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Power Marketer to Pay $7.4 Million Under Settlement With FERC
FERC approved a settlement with Louis Dreyfus Energy Services L.P. (LDES) under which LDES will pay a civil penalty of $4.1 million, and disgorge $3.3 million plus interest, to resolve allegations that LDES violated the Commission’s Anti-Manipulation Rule, 18 C.F.R. § 1c.2 (2013), in connection with certain virtual trading within the Midcontinent Independent System Operator, Inc. (MISO) footprint from November 2009 through February 2010
In addition, one of the LDES traders, Xu Cheng, will pay a civil penalty of $310,000. Cheng no longer conducts virtual trading in any FERC markets and will not be doing so for the next two years.
FERC's Enforcement Staff alleged that LDES inflated the value of its Financial Transmission Rights (FTR) positions through its virtual trading, and that this conduct manipulated the MISO market
"Enforcement concluded that the FTR Group engaged in virtual trading at Velva from November 2009 to February 2010 which enhanced the value of its nearby FTR positions. When the FTR Group began acquiring FTRs near Velva, it earned little to no profit on the positions. Only after it began placing DECs [virtual demand] at Velva did the FTR Group turn a profit on its FTR positions. When the FTR Group’s FTR positions dropped by nearly two-thirds, the FTR Group contemporaneously stopped trading virtuals at Velva. The FTR Group lost $390,353 on its virtual trades at Velva from November 2009 to February 2010, but those trades increased the profits on its nearby FTR positions by $3,344,000. Enforcement found that this trading pattern violated the Anti-Manipulation Rule," the settlement states.
"Enforcement found that LDES offered no persuasive explanation for the FTR Group’s virtual trading pattern at Velva from November 2009 through February 2010. LDES stressed that the FTR Group’s trading philosophy was based on the use of market fundamentals to determine where and how to trade virtual supply and demand. Yet, the FTR Group did not identify a reasonable fundamental basis for trading virtuals the way that it had at Velva. As Cheng admitted, real-time congestion at Velva was unpredictable, and there is no evidence that the FTR Group developed a means or basis to anticipate when it would occur," the settlement states.
During the time period relevant to FERC's investigation, LDES was a wholly-owned subsidiary of Louis Dreyfus Highbridge Energy LLC
Under the settlement, LDES neither admits nor denies the alleged violations
Docket No. IN12-6
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February 10, 2014
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Reporting by Paul Ring • ring@energychoicematters.com
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