By Rich Heidorn Jr.

Fort Lauderdale-based trader K. Stephen Tsingas agreed to pay $2.7 million in penalties and restitution in a deal with FERC’s Office of Enforcement that will also bar him from trading in commission-jurisdictional markets for three years. The commission approved a consent agreement setting the terms on Aug. 22 (IN5-5).

Tsingas and his company, City Power Marketing, agreed to the settlement without admitting to the commission’s allegation that they violated the Federal Power Act and commission regulations by engaging in market manipulation and later lying to FERC investigators.

City Power also agreed to pay a $9 million civil penalty, but the company is defunct and FERC agreed not to pursue Tsingas for the additional amount. In a filing in 2015, Tsingas said that FERC’s investigation forced him to lay off all his employees and “destroyed” the company. (See UTC Trader: Firm was Ruined by ‘Unfair’ FERC Prosecution.)

Although the $11.7 million in penalties were reduced from the $16.3 million the commission had sought, the case represents a victory for FERC in its crackdown on traders who profited from what the commission called risk-free up-to-congestion (UTC) trades. FERC said the trades were intended to cash in on line-loss rebates in PJM — the same type of trading that gave rise to the commission’s high-profile battle with brothers Kevin and Rich Gates and their Powhatan Energy Fund.

Three Types of Trades

The commission said City Power collected the rebates — or marginal loss surplus allocations (MLSA) — through three types of UTC transactions: “round-trip” trades that canceled each other out; trades between import and export pricing points of the same PJM interface with equivalent prices (SOUTHIMP-SOUTHEXP); and trades between two PJM nodes that historically had a very small price spreads (NCMPAIMP-NCMPAEXP).

The commission concluded that City Power created the false impression that it was trading to arbitrage price differences “when, in fact, it was engaging in trades solely to collect MLSA payments to the detriment of other market participants.”

The commission also accused Tsingas of attempting to mislead investigators by denying the existence of incriminating instant messages between him and a trading colleague.

The commission sued Tsingas after he failed to respond to a July 2015 order demanding the $16.3 million. The two sides reached a settlement in March, after a U.S. district court last August rejected Tsingas’ motion to dismiss and in January denied FERC’s motion for summary judgment. Approval of the settlement was delayed by FERC’s loss of a quorum in February.

Under the consent agreement, Tsingas will pay $1.3 million in disgorged profits to PJM and a $1.42 million penalty to the U.S. Treasury Department. Tsingas must pay $825,000 to PJM within 60 days, paying the balance over 10 years.

Barred from Trading

Tsingas also agreed that neither he, nor any person acting on his behalf, “will engage or participate (whether through consulting, advising, directing or strategizing), directly or indirectly, in any trading transaction (whether physical or financial or virtual) within the commission’s jurisdiction for three years.”

However, the bar “does not apply to any business entity in which Tsingas has an ownership interest, or its employees, so long as Tsingas does not personally engage or participate in, directly or indirectly, or otherwise operate or consult about, any trading transaction within the commission’s jurisdiction.”

“FERC would not have been able to pursue this remedy had the court decided the case on the merits,” observed Matthew Connolly, a senior associate in the litigation department of Nutter McClennen & Fish.

Like Tsingas, the Gates brothers and Coaltrain Energy — a third set of defendants accused of profiting from riskless UTC trades — have sought de novo reviews of FERC’s allegations, in which a federal district court would decide all issues of fact and law. (See Traders Deny FERC Charges; Seek Independent Review.)

The Powhatan case has been stalled in the Eastern District of Virginia, awaiting a judge’s ruling on how the review should proceed. FERC has asked for a short, appellate-style review (3:15-cv-452).

Coaltrain is awaiting a ruling from a judge in the District Court for Southern Ohio on its motion to dismiss (2:16-cv-00732).

PJM Seeks Advice

In April 2015, PJM asked FERC for advice on who should receive the disgorged profits and how they should be calculated. It also sought direction on how refunds should be made to parties who are no longer PJM members and noted that there were six entities alleged to have engaged in sham trades who would also be considered victims of the City Power trades. (See PJM Asks FERC for Direction on Refunds from Illegal Trades.)

In an order in July 2015, the commission told PJM to establish a method to distribute the resettled MLSA payments to market participants that would have received higher rebates if not for the money collected by City Power. The RTO must seek approval of its methodology from the director of the Office of Enforcement within 45 days after receiving the disgorged funds.