The winter of 2013-14 offered up a perfect storm of natural gas price spikes and threats to electric reliability. Expect more of the same.
An interpretation of FERC’s first application of EPACT.
be drawn from this policy action:
• Other lessons for market participants; and
• Lessons FERC or other energy policy-makers may draw from this exercise.
Lessons for Market Participants. FERC’s actions indicate a focus on promoting competitive pressures through ensuring access to transmission services (PacifiCorp, SCANA, Entergy, NorthWestern) and market integrity (NRG). With regard to transmission access, the commission imposed penalties from $1 million to $10 million for alleged violations resulting in relatively minor estimated harm. A closely related point, easily inferred from the open meeting discussion, is that violations that cause harm will incur significantly more serious penalties. For a “ballpark” estimate, a participant could look at the SCANA case. There, FERC required SCANA to disgorge $1.4 million and about $0.4 million disbursed to ratepayers. Assuming this represents FERC’s estimate of harm caused, the penalties were five times the harm. As commissioners said more than once, this was the calculus of punishment in this first instance. Their inclination to use prosecutorial discretion to reduce harsh penalties likely will deteriorate over time and with repeat offenses.
Another important development was not discussed at the Jan. 18 open meeting but was reported in the PacifiCorp Order. 1 PacifiCorp must make an accounting transfer of approximately $86.5 million because payments in this amount should have been made by PacifiCorp’s merchant function. Although the net effect of this transfer was zero, this element of the settlement shows the commission’s readiness to make determinations regarding funds far in excess of the $10 million maximum penalty issued on Jan. 18.
With regard to NRG, many market participants are alarmed by this penalty. Although it was the smallest penalty, it was imposed for a single violation, and the company appeared to have done “the right things.” NRG had:
• Terminated two employees who violated company “practices or protocols”;
• Provided “exemplary cooperation”; and
• Had not profited from the violations.
Nevertheless, NRG received a civil penalty of half a million dollars.
Without more explanation from the relevant parties, the main lesson I would draw from this is that reporting about generator status is of the utmost importance to electric power capacity market integrity. Therefore, this breach of integrity and alleged violation of the ISO New England (ISO-NE) tariff and Market Behavior Rules 1 and 3 received a relatively stiff penalty. Another important factor is that the ISO discovered the “down” status of the generation facility on its own initiative. Based on the information in the stipulation and consent agreement, ISO-NE’s test dispatch appears to have started the chain of events that led to NRG’s self-report.
Lessons for Policy-makers. Perhaps the most important finding from this first set of penalty cases involves the progress the jurisdictional energy markets appear to have made. When FERC began building its new market oversight and enforcement capabilities, the relevant markets were in chaos from a white collar riot. That the commission considered these cases, as a group, ripe for presentation to the industry suggests important progress in the return of jurisdictional markets to respect for FERC’s rules.
Of course, bigger, higher-stakes