Power Marketer To Pay $41 Million Penalty Under FERC Settlement, Disgorge $40.8 Million

FERC approved a settlement between its Office of Enforcement (Enforcement) and GDF SUEZ Energy Marketing NA, Inc. (GSEMNA) under which GSEMNA will pay a civil penalty of $41 million and disgorge $40.8 million.

The settlement resolves Enforcement’s investigation under Part 1b of the Commission’s regulations, 18 C.F.R. Part 1b (2016), into whether GSEMNA violated the Commission’s Anti-Manipulation Rule, 18 C.F.R. § 1c (2016), by what FERC described in its order as, "improperly targeting and increasing its receipt of lost opportunity cost credits (LOCs) in the PJM Interconnection, L.L.C. (PJM) market."

GSEMNA neither admits nor denies the alleged violations under the settlement

According to FERC's order, after GSEMNA took over commercial operations of certain CT units in PJM in March 2011, "it identified LOCs as a potential source of profits when the units cleared the DA market and were not dispatched by PJM in the RT market. Starting in or around June 2011, GSEMNA implemented a strategy to profit from LOCs by offering one or more CT units in the DA market below the CT unit’s calculated costs with the goal of clearing the DA market and then collecting LOCs if the units were not dispatched. GSEMNA discounted its DA price-based offers below calculated costs, knowing that the CT units likely would run at a loss if dispatched."

According to FERC's order, "In November 2011, GSEMNA began discounting the cost-based offers for the CT units. This change was prompted by a change in how PJM calculated LOCs. Prior to this change, PJM erroneously calculated LOCs based on a unit’s price-based offers rather than the higher of the price-based or cost-based offers, as then required by the PJM tariff. When PJM started calculating LOCs correctly, GSEMNA modified its offer behavior to discount the cost-based offers down to the level of the price-based offers. As a result, the LOCs it received for the CT units would continue to be based on the discounted offer and would be higher than if based on the units’ estimated costs."

According to FERC's order, "Continuing through the Relevant Period, GSEMNA implemented its strategy of offering the units into the DA market with discounted price-based and cost-based offers, seeking to obtain a DA award and to profit from LOCs at times when the CT units would have operated at a loss if dispatched."

According to FERC's order, "GSEMNA’s strategy of offering CT units into the DA market at discounted prices resulted in GSEMNA obtaining DA commitments and LOCs at times when the units would be out of the money had they not been offered at discounted prices."

Upon Enforcement questioning the appropriateness of the GSEMNA bidding behavior in September 2013, GSEMNA discontinued its strategy of offering the CT units with discounted price-based and cost-based offers. GSEMNA also cooperated fully with Enforcement during the Investigation.

FERC's Office of Enforcement alleged that under such behavior, GSEMNA violated the Commission’s Anti-Manipulation Rule, 18 C.F.R. § 1c.2 (2016), by engaging in a strategy to target and inflate the receipt of LOCs in PJM.

GDF SUEZ Energy Marketing NA issued the following statement to EnergyChoiceMatters.com:

"GDF SUEZ Energy Marketing NA (GSEMNA) is proud of its track record as a transparent and responsible market participant, and has always worked to adhere to the rules of the markets in which it operates. Once the company became aware of the concerns raised by FERC staff in this matter, it immediately ceased the conduct in question and worked proactively to ensure compliance going forward. The PJM power plant assets cited in the order are in the final stages of being divested, and GSEMNA worked cooperatively with FERC on a resolution to bring this matter to a close."

Docket No. IN17-2