April 17, 2014

FERC fines Westar $420,000, plus $1.15 million in Disgorgement of Unjust Profits, For Improper Use of Network Service Under the SPP OATT

On January 25, 2013, the Federal Energy Regulatory Commission (Commission) approved the January 14, 2013 settlement between its Office of Enforcement (Enforcement) and Westar Energy, Inc. (Westar) to resolve an investigation under Part 1b of the Commission’s regulations, 18 C.F.R. Part 1b (2012) concerning possible violations of the Southwest Power Pool open access transmission tariff (SPP OATT) in connection with purchases of secondary network integrated transmission service to facilitate off-system sales. Section 28.6 of the SPP OATT prohibits the use of network transmission service for any other purpose but to serve network load.

The Commission has issued a number of civil penalties for the improper use of network transmission service. See e.g. In re Xcel Energy, Inc. 138 FERC ¶ 61,026 (2012) ($2 million civil penalty for improper use of network service under the Xcel OATT and SPP OATT), In re SCANA Corporation, 118 FERC ¶ 61,028 (2007) ($9 million dollar penalty and $1.8 million dollar disgorgement for the improper use of transmission service); In re PacifiCorp, 118 FERC ¶ 61,026 (2007) ($10 million penalty for the improper use of transmission service). Under the settlement, Westar neither admits nor denies any violation, but has agreed to pay a civil penalty of $420,000, disgorge $758,816 to its non-affiliated firm transmission customers, disgorge $395,020 to SPP, and make a compliance report to Enforcement.

Enforcement’s investigation, which commenced in August 2007, spanned a twenty-month study period from July 1, 2006 through February 29, 2008. Enforcement concluded that during this period, Westar made numerous off-system short-term purchases using secondary network transmission, some of which were used to facilitate off-system sales rather than to serve network load. Enforcement determined that Westar committed 823 violations, consisting of 132,150 MWh. The order approving the settlement does not describe the methodology Enforcement used to identify those transactions that used secondary network transmission service to import power that later was sold off-system, but it can be presumed that it was similar to the methodology described in footnote 8 of Mid-American Energy Co., 112 FERC ¶ 61,346 (2005) (cited in the Scana case listed above).

According to Enforcement, for each alleged violation, Westar should have used point-to-point (PTP) transmission service rather than network transmission service. Consequently, the violations resulted in $395,020 in unpaid point-to-point charges to SPP and an additional $758,816 unjust profits at the expense of non-affiliated firm transmission customers, all of which Westar has agreed to disgorge. The settlement also provides that Westar will submit a compliance report to Enforcement detailing specific administrative controls that have been put in place to insure that its operators properly used PTP transmission service for any off-system short term purchases made to facilitate off-system sales.

In determining the appropriate civil penalty, the Commission considered the factors described in section 316A (b) of the Federal Power Act and in the Revised Policy Statement on Penalty Guidelines. Specifically, Enforcement considered that (1) there was no involvement or toleration of the violations by high-level personnel; (2) Westar cooperated fully with the investigation; and (3) the matter was resolved without the need for a trial type hearing.

A copy of the order is found here.

© 2014 Schiff Hardin LLP

About the Author


Laura Chipkin focuses her practice on a variety of matters before the Federal Energy Regulatory Commission (FERC) on behalf of electric utilities and natural gas companies. Representing both investor-owned utilities and electric cooperatives, Ms. Chipkin advises clients on compliance matters, wholesale power contracts, ratemaking proceedings, market-based rates and market power analyses, and open-access transmission tariffs.


About the Author


Jesse Halpern focuses her practice on utility compliance with Federal Energy Regulatory Commission (FERC) requirements.


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