FERC and Power Marketer GSEMNA Reach $80 Million Enforcement Settlement over Alleged Market Manipulation

On February 1, 2017 FERC issued an order approving a settlement between its Office of Enforcement (“Enforcement”) and Houston-based power marketer GDF SUEZ Energy Marketing NA, Inc. (“GSEMNA”) following an investigation into whether GSEMNA violated FERC’s anti-manipulation regulations from May 2011 to September 2013. As part of the agreement, GSEMNA neither admitted to nor denied the alleged market manipulation violations, but agreed be subject to monitoring and annual compliance reporting as well as to pay a disgorgement of $40.8 million in unjust profits and a civil penalty of $41 million to the U.S. Treasury.

The alleged market manipulation behavior involved so-called “lost opportunity cost credits” (“LOCs”) awarded in the PJM Interconnection, L.L.C. (“PJM”) wholesale electric market. PJM provides LOCs to encourage generators to keep their units as part of PJM’s resource pool, thereby allowing PJM to control their output and maintain system reliability. Combustion turbine units that clear PJM’s day-ahead market but are not dispatched in the real-time market receive LOCs as a substitute form of compensation so as to help minimize the lost opportunity costs stemming from not being dispatched. Unlike in the real-time market, the LOC formula did not include start-up and no-load costs. As a result, a generator that cleared the day-ahead market could earn more money by not being dispatched and receiving a LOC instead.

According to the Order, around June 2011, GSEMNA implemented a strategy to profit from LOCs by offering certain affiliate-owned combustion generating units into the day-ahead market at below-cost offers, thereby more easily clearing the DA market. GSEMNA would then collect LOCs if the units were not dispatched. As FERC stated in the Order, GSEMNA would lower a generating units day-ahead offer based on the likelihood that the unit would not be dispatched in the real-time market, knowing that if they operated at a loss when dispatched, any LOCs received would represent profit. According to FERC, GSEMNA’s strategy of offering combustion units into the day-ahead market at discounted prices resulted in the company obtaining day-ahead commitments and LOCs at times when the units would be out of the money had they not been offered at discounted prices.

Enforcement began questioning GSEMNA in September 2013 and eventually opened an investigation, with which the company fully cooperated. Enforcement ultimately concluded that GSEMNA violated FERC’s anti-manipulation rule by engaging in a strategy to target and inflate the receipt of LOCs in PJM in a manner that was contrary to supply and demand fundamentals and impaired the PJM market.

This Order approving an enforcement settlement, found here, is one of two such orders released this past week. The second order approved a $36,000 settlement between Enforcement and Covanta Haverhill Associates LP following the company’s alleged failure to provide instantaneous metered power output data as required by ISO New England’s tariff.

A version of this article first appeared in the Washington Energy Report, which you can see here.




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