FERC Fines Two Firms for MISO and PJM Breaches

This week FERC, the US energy regulator, announced two enforcement actions continuing the flurry of year end activity by the Commission.

The first case (click here) saw the cryptically named Ketchup Caddy LLC and Philip Mango, its founder, heavily penalised for a fraudulent scheme involving demand response resources (DR) in the Midcontinent Independent System Operator Inc (MISO) market in violation of the Federal Power Act (FPA), FERC’s anti-manipulation rules and the rules governing the MISO market (i.e. the MISO Tariff). As background, Ketchup Caddy was originally set up by Philip Mango and was not related to the energy sector at the time. In 2018, Mango used Ketchup Caddy to house a new energy business focused on registering demand response resources and offering them into MISO’s Planning Resource Auctions (PRAs). MISO uses these auctions to procure capacity necessary to maintain the reliability of the MISO grid. The Relevant Period for the case is March 2019 to October 2021. The salient facts of the case are summarised as follows:

• MISO’s demand response programme allows large energy users to participate in its energy and capacity markets by providing physical load adjustment or load interruptions;
• Resources wanting to participate only in MISO’s capacity market can register as Load Modifying Resources (LMR) which must clear their capacity in the annual PRAs;
• A DR resource that registers as an LMR and clears capacity in PRAs receives capacity payments from MISO for being available to provide demand reduction in the event of an emergency;
• To qualify as an LMR during the Relevant Period, a resource must have been able to achieve the target level demand reduction provided during registration, or move to a specified firm service level by the designated hour;
• The resource must also be able to maintain the target level or firm service level for at least four continuous hours, and be able to respond to at least the first five times requested per year based on its physical availability;
• To register a resource as an LMR, firms must submit a variety of information to MISO, including information about the resource’s capacity, monthly availability, address, and meter number;
• Prior to the 2020/21 Planning Year, the MISO Tariff allowed firms to demonstrate their demand reduction capability by conducting a real power test or providing operational data, or by using an alternative mechanism to demonstrate demand reduction without requiring an actual demand reduction to occur;
• An associate of Mango’s created a “scrape tool” which, between May 2018 to March 2019, enabled him to access and extract customer details from the website of the retail power supply company “Ameren”;
• This scraping bot was designed to input random Ameren customer account numbers which would push out customer usage data which could then be used in the MISO bidding process;
• In developing the scrape tool, the Ameren website asked the associate to confirmed that he had received permission from the account holders to view their data – neither Mango or the associate had done so;
• Mango later testified that, before effectively enrolling unwitting customers in the 2019 PRA, he had never contacted any of the customers nor had he taken any steps such to formally enrol customers such as preparing a draft contract for them;
• After obtaining a letter of credit needed for PRA participation in February 2019, Ketchup Caddy was accepted to participate in MISO’s annual PRA;
• In order to register its unknowing customers to participate, Ketchup Caddy had to provide data about them – Mango selected a set of customers from the data that his associate’s scraping tool had illicitly collected from Ameren’s website;
• The two then created fake “curtailment plans” for these customers based on data from Ameren’s website where they looked for instances where a customer’s energy usage dropped during a 1-2 hour period – this was used as “mock test” information for MISO;
• Mango later testified that despite submitting this mock test information to MISO, he knew that these customers would not respond/perform if called upon by MISO;
• MISO also rejected attempted resource registrations that Ketchup Caddy had submitted as they were already legitimately enrolled by another DR provider;
• Despite this, Ketchup Caddy still managed to clear 211.1 MW of DR capacity in the April 2019 PRA due to begin performance on 1 June 2019 - from this point Ketchup Caddy began receiving weekly capacity payments from MISO;
• In the April 2020 PRA, Ketchup Caddy cleared 303.2 MW of customer capacity and in the April 2021 PRA, they cleared 372.3 MW for which they received weekly capacity payments;
• MISO removed the company from its capacity market in October 2021 after becoming aware of Ketchup Caddy’s fraudulent registrations;
• Mango and his associate received payments of USD $500,000 each from Ketchup Caddy as a part of the fraudulent scheme;
• Mango testified that upon further reflection, he agreed that his behaviour was fraudulent and that Ketchup Caddy’s activities did not benefit the MISO market;
• The Order claims that Mango had also kept his associate “in the dark” about the scheme and deceived him into thinking that was engaging with customers about their purported enrolment;
• FERC determined that Ketchup Caddy’s uncontracted PRA offers caused USD $17,639,142.07 in actual losses resulting from market distortion (these losses were calculated by an external consultancy - Potomac Economics);
• The consultancy reran each PRA excluding Ketchup Caddy’s bids – each rerun yielded a higher auction clearing price for each zone than would have otherwise occurred without the fraudulent bids;
• FERC also concluded that the illicit conduct also potentially risked the reliability of the MISO grid as MISO could not rely on Ketchup Caddy’s fraudulent capacity in an emergency;
• FERC concluded the following regarding Ketchup Caddy and Mango’s activities:

