and Recommendation included with the Order.[4] The investigation was prompted by a report from a CAISO market participant regarding Vitol’s activity.

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Leveling the Playing Field against Federal Agency Regulatory Interpretation: The Supreme Court’s Kisor Decision and the U.S. Attorney General’s 2018 Memorandum

Margaret Anne Hill, Brett A. Snyder, Frank L. Tamulonis III, and Stephen C. Zumbrun

Last month, the Supreme Court in Kisor v. Wilkie, 139 S.Ct. 2400 (2019) upheld what is known in administrative law as Auer deference: the age-old principle that a court should defer to an agency when the agency is interpreting its own ambiguous language in a regulation. See Auer v. Robbins, 519 U.S. 452 (1997); see also Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945). Deference to an agency’s regulatory interpretation has long been a challenge to industry and the broader regulated community. In any situation where an agency is on the other side of an issue—whether negotiations or a lawsuit—the agencies always had the upper hand when regulatory language was ambiguous. And this interpretation could often be the deciding factor between a party being in compliance with or in violation of a regulation.

But, with the Kisor decision the Court attempted to respect decades of precedent in this area yet rein in the frequency of Auer deference’s use and assuage naysayers by establishing clear standards for when a court should defer to an agency’s interpretation of its own regulations. Continue reading “Leveling the Playing Field against Federal Agency Regulatory Interpretation: The Supreme Court’s Kisor Decision and the U.S. Attorney General’s 2018 Memorandum”

Sixth Circuit Limits Reach of Clean Water Act to Groundwater Discharges, Creates Circuit Split on Proper Scope of CWA

David J. Oberly

Why It Matters

In recent years, the question of whether groundwater that migrates into federally protected navigable waters falls under the purview of the Clean Water Act (“CWA”) has been fiercely debated and heavily litigated across the country. To date, the Fourth and Ninth Circuits have both interpreted the CWA broadly, ruling that the CWA extends to reach groundwater discharges. Just recently, however, the Sixth Circuit in Kentucky Waterways Alliance v. Kentucky Utilities Company, No. 18-5115 (6th Cir. Sept. 24, 2018) and Tennessee Clean Water Network v. Tennessee Valley Authority, No. 17-6155 (6th Cir. Sept. 24, 2018) weighed in on the issue, and rejected the theory that pollutants reaching navigable waters as a result of passing through groundwater (or soil) are discharges that fall under the auspices of the CWA. The Sixth Circuit decisions are noteworthy, as they create a clear conflict among the federal circuit courts regarding the scope of the CWA and, more specifically, whether the Act reaches the issue of groundwater discharges, further increasing the likelihood that the United States Supreme Court will take up the matter to issue a decisive ruling on the proper scope of the CWA and provide a definitive resolution to this hotly contested issue of environmental law. Continue reading “Sixth Circuit Limits Reach of Clean Water Act to Groundwater Discharges, Creates Circuit Split on Proper Scope of CWA”

Charting Climate Change Cases: A Survey of Recent Litigation

Margaret Anne Hill and Stephen C. Zumbrun

Introduction

Right now, cases involving climate change are being heavily litigated in courts across the United States. Hundreds of climate change-related cases have been filed in both federal and state courts, where parties are challenging governments’ and industry’s knowledge of and contribution to climate change. In the abstract, one would think that litigation involving emissions of greenhouse gases (“GHG”) linked to climate change would largely focus on the federal Clean Air Act. Yet, climate change-related cases now involve ever-expanding causes of action, including not only claims under the federal Clean Air Act and other federal statutes, but claims under the U.S. Constitution, state law claims, and common law claims.

There are several active cases that may have major implications on the government’s role in determining the direction of climate change policy, and on private companies’ past and future liability for alleged contributions to climate change, as well as knowledge of climate change impacts on business decision-making. This article discusses notable current cases involving climate change. Continue reading “Charting Climate Change Cases: A Survey of Recent Litigation”

Pipeline Update: Here Today, Gone Tomorrow? FERC’s Natural Gas Pipeline Greenhouse Gas Analysis Policy

Stephen C. Zumbrun

The Republican majority of the Federal Energy Regulatory Commission (“FERC” or “Commission”) has drawn a clear distinction with how and when the Commission will analyze upstream and downstream greenhouse gas (“GHG”) emissions when reviewing natural gas pipeline projects. But with the recent announced resignation by Republican Commissioner Robert Powelson, a pending Notice of Inquiry issued by the Commission, a separate advanced Notice of Proposed Rulemaking issued by the Council on Environmental Quality (“CEQ”), and a recent petition to the D.C. Circuit Court, this current established protocol may not last and by this time next year we may see a whole new approach to pipeline GHG analysis coming out of FERC. Continue reading “Pipeline Update: Here Today, Gone Tomorrow? FERC’s Natural Gas Pipeline Greenhouse Gas Analysis Policy”

Appellate Division Finds Coverage for EPA Claim through Company’s Historic Mergers and Acquisitions, Even Though the Bill of Sale Did Not Specifically Reference the Transfer of Insurance Rights

Kevin R. Doherty

Earlier this month, the New Jersey Appellate Division upheld a decision allowing Cooper Industries LLC (“Cooper”) access to insurance policies received through a series of mergers and acquisitions (“M&As”), even though the transfer of assets language in the relevant bill of sale did not specifically reference the transfer of insurance rights. Cooper was thus afforded liability coverage for a U.S. Environmental Protection Agency (“EPA”) action seeking substantial cleanup costs.

Cooper’s predecessor, McGraw-Edison Co. (“McGraw”), previously obtained a variety of liability insurance policies from various insurers throughout the 1970s and ‘80s. At issue in the case was whether McGraw’s right to these policies was properly transferred, through a series of corporate transactions, such that Cooper could now access them for the EPA claim. The lower court found the relevant bill of sale language to be ambiguous and relied on deposition testimony from employees to find, among other things, that all assets and liabilities were meant to be transferred, including insurance rights. Insurers appealed. Continue reading “Appellate Division Finds Coverage for EPA Claim through Company’s Historic Mergers and Acquisitions, Even Though the Bill of Sale Did Not Specifically Reference the Transfer of Insurance Rights”