By Rich Heidorn Jr.
FERC last week ordered ETRACOM and its principal trader Michael Rosenberg to respond to allegations that they manipulated the CAISO energy market in a scheme that allegedly netted $315,000 in profits (IN16-2).
FERC issued an Order to Show Cause accusing the company of submitting virtual supply transactions at the New Melones intertie at the CAISO border in order to affect power prices and benefit its congestion revenue rights (CRRs) at that location.
The 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. ETRACOM’s virtual supply offers resulted in a $42,481 loss, while staff estimates that ETRACOM earned $315,000 in profits on its CRR positions.
FERC staff estimated that the alleged scheme resulted in the market overpaying all New Melones CRR source holders, including ETRACOM, $1.5 million. The overpayment was funded by New Melones CRR sink holders and revenue inadequacy.
FERC is seeking a $2.4 million civil penalty from the company and a $100,000 penalty from Rosenberg in addition to disgorging its profits.
ETRACOM and Rosenberg issued a statement Tuesday denying FERC’s allegation, which they said “inappropriately cherry picks evidence it asserts shows manipulation, ignores other evidence that is exculpatory, misstates facts, and reaches illogical and erroneous conclusions.”
The statement was released through attorney Robert Fleishman, of Morrison & Foerster in Washington. It said the losses the company suffered on its virtual supply offers trades were not the result of manipulation but of market flaws.
FERC enforcement staff “belittles—and in many instances outright ignores—the serious, undisclosed market design flaws and software, modeling and pricing errors plaguing the New Melones Intertie in May 2011,” they said.
“Indeed, the market was so flawed that CAISO ceased trading at New Melones soon after May 2011 and admitted that it was ‘inappropriate’ to have created that market in the first place. But for CAISO’s market design, approved by FERC, and modeling errors at New Melones, the trading outcomes alleged by FERC would not have occurred. Undoubtedly, this was not a ‘well-functioning market.’”
The company said it will prove that the company “rationally attempted to profit from a record hydro event in May 2011 that would (and, two months later, in fact did) cause congestion at the New Melones Intertie node.”
“Staff’s erroneous conclusions therefore rely exclusively on economic evidence of ETRACOM’s losses in May, without any documentary support for its theory of a manipulative scheme. Market participants everywhere should be concerned by staff’s actions in light of such scant evidence, which effectively would subject any trading losses incurred from legitimate risk-taking to baseless manipulation claims divined after the fact.”
ETRACOM said it has not had any opportunity to take formal discovery, interview witnesses, or subpoena documents and will “vigorously” defend itself.
