The principals of GreenHat Energy will pay PJM almost $1.4 million to settle claims over the company’s spectacular default in the RTO’s financial transmission rights market, which cost members almost $180 million.

GreenHat founders John Bartholomew and Kevin Ziegenhorn will pay $375,000 and $400,000, respectively in disgorgement, with the estate of founder Andrew Kittell paying $600,000 under settlements approved by FERC in two orders Aug. 19 (IN18-9). Kittell died in January 2021.

Bartholomew and Ziegenhorn also agreed not to participate in FERC-jurisdictional markets for 10 years. “In the case of PJM markets, the agreed prohibition is permanent,” FERC said.

The GreenHat principals also consented to the entry of a judgment of $179.6 million against the company in a lawsuit pending in state court in Texas, but with the company insolvent, the judgment is moot.

“GreenHat and the [Kittell] estate state they are unable to pay the assessed amounts and have furnished confidential financial disclosures sufficient to substantiate their claim,” FERC said. “The agreed settlement amount is based on ability to pay in light of financial information provided by the estate and GreenHat to [FERC’s Office of] Enforcement.”

The disgorgements by Bartholomew  and Ziegenhorn also were based on their ability to pay, FERC said.

The three founded GreenHat in 2014 to trade FTRs in PJM, eventually acquiring a portfolio of 889 million MWh. When the company defaulted in June 2018, however, the company had less than $560,000 in collateral with PJM. (See Doubling Down — with Other People’s Money.)

“Over the next three years, GreenHat’s default required PJM to assess other members of PJM a total of $179,600,573,” FERC said.

Following an investigation, FERC assessed civil penalties of $179 million on the company and $25 million against the three principals, accusing them of violating the commission’s Anti-Manipulation Rule by purchasing FTRs with virtually no upfront cash, planning not to pay for losses at settlement and selling profitable FTRs to third parties. The commission said they also purchased FTRs based not on market considerations but to amass as many FTRs as possible with minimal collateral; they also made false statements to PJM about money purportedly owed by Shell Energy North America (NYSE:SHEL) to convince PJM not to proceed with a planned margin call. FERC said they also submitted inflated bids into an FTR auction in an attempt to inflate the clearing price of FTRs that Shell had purchased from GreenHat. (See FERC Levies $242M in Fines on GreenHat, Owners.)

Under the settlement, the principals did not admit or deny the alleged violations. GreenHat agreed to dismiss its lawsuit seeking more than $62 million from Shell in addition to the $13.1 million that Shell paid GreenHat in 2016 and 2017.

PJM and Shell also agreed to settle their billing dispute over Shell’s obligations to indemnify PJM over its FTR trades with GreenHat. PJM also agreed to drop a lawsuit it filed in California against the Kittell estate.

“This settles all pending litigation,” PJM spokesman Jeff Shields said Monday. “We appreciate FERC’s leadership on resolving these matters.”