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FERC Issues Show Cause Order to Power Traders Regarding Sought $26 Million Fine

January 7, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

FERC issued a show cause order to Coaltrain Energy, L.P. (Coaltrain), Coaltrain’s co-owners Peter Jones and Shawn Sheehan, and traders/analysts Robert Jones, Jeff Miller, Jack Wells, and Adam Hughes, "to show cause why they should not be found to have violated section 1c.2 of the Commission’s regulations and section 222 of the Federal Power Act (FPA) by engaging in fraudulent Up To Congestion (UTC) transactions in PJM Interconnection L.L.C.’s energy markets."

FERC directed Coaltrain, "to show cause why it should not be found to have violated 18 C.F.R. § 35.41(b) of the Commission’s rules through false and misleading statements and material omissions relating to the existence of documents responsive to data requests and relating to the trading conduct at issue here."

FERC directed Coaltrain, Peter Jones, and Shawn Sheehan to show cause why they should not be jointly and severally required to disgorge unjust profits of $4 million and directed all respondents to show cause why they should not be assessed civil penalties in the following amounts:

• Coaltrain: $26,000,000

• Peter Jones: $5,000,000

• Shawn Sheehan: $5,000,000

• Robert Jones: $1,000,000

• Jeff Miller: $500,000

• Jack Wells: $500,000

• Adam Hughes: $250,000

FERC's show cause order results from allegations made by Staff of FERC's Office of Enforcement

As described in the show cause order, "Enforcement staff alleges that the Named Individuals devised and implemented a scheme to inflate trade volumes of UTCs through transactions designed to wrongfully collect large amounts of market credits known as Marginal Loss Surplus Allocations (MLSA) based simply on trading volume. Specifically, the Enforcement Staff Report alleges that Respondents discovered that they could profit from MLSA payments alone if UTC price spreads could be minimized or avoided entirely, and thereafter devised a scheme they called the OCL Strategy (meaning 'Over-Collected Losses,' which was their term for MLSA payments) that involved researching and executing sham UTC trades on paths with reliably zero or near-zero price spreads not to profit from price differentials between the day-ahead and real-time markets, but rather to avoid or nullify such price spreads in order to profit from MLSA payments alone. The Report alleges that the Respondents made OCL Strategy trades on 40 separate paths, but made most of the volume of OCL Strategy trades on two paths -- SouthImp-Exp and NCMPAImp-Exp -- that the Commission recently addressed in another order assessing penalties."

According to the show cause order, "The Enforcement Staff Report also alleges that Respondents omitted large numbers of documents responsive to Enforcement staff’s data requests and then tried to cover it up by falsely attesting that their responses were 'true, complete, and accurate.' The Report states that among these missing documents were thousands of communications and screenshots recorded and preserved by the computer security monitoring software that the company employed to record all activities done by employees on their work and home computers. The Report states that Enforcement staff learned about these missing documents from a former employee years after the investigation had commenced, and that these missing documents provided important evidence of Respondents’ conduct and intent."

Docket IN16-4

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