Sunday, November 19, 2017

Ex-FERC Chair Wellinghoff Under Fire

By Chris O’Malley

Former Federal Energy Regulatory Commission Chairman Jon Wellinghoff improperly shared in public a video excerpt of a deposition taken during a 2013 commission investigation, according to a report released Tuesday by Department of Energy Inspector General Gregory Friedman.

But Wellinghoff on Tuesday told RTO Insider the video snippet in question was not “nonpublic” information when he played it during an industry conference on March 9.

While disclosing information is forbidden during an investigation, certain portions of it become public after an investigation is completed, Wellinghoff said.

“I’m kind of bemused by [the report] in the sense that, No. 1, this information is not confidential at all. I don’t understand where they get this,” Wellinghoff said.

The Inspector General also faulted FERC for inadequate safeguards inside the agency to prevent such disclosures and has asked current Chairman Norman Bay to do more to prevent disclosure of nonpublic information and strengthen post-employment guidance.

Perhaps ominously for Wellinghoff, Friedman asked Bay to determine if the former FERC chairman violated a Confidentiality of Investigations requirement at the agency “and ascertain what, if any, sanctions are available to address the former chairman’s actions.”

‘How Not to Behave’

Wellinghoff, who served as chairman from 2009 to 2013, is currently a partner at the energy law firm of Stoel Rives. He’s been widely sought after as a speaker and panelist at various utility industry conferences.

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Jon Wellinghoff (Source: FERC)

It was at such a conference on March 9 when, Friedman said, Wellinghoff shared a video excerpt of a nonpublic deposition taken during a “major” Office of Enforcement investigation resolved in a July 2013 agreement.

The video clip showed a trader being evasive while questioned by investigators. Wellinghoff presented the clip during the conference “as an example of how not to behave in front of regulators,” Friedman wrote.

Wellinghoff said the point of showing the video during the conference was instructional, in the context of “don’t do this” if you’re being questioned by regulators.

“But the snippet had no substantial information at all” concerning the underlying case, he insisted.

Records show that Wellinghoff was on the agenda to moderate a panel on “FERC and CFTC Enforcement” at the Western Systems Power Pool’s spring operating committee meeting, in Sonoma, Calif. After the panel discussion, a FERC employee, along with an attorney for the energy trading firm targeted in the 2013 investigation, “expressed concerns to the commission that the disclosure may have been unauthorized and in violation of federal law regulation,” according to the report.

FERC Integrity at Stake?

The Inspector General “confirmed the essence of the allegation, finding that Mr. Wellinghoff had, in fact, disclosed nonpublic OE information in a public setting. We concluded that the disclosure of such information could threaten the integrity of FERC’s regulatory and enforcement process.” Under FERC regulations, Friedman said, “virtually all of the information gathered during the course of an investigation is nonpublic.”

The report faults FERC management for failing “to take action to positively ascertain the scope of information still in possession of the former chairman.”

“In our view, the seriousness of this matter required more aggressive intervention and involvement by the commission,” the report said.

Friedman said FERC staff were focused on preventing future disclosures and failed to determine whether the former chairman possessed other nonpublic, sensitive commission material. FERC attorneys spoke with Wellinghoff on March 20, asking him to call the commission before releasing any other material in public so they could determine whether or not it was nonpublic, according to the report.

The report said Wellinghoff agreed, but he informed the attorneys that his computer had crashed in February and that all of his documents had been permanently lost. “However, we were told that Mr. Wellinghoff used a personal computing device to show the video clip during the March 9 presentation, despite having told commission attorneys that all of his documents were lost due to the computer crash,” the report said.

On April 29, the day before the Inspector General announced its investigation into the matter, FERC asked Wellinghoff to destroy any remaining commission material he possessed. Wellinghoff confirmed that he had on May 4.

The Inspector General said Wellinghoff has declined repeated requests to discuss the matter.

FERC Policies Faulted

Also faulted were FERC’s post-employment guidance and exit processes, such as how employees leaving FERC should treat information. The review did cite steps taken since the public release of the deposition came to light. For example, in an April email to current employees, FERC’s ethics official outlined potential criminal penalties for unlawful removal and distribution of federal records.

But Friedman said the risk of unauthorized disclosure by current and former FERC employees “remains unacceptably high.”

He recommended that Bay:

  • Determine if Wellinghoff violated the Confidentiality of Investigations requirement and whether sanctions are available;
  • Determine if the commission has necessary safeguards in place to prevent disclosure and propose statutory or regulatory changes; and
  • Expedite the effort to strengthen post-employment guidance and exit processes, including a better understanding of what constitutes nonpublic information.

Major Enforcement Case

Neither the conference nor the firm whose traders were targeted in the FERC investigation are identified in Friedman’s report.

According to FERC records, there were two major enforcement cases resolved in July 2013. One involved Barclays Bank, which FERC determined had violated the Anti-Manipulation Rule involving electricity trades in the western U.S. The commission assessed penalties of more than $435 million.

The public record of the case includes the names of traders found to have run askew of federal laws and includes summaries of depositions they’d made.

The other case resolved that month involved make-whole payments and related bidding strategies of JP Morgan Ventures Energy. Again finding a violation of the Anti-Manipulation Rule, FERC levied massive sanctions that included a $285 million civil penalty.

Wellinghoff declined to confirm to RTO Insider whether it was from one of these two July 2013 cases that he pulled the video deposition. The former FERC chairman said he did not identify the case at the March 9 conference.

Bay on Board

In a letter to Friedman, Bay said he agreed the video excerpt shared by Wellinghoff constituted nonpublic information.

“I have directed appropriate senior commission staff to explore whether further steps are available to address this situation and to share their findings on that issue with me by Sept. 1,” Bay wrote.

Wellinghoff has stepped on toes within FERC previously since leaving the post. In 2014, commissioners criticized their former colleague for publicizing information from a FERC analysis on grid security. Wellinghoff was attempting to demonstrate more could be done to safeguard the nation’s electrical infrastructure. (See FERC Criticism of Ex-Chair Mounts.)

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