NRG To Pay $85,000 Under Settlement Approved By FERC; Chair Danly Says NRG Did Not Violate Tariff Or FERC Regulation

January 11, 2021

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Reporting by Paul Ring • ring@energychoicematters.com

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FERC, in a 2-1 vote, approved a Stipulation and Consent Agreement (Agreement) between its Office of Enforcement (Enforcement) and NRG Power Marketing LLC (collectively, the Parties) to resolve Enforcement’s investigation into whether NRG Power Marketing LLC violated the ISO New England Inc. (ISO-NE) Transmission, Markets and Services Tariff (Tariff), Market Rule 1, § III.13 and 18 C.F.R. § 35.41(b) (2019) when it submitted what FERC termed in the order as, "inaccurate cost-based static de-list bids for two generating stations, Middletown and Montville (Resources), during the ISO-NE Eleventh Forward Capacity Auction (FCA 11) qualification period."

Under the stipulation, NRG Power Marketing LLC agrees to pay a civil penalty of $85,000, and to be subject to compliance monitoring as provided in the Agreement. NRG Power Marketing LLC stipulates to the facts set forth in Section II of the Agreement, but neither admits nor denies the alleged violations

FERC Chairman James Danly dissented, characterizing the behavior at issue as an aggressive bid reflecting a different expectation from that of the ISO-NE Internal Market Monitor (IMM) and Enforcement, as further discussed below

Dave Schrader, Manager, Communications East for NRG, provided the following statement concerning the settlement:

"On January 8, 2021, in a 2-1 vote, the Commission approved a settlement NRG entered into with FERC to resolve an ongoing investigation in connection with NRG’s participation in the ISO-NE 2016 capacity auction. Chairman Danly dissented, saying the investigation should have been terminated. We are pleased to put this matter behind us and focus on the ongoing operation of our facilities. While we have agreed to this settlement, NRG has not admitted any wrongdoing in this matter."

--- Statement from Dave Schrader, Manager, Communications East for NRG

Capacity resources with a capacity supply obligation (CSO) submitting a de-list bid must, 'provide documentation separately detailing the expected Capacity Performance Payments for the resource.' The Tariff requires that, '[t]his documentation must include expectations regarding the applicable Capacity Balancing Ratio, the number of hours of reserve deficiency [i.e., scarcity hours], and the resource’s performance during reserve deficiencies.' The Tariff further requires that, '[s]ufficient documentation and information about each bid component must be included in the . . . Existing Capacity Qualification Package to allow the Internal Market Monitor to make the requisite determinations.' Finally, the Tariff requires that, '[t]he entire de-list submittal shall be accompanied by an affidavit executed by a corporate officer attesting to the accuracy of its content, including reported costs, the reasonableness of the estimates and adjustments of costs that would otherwise be avoided if the resource were not required to meet the obligations of a listed resource, and the reasonableness of the expectations and assumptions regarding Capacity Performance Payments, cash flows, opportunity costs, and risk premiums, and shall be subject to audit upon request by the ISO.'

Section 35.41(b) of the Commission’s regulations, 18 C.F.R. § 35.41(b), 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.'

As stated in FERC's order, "Enforcement investigated whether NRG’s static de-list bids and related communications with the IMM accurately stated NRG’s expectation regarding scarcity-hours in the expected Capacity Performance Payments components of the static de-list bids. After examining the evidence, Enforcement concluded that NRG misstated (by overstatement) its expectation regarding scarcity hours, which resulted in higher static de-list bid prices submitted for the Resources."

As stated in FERC's order, "Based on its Investigation, Enforcement also concluded that NRG misstated the Resources’ net going forward costs with respect to its treatment of mothball costs in the static de-list bids. With the submission of a static de-list bid, a market participant must notify the ISO whether, if it does not receive a CSO, a resource will be active or inactive during the CCP [Capacity Commitment Period]. Going forward costs are defined in the Tariff as the 'costs that might otherwise be avoided or not incurred if the resource were not subject to the obligations of a listed capacity resource during the [CCP].' Consistent with the Tariff, the FCA 11 de-list bid workbooks and ISO-NE User Guide required participants to adjust static de-list bid going forward costs by the unavoidable costs of mothballing units if they were designated as being inactive during the CCP. Likewise, if the units were designated as being active during the CCP, mothball costs were not to be included in static de-list bids. The static de-list bids NRG submitted for FCA 11 treated mothball costs inconsistently with NRG’s statement in the static de-list bids as to whether the units would remain active if they did not receive CSOs."

More specifically, the Agreement states, "NRG forecasted scarcity hours for FCA 11 on multiple occasions for internal purposes other than the submission of the FCA 11 static de-list bids."

The Agreement states, "In mid-May 2016, an NRG employee responsible for developing recommendations regarding static de-list bids for FCA 11 recommended that NRG not submit any static de-list bids based on a review of internal cost estimates for NRG’s existing capacity resources. This review was done before preparation of a draft FCA 11 static de-list bid workbook. Upon review by a higher-ranking NRG employee, a determination was made to prepare static de-list bids for the Resources. This led to a recommendation to submit such bids, which was presented to NRG senior management for further consideration. Personnel with substantial authority participated in NRG’s de-list bid-related decisions, including the final decision to submit static de-list bids for the Resources."

