By Rory D. Sweeney
GDF SUEZ Energy Marketing will pay almost $82 million to settle market manipulation charges for offering generation below cost to capture make-whole payments in PJM.
FERC on Wednesday approved a consent agreement between the company and the commission’s Office of Enforcement that requires GDF to disgorge $40.8 million to PJM and pay a civil penalty of $41 million to the U.S. Treasury. GDF did not admit or deny the allegations (IN17-2).
Enforcement charged GDF with violating the commission’s Anti-Manipulation Rule for an improper bidding strategy designed to increase its receipt of lost opportunity cost credits (LOCs).
According to the settlement, the Houston-based power marketer offered below-cost bids on some of its 12 natural gas-fired units to clear PJM’s day-ahead market and profit off the LOCs when the units weren’t dispatched in real time. GDF used a probabilistic, risk/reward approach to compare when units were unlikely to be dispatched against the risk of running the units at a loss, the settlement said.
GDF’s strategy was implemented between May 2011 and September 2013, when Enforcement questioned the practice. The scheme involved 12 simple cycle combustion turbines totaling 1,800 MW at four plants. Based on dispatch history, the company initially expected low energy margins from the units, which did not run often, and that their primary revenue source would be capacity payments.
GDF’s parent company rebranded as ENGIE in 2015, and in 2016 Dynegy purchased its U.S. fossil fuel generation assets. (See Dynegy Files Mitigation Plan for Purchase of ENGIE Plants.)
GDF’s practice took advantage of PJM’s LOC rules, in which CTs that clear day-ahead auctions but aren’t dispatched are paid the difference of the real-time LMP and the higher of the unit’s price-based or cost-based energy offers. Because the formula didn’t subtract start-up and no-load costs, a generator with a day-ahead award could earn a greater margin when it received LOCs and was not dispatched by PJM in the real-time market than it would earn if it was dispatched.
GDF furthered its strategy by discounting its cost-based offers to the level of its price-based offers to ensure the units cleared the day-ahead auctions. The strategy also ensured that the LOCs it received would continue to be based on the discounted offer and would be higher than if based on the units’ estimated costs.
When the company expected that a unit would be dispatched in the real-time market, it typically offered the unit at or above cost and did not discount its day-ahead energy offer. It also typically offered uncommitted units that were not eligible for LOCs in the real-time market without discounting.
“As [GDF] gained experience in implementing the strategy, it became more aggressive in discounting offers for the CT units to get [day-ahead] awards in order to obtain LOCs, at times offering them with discounts as deep as -$25/MWh,” the settlement said.
The company has instituted additional compliance policies to prevent manipulative behavior in the future and will continue to conduct compliance training, the settlement said.
The company also submitted to monitoring and filing an annual compliance report. Enforcement can require a second annual report at its discretion. The compliance report must identify any known violations of commission regulations that happened during the reporting period and detail all compliance actions taken.
PJM’s payment is to be used at the RTO’s discretion — with Enforcement’s approval — to benefit its members.