FERC Issues $51,000 Penalty to Power Trader

FERC approved a stipulation under which Oceanside Power, LLC will pay a civil penalty of $51,000 and disgorge $29,000 to resolve an investigation by FERC's Office of Enforcement regarding whether Oceanside violated the Commission's Anti-Manipulation Rule, 18 C.F.R. § 1c.2.

As part of the stipulation, Robert Scavo, an employee of Oceanside at the time of the conduct addressed in the stipulation, agrees not to trade in FERC-regulated electric markets, or in products or instruments that are based on the price of electricity, for one year.

Oceanside placed Up To Congestion (UTC) transactions in PJM Interconnection, LLC (PJM) during 2010. Scavo conducted the trades at issue on behalf of Oceanside, FERC said.

During the summer of 2010, PJM observed certain market participants reserving unusually large volumes of non-firm point-to-point transmission service. PJM subsequently determined that these market participants had scheduled against these transmission reservations certain UTC transactions where the potential for profits (if any) from the change in congestion spread between the DAM and RTM would be insufficient to pay the transaction costs for the trades. These transactions did, however, receive Marginal Loss Surplus Allocation (MLSA) for the related transmission reservations.

According to FERC, Enforcement determined that from July 29, 2010 through August 4, 2010, Robert Scavo submitted UTC transaction bids at the South Imp and South Exp node pair on behalf of Oceanside. The spread between the settled hourly prices at these nodes in the DAM is always $0. The spread between the settled hourly prices at these nodes in the RTM is $0 for a majority of hours. The difference between the DAM and RTM congestion price spreads at this node pair is typically no more than a few cents, and not enough to cover the transaction costs of a UTC transaction. In a period of over 25,500 hours of price settlement at these nodes, the congestion price spread difference exceeded $0.20 in fewer than 100 settlement hours and exceeded $1.00 in fewer than 40 hours.

FERC said that Enforcement determined that Oceanside scheduled over 90 percent of the UTC transaction bids it submitted on those days at the South Imp/South Exp node pair. Oceanside's UTC transaction bids for that node pair on those days totaled 33,400 MWhs. Oceanside reserved and paid for 33,400 MWhs of non-firm point-to-point transmission at a cost of $0.67 per MWh, which it associated with the schedules for these UTC transactions.

Excluding the credit for MLSA, the transactions resulted in a loss to Oceanside of $29,450, almost all of which reflects the transmission reservation and ancillary service charges associated with the transactions. But because PJM credited the transmission related to these trades with MLSA of $59,012, the company earned a net profit of $29,563 from its South Imp/South Exp UTC transactions, FERC said.

"Enforcement determined that Oceanside deliberately chose the South Imp/South Exp pricing nodes for its UTC transactions in the period July 29 through August 4, 2010 because that node pair had little or no potential to yield any change – profitable or loss-incurring – in the congestion price differential between the DAM and RTM. Enforcement determined that these UTC transactions were designed to be trades that would enable Oceanside to reserve and schedule against large amounts of transmission service without the risk of losses from the UTC transactions. Instead, Oceanside would lose only the transaction costs (transmission service charges and ancillary service charges), which were known amounts that could be estimated with reasonable certainty and accuracy. Enforcement determined that Oceanside used the UTC transaction at the South Imp/South Exp pricing nodes as a pretext to reserve a large volume of transmission and thereby earn larger share of the MLSA for the hours in which it submitted a schedule. Enforcement determined that this conduct violates the Commission's prohibition against manipulation in the electricity markets, 18 C.F.R. 1c.2 (2012), because it was a scheme to defraud the PJM market," FERC said.

Docket: IN11-5