1. Violation of section 222(a) of the Federal Power Act (FPA);
2. Violated Section 1c.2(a) of FERC’S regulations;
3. Violated Sections 69A.3.5 and 69A.7.1 of the MISO Open Access Transmission, Energy and Operating Reserve Markets Tariff (MISO Tariff).

• The following penalties were ordered:

1. Civil penalty: USD $25,000,000 against Ketchup Caddy;
2. Civil penalty: USD $1,500,000 against Mango;
3. Disgorgement: Unjust profits of USD $506,502.

The second case (click here) saw Montpelier Generating Station LLC (Montpelier) and Rockland Capital LP (Rockland) (the “Companies”) penalised for violating the PJM Interconnection (PJM) Open Access Transmission Tariff (OATT) and FERC regulations for classifying a Forced Outage as a Maintenance Outage during the period 25 October 2022 to 11 January 2023 (Relevant Period) in order to avoid Performance Assessment Interval (PAI) penalties during Winter Storm Elliott in December 2022. The salient facts of the case are summarised as follows:

• Montpelier Unit 2 is one of four “twin-pack” simple cycle gas-fired generation units in Oneto, Indiana owned by Rockland;
• Each twin-pack is designed to operate in tandem, but the twinned units can run separately - Montpelier Unit 2’s twin-pack units have a combined Installed Capacity (ICAP) rating of 58 MW (i.e. 29 MW each);
• On 25 October 2022, Montpelier Unit 2 tripped offline due to high vibrations;
• At 11:02 a.m., Montpelier Unit 2 (through its Energy Market Scheduler) submitted a ticket in the eDART system (PJM’s tool that allows generation and transmission owners to submit outage requests and manage outage data) with the Outage Type “Unplanned Outage/Derate” and a reduction of 58 MW i.e. its entire capacity;
• At 5:35 p.m., Montpelier informed its Energy Market Scheduler by phone that the vibration issue was limited to one turbine and that the unit could re-enter the market derated to 29 MW i.e. half its capacity;
• At 5:36 p.m., Montpelier’s Energy Market Scheduler entered a new outage ticket in eDART with the Outage Type “Maintenance Outage/Derate” and a reduction of 29 MW;
• Following its initial inspection, Montpelier determined that the turbine with the vibration issue was damaged and had to be transported to an offsite repair facility – they subsequently encountered delays in repairing the damaged turbine;
• Montpelier, through its Energy Market Scheduler, entered a series of extensions in the eDART system of the second outage ticket with the Outage Type “Maintenance Outage/Derate” – this spanned the period 1 November 2022 to 11 January 2023;
• PJM assesses resource performance during defined emergency periods (i.e. PAIs) - resources with a performance shortfall pay PAI penalties but resources with a PJM-approved Planned or Maintenance Outages are exempted from paying such penalties;
• Due to the damaged turbine, half of Montpelier Unit 2’s 58 MW of capacity was unavailable when PJM initiated a Maximum Generation Emergency Action on 23 December 2022 during Winter Storm Elliott;
• Since Montpelier Unit 2 had classified its Outage Type in the eDART system as a “Maintenance Outage/Derate” instead of a “Unplanned Outage/Derate”, PJM did not apply any penalties for failing to perform during the PAI periods on 23 and 24 December 2022;
• FERC concluded the following regarding the Companies’ activities:

1. Violated the PJM Open Access Transmission Tariff (OATT);
2. Violated FERC’s Market Behaviour Rule, 18 C.F.R. Section 35.41(b).

• The following penalties were ordered:

1. Civil Penalty: USD $105,000;
2. Disgorgement: Avoided penalties of USD $674,064 plus USD $84,690 in accrued interest;
3. Compliance Monitoring: Montpelier will be subject to compliance monitoring for two years with a third year at FERC’s discretion.