The Agreement states, "On June 6, 2016, NRG electronically submitted to ISO-NE and the IMM static de-list bids for the Resources totaling 1,244 MW. NRG submitted a separate static de-list bid workbook for each of the two Resources, as well as a written document that provided information it asserted justified the scarcity-hours value claimed in the workbooks. The workbooks contained the static de-list bid prices and cost information for each Resource. NRG used a specified value of scarcity hours (Scarcity Hour Value) in the expected Capacity Performance Payments section of the static de-list bid workbooks and in the written document submitted with the de-list bid workbooks that differed from forecasts used for other purposes within NRG at various points in time, including in other documents making forecasts with respect to FCA 11."

The Agreement states, "The static de-list bids NRG submitted for FCA 11 treated mothball costs inconsistently with NRG’s statement in the static de-list bids as to whether the units would remain active if they did not receive CSOs. NRG recognized that mothball costs would impact the de-list bid, but ultimately represented the status of the units in its submittal inconsistently with how it treated mothball costs."

As stated in FERC's order, "Enforcement determined that NRG submitted to ISO-NE and the IMM static de-list bids during the qualification period for FCA 11 that misstated the costs for the Resources in violation of section III.13 of the ISO-NE Tariff."

In a dissent, Chairman Danly wrote, "The Order approves the imposition of a penalty against NRG for submitting an aggressive bid reflecting a different expectation from that of the ISO-NE Internal Market Monitor (IMM) and Enforcement as to whether the ISO-NE market would be at equilibrium four years later."

"In my view, we should not penalize companies based on our disagreement with forecasts of future events submitted for independent review in a tariff-prescribed bid review process, even if we think that a company’s forecast is overly aggressive. Instead, the proper remedy in such a case is to require the use of a different forecast that is more reasonable. This is the Commission’s standard practice when reviewing applications under all the regimes we oversee and, in fact, that is what the IMM did here. Once the IMM substituted its forecast for the one submitted by NRG, that should have been the end of the matter. Instead of penalizing NRG, Enforcement’s investigation should be terminated," Danly wrote

"The Order also imposes a penalty for NRG’s failure to fill out the mothball cost section of the required workbook submission supporting NRG’s static de-list bids consistently with NRG’s statement in the static de-list bids regarding whether the units would remain active if they failed to receive a capacity award. Again, a penalty is not the proper remedy for such a failure. Instead, under the tariff-prescribed bid review process and the Commission’s standard practice, when incomplete or inconsistent information is submitted in an application, the proper response is to require appropriate information to be supplied. The IMM had ample opportunity to request that NRG provide additional information regarding mothball costs, but never did so. Nor did the IMM refer to NRG’s failure to supply consistent information regarding mothball costs when the IMM referred this matter to Enforcement. I cannot support imposing a penalty for failure to provide information that the IMM could have requested in the course of a months-long, tariff-prescribed, iterative process but, by its inaction, indicated was immaterial," Danly wrote

"I recognize that NRG has executed the Settlement Agreement and agreed to pay a penalty. But NRG adamantly denied wrongdoing in the course of the investigation and admits to no violation in the Settlement Agreement. Clearly, NRG chose the lesser of two evils: it agreed to pay a civil penalty of $85,000 in order to extinguish Enforcement’s claim, thereby avoiding further litigation expense. I perfectly understand NRG’s decision. However, I strongly disagree with any suggestion in the Commission’s order that NRG’s agreement to settle demonstrates that the settlement is fair, equitable, and in the public interest. An agreement requiring the subject of an investigation to pay a penalty for violating a tariff provision cannot be fair, equitable, or in the public interest when the subject did not violate the tariff. It is the moral equivalent of accepting a guilty plea from a criminal defendant the prosecutor knows to be innocent. We should not approve this agreement. The Commission should instead terminate Enforcement’s investigation and take no further action," Danly wrote

Danly also noted, "NRG’s treatment of mothball costs in its workbook was inconsistent with NRG’s statement in the static de-list bids as to whether the units would remain active if they did not receive a capacity supply obligation. However, the IMM -- in the course of the extensive back-and-forth in which it scrutinized the components of NRG’s bid -- never mentioned this inconsistency. Further, the IMM declined to treat mothball costs differently in its revision of NRG’s static de-list bid. As I explain below, the IMM’s failure to treat mothball costs differently in its revision, while not dispositive, casts serious doubt on the materiality of the inconsistency in NRG’s submission."

"I agree that the IMM’s referral merited an inquiry by Enforcement. But that is because the IMM alleged that NRG engaged in market manipulation which, on its face, warranted a closer look. However, the market manipulation allegation appears to have no merit, since it is not even mentioned in our order or in the stipulation between Enforcement and NRG. In my view, once Enforcement determined that the IMM’s market manipulation allegations were unfounded, the investigation should have been terminated," Danly wrote

"I am aware of no law that demands a company have only one 'expectation.' Indeed, it would be surprising if there were -- companies like NRG employ many people, and these employees probably have differing expectations about virtually every subject they consider. The 'expectation' of a company, if one were forced to identify such a thing, is most fairly the one that the company declares in some formal proceeding or forum, after the various employees make recommendations, discuss their thoughts and, after those thoughts are taken into consideration, the management of the company directs an official pronouncement. I note that this is much the same principle we apply to the Commission. Our position on an issue is the position expressed in orders approved by a majority vote of the sitting Commissioners, regardless of how vigorous an internal debate may have preceded the order’s approval. In this case, the pronouncement of NRG’s expectation came when NRG submitted the support for its static de-list bid to the IMM. Contrary forecasts within an organization, especially within different groups of an organization as was the case here, are not abnormal. NRG should not be penalized simply because internal NRG forecasts predicted a lower number of scarcity hours than were ultimately included in NRG’s static de-list bid," Danly wrote

Docket No. IN20-4

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