This week FERC, the US Federal power and gas regulator, issued a USD $6 million fine to AES (click here) for the alleged submission of inaccurate Physical Maximum (Pmax) values for eight of its units located in Southern California in violation of the California Independent System Operator (CAISO) Independent System Operator (ISO) rules. AES, which is part of a global energy group, operates c3.8GW of generation in the CAISO market.
The facts of the case are briefly as follows:
- During the period June 2018 to May 2020 the eight generation units were contracted through Resource Adequacy Purchase Agreements (RAPAs). For these units AER was not obligated to produce or sell any energy to the RAPA counterparty but they were required to bid energy into the CAISO market. For this service, AES received Resource Adequacy (RA) payments for providing capacity to the market;
- The investigation was opened following an August 2019 referral from the CAISO Department of Market Monitoring (DMM), which alleged that in May 2018 AES submitted inaccurate parameters for twelve units operated by AES in Southern California. These Master File submissions contained the operating and technical characteristics for the units which CAISO used for bidding, operation, dispatch and settlement actions. Pmax is one of these parameters which is the applicable CAISO-certified maximum operating level of a generation unit;
- Pmax test performance is based on the highest 30-minute average MW a resource can output during the testing window under CAISO guidelines. CAISO conducted Pmax tests in early 2019 to assess if most generation units could reach their Master File Pmax levels in advance of the high-load summer months. In August 2019 the CAISO DMM informed the FERC enforcement team that the AER Alamitos Units 3, 4, 5, 6, and Redondo Unit 7 failed to reach their Pmax values in both the May 2019 readiness tests and the exceptional dispatches which occurred in July 2019;
- The eight generation units in questions were physically unable to reach and/or maintain their Master File Pmax value for a 30-minute interval at any time during the June 2018 to May 2020 period when they were dispatched by CAISO up to their Pmax (the order notes that the aggregate Pmax MW deficiency across the eight units was 91.8MW);
- The order concludes that AES sold RA contracts to up to their Master File Pmax values and financially benefitted from RA capacity payments that could not be physically provided.
The FERC concluded that:
- AES had violated CAISO Tariff sections 4.6.4 and 37.3.1.1, and 18 C.F.R. sections 35.41(a) and (b). Sections 4.6.4 requires that “All information provided to the CAISO regarding the operational and technical constraints in the Master File shall be accurate and actually based on physical characteristics of the resources…”. Failure to reach their Master File Pmax values during testing demonstrated to FERC that the Master File Pmax values were not “accurate or actually based on the physical characteristics of the resources.”
- AES had violated CAISO Tariff section 37.3.1.1 “Expected Conduct“,which states, “Market Participants must submit Bids for Energy, RUC Capacity and Ancillary Services and Submissions to Self-Provide an Ancillary Service from resources that are reasonably expected to be available and capable of performing at the levels specified in the Bid, and to remain available and capable of so performing based on all information that is known to the Market Participant or should have been known to the Market Participant at the time of submission.” AES violated this standard by regularly bidding a full Master File Pmax into the CAISO day-ahead and real-time energy markets and being paid for RA capacity, even though the Resources could not “reasonably [be] expected to be available and capable of performing at the levels specified in the Bid, and to remain available and capable of so performing.”
- AES had violated 18 C.F.R. § 35.41(b) “Communications“, which provides that, “A Seller must provide accurate and factual information and not submit false or misleading information, or omit material information, in any communication with the Commission, Commission-approved market monitors, Commission-approved regional transmission organizations, Commission-approved independent system operators, or jurisdictional transmission providers, unless Seller exercises due diligence to prevent such occurrences.” AES violated this rule by submitting Master File Pmax values to CAISO that were not accurate. It also failed to exercise due diligence to ensure that the Pmax values submitted reflected the actual physical capacity of the generation units.
- AES had violated 18 C.F.R. § 35.41(a) “Unit Operation“, which states that, “Where a Seller participates in a Commission-approved organized market, Seller must operate and schedule generating facilities, undertake maintenance, declare outages, and commit or otherwise bid supply in a manner that complies with the Commission-approved rules and regulations of the applicable market.” AES’s registration of inaccurate Master File Pmax values, bidding up to the Resources’ Master File Pmax value in CAISO markets, and selling capacity through RA contracts that could not reasonably be provided, were in violation of the CAISO Tariff.
FERC ordered the following penalties and disgorgements:
- USD $2.97 million in disgorgement to CAISO to be distributed on a pro-rata basis to the market based on network load;
- A civil penalty of USD $3.03 million;
- AES be subject to Compliance monitoring for two years (a third year at FERC’s discretion);
- In determining penalties, FERC acknowledge that AES cooperated fully during the investigation.
