FERC Issues Show Cause Order, Seeks $2.4 Million Civil Penalty Against Power Trader

FERC issued a show cause order directing ETRACOM LLC and its principal member and primary trader Michael Rosenberg to show cause, "(i) 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 submitting virtual supply transactions at the New Melones intertie (New Melones) at the border of the California Independent System Operator (CAISO) wholesale electric market in order to affect power prices and economically benefit ETRACOM’s Congestion Revenue Rights (CRRs) sourced at that location; (ii) why ETRACOM should not pay a civil penalty in the amount of $2,400,000; (iii) why Rosenberg should not pay a civil penalty in the amount of $100,000 and (iv) why ETRACOM should not disgorge $315,072 plus interest in unjust profits, or a modification to these amounts as warranted."

Staff from FERC's Office of Enforcement alleged that, "in May 2011, ETRACOM submitted and cleared uneconomic virtual supply transactions intended to artificially lower the day-ahead LMP and create import congestion at New Melones, which greatly benefited ETRACOM’s Congestion Revenue Rights (CRR) positions sourced at New Melones."

Enforcement Staff alleged, "Rosenberg developed and implemented both the CRR and the virtual trading strategies for ETRACOM in May 2011 at New Melones."

Enforcement Staff alleged, "Between May 14 and 31, ETRACOM’s virtual supply offers resulted in a $42,481 loss, while staff estimates that ETRACOM earned $315,072 in unjust profits related to its CRR positions."

Enforcement Staff alleged that such actions harmed the market by $1.5 million

According to an Enforcement Staff report, ETRACOM and Rosenberg maintain that ETRACOM’s virtual trading at New Melones was part of a legitimate strategy based on expectations of a significant hydroelectric runoff event. According to the report, respondents also argue that market design flaws led ETRACOM to trade the way it did. Additionally, according to the report, respondents argue that ETRACOM’s trades were a legitimate response to observed price signals, ETRACOM did not intend or know its virtual trading would impact its CRR positions, and several characteristics of its strategy are not indicative of a manipulative scheme

Docket No. IN16-2