FERC Fines Generator for Abuse of Capacity Rules

FERC Fines Generator for Abuse of Capacity Rules

FERC, the US Federal energy regulator, has announced (click here) an enforcement action against Big Rivers Electric Corporation (BREC) for violating FERC’s anti-manipulation rule that involved generation outages and capacity payements received from the Midcontinent Independent System Operator (MISO) during June and July 2023. The facts of the case extracted from the 15-page Order are briefly summarised as follows:

• BREC is a member-owned, not-for-profit, electric generation and transmission cooperative headquartered in Kentucky;
• BREC is a member of MISO and provides services under the terms of the MISO Tariff;
• BREC participates in both the MISO Day Ahead and a Real-Time markets, as well as in MISO‘s capacity market;
• MISO operates the seasonal capacity market to ensure sufficient resources are available to meet projected peak loads and conducts a capacity auction to facilitate the purchase of capacity from participating units;
• Capacity payments for qualifying units are based on the auction clearing price and the amount of its cleared accredited capacity – such accredited capacity is determined by the unit’s individual characteristics and historical performance during each prior season;
• The Order deals with an outage scenario at a BREC generation unit central to this enforcement action;

• BREC offered its unit at the Robert D. Green Generating Station (“Green 2”) into the MISO capacity auction for the summer 2023 season which was accepted;
• Green 2’s capacity award required BREC to offer Green 2 into MISO’s Day Ahead and Real-Time Markets during that season;
• Starting in 2023, MISO implemented a new rule that imposed penalties called “Capacity Replacement Non-Compliance Charges” (CRNCC) on units contracted but not available during a capacity season;
• Under these new MISO rules, BREC could put Green 2 on a planned outage for no more than 31 days during the summer capacity season (starting 1 June) without incurring CRNCC penalties, unless it acquired replacement capacity;
• BREC placed Green 2 on a planned outage for maintenance work on 15 April 2023 which was extended on 30 May to 29 June 2023;
• The 31-day planned outage allowance period, which began on 1 June 2023, ran through to 1 July 2023;
• In late June 2023 BREC realized that the 31-day planned outage allowance would soon run out and that by continuing the planned outage past that period would cause them to incur CRNCC penalties of more than USD $50,000 per day starting on 2 July;
• BREC had not acquired replacement capacity for the period beyond the 31 days which would have been necessary to avoid the CRNCC penalties;
• On 28 June BREC’s Vice President of Energy Services wrote to colleagues about switching from a planned outage to a forced outage to avoid these penalties – the same manager later testified that avoiding the CRNC penalty was “definitely . . . a big factor” in the decision to declare the forced outage;
• On 29 June 2023, BREC submitted a Control Room Operations Window (CROW) ticket to MISO indicating that the planned outage was complete (CROWs are used to communicate the operational status of generating units and transmission lines to MISO);
• Three minutes later BREC submitted another CROW ticket indicating a forced outage had occured without specifying a reason;
• On the same day however a BREC engineer had attempted to start Green 2 after which the forced outage was officially declared;
• BREC submitted a CROW ticket ending the forced outage on 30 June but submitted a new forced outage ticket later on the same day;
• On 6 July 2023, BREC submitted a CROW ticket stating that this forced outage had ended and during the forced outage period, BREC had continued maintenance on equipment such as ID fans and exciter systems, which had already been worked on during the planned outage;
• The Order notes that if the planned outage had continured through to 6 July rather than switching to a forced outage, this would have resulted in BREC incurring CRNCC penalties of USD $277,200;

• On 5 July 2023 one of Green 2’s ID fan motors malfunctioned and was sent for repairs – despite this BREC offered Green 2 into MISO on standby from 6 July to 25 July 2023 even though the unit's capacity was uncertain;
• MISO gave Green 2 a Day Ahead award for full availability on 25 July, and BREC started Green 2 on 26 July reaching only 105 MW which is well below the awarded 223 MW capacity;
• The derated output continued until 31 July when the defective fan was reinstalled - this derated operation affected BREC's capacity payments leading to a USD $10,930 increase for the Summer of 2024;
• On 31 July 2023, MISO's Independent Market Monitor (IMM) inquired about Green 2’s forced outages and derates;
• BREC responded via email on 1 and 3 August 2023, clearing the responses with the Green 2 Plant Manager before sending them to the IMM – the 3 August email read:

"Green 2 tied online and began the online portion of its start-up sequence. At this point, everything was going smoothly and we expected the unit would be available to run at full load."

• FERC concluded that BREC had violated the FERC’s Anti-Manipulation Rule, 18 C.F.R. § 1c.2(a), through the following conduct:

1. To avoid CRNCC penalties, BREC falsely told MISO that its planned outage ended on 29 June 2023 and that its outages from that date until 6 July 2023 were forced outages when in fact they were a continuation of the planned outage.;
2. BREC submitted offers to MISO for Green 2 at full availability from 6 July to 25 July 2023 when BREC knew (or was reckless in not knowing) that the plant could not run at full availability when its fan motor was missing;
3. BREC submitted false and misleading information to the MISO IMM about its expectations for Green 2 running at full availability for 26 July 2023, and about when the unit’s fan motor failed.

• The following penalties were agreed:

1. BREC agrees to pay disgorgement to MISO of USD $308,341 (USD $277,200 for avoided CRNCC penalties, USD $10,930 for the excess capacity payments and USD $20,211 in interest);
2. A civil penalty of USD $336,870;
3. BREC to provide compliance training to its personnel about the MISO Tariff and FERC’s Anti-Manipulation Rule, and to review its compliance procedures for potential improvements, and to provide compliance monitoring (see below).

• Regarding the final point in respect of improvements to BREC’s compliance procedures, the Order provides further detail as summarised below:

o BREC will submit a compliance report to FERC after one year, additional reports may be requested at FERC’s discretion:

o Each compliance monitoring report will:

1. Identify any known violations of FERC regulations that occurred during the applicable period, including a description of the nature of the violation and what steps were taken to rectify the situation;
2. Describe all compliance measures and procedures BREC instituted or modified during the reporting period related to compliance with FERC regulations; and
3. Describe all FERC-related compliance training that BREC administered during the reporting period, including the dates such training occurred, the topics covered, and the procedures used to confirm which personnel attended.