United States: FERC Approves Largest Enforcement Settlement In Nearly Four Years

On February 1, 2017, the Federal Energy Regulatory Commission (FERC or the "Commission") approved a settlement agreement between its Office of Enforcement (Enforcement) and GDF SUEZ Energy Marketing NA, Inc. (GSEMNA) resolving Enforcement's investigation into whether GSEMNA violated the Commission's Anti-Manipulation Rule. To resolve the matter, GSEMNA agreed to pay a civil penalty of $41 million, disgorge $40.8 million in unjust profits and undertake compliance reporting. The settlement is significant for two key reasons. First, it reflects the Commission's continued use of its anti-manipulation authority to prosecute "gaming" of organized wholesale electric markets (i.e., RTOs and ISOs) through bidding strategies that technically comply with market rules, but are inconsistent with the "purpose" of the rules—one of the more controversial theories of market manipulation pursued by FERC in recent years. Second, the $81.8 million settlement is the largest enforcement settlement in almost four years, and it comes at a time when subjects of enforcement actions are increasingly deciding to litigate cases rather than settle with FERC—particularly when major civil penalty and disgorgement amounts are at stake.

Conduct at Issue

This case concerns the PJM Interconnection, L.L.C. (PJM) wholesale electric markets and, specifically, PJM's market rules that allow certain generators to collect revenues associated with lost opportunity credits (LOCs). The PJM tariff provides for payment of LOCs to combustion turbines (CTs) and certain other generators that clear the day-ahead (DA) energy market, but are not dispatched in the real-time (RT) market. PJM established LOCs to encourage generators to keep their resources as part of PJM's pool-scheduled resources and thereby allow PJM to control their output to manage system operations and maintain reliability. In essence, PJM's grid management and dispatch decisions benefit from the flexibility afforded by having control over these generators—and the generator owners are willing to cede that control because of lost opportunity payments they could obtain when PJM decides not to run their plants.

The key issue in the investigation turned on when and how LOCs were paid out and whether GSEMNA engaged in a scheme to improperly take advantage of PJM's LOC payment formulas to obtain LOC dollars it should not have obtained. As to the payment formula details, during the May 2011 to September 2013 time period at issue, PJM paid LOCs equal to the higher of (a) the difference between the RT locational marginal price and the DA locational marginal price, or (b) the difference between the RT locational marginal price and the higher of the unit's price-based or cost-based incremental energy offers. The LOC formula did not subtract start-up and no-load costs, although such costs would be incurred if the unit were dispatched by PJM in the RT market. As a result, a generator with a DA award could earn a greater margin when it received LOCs and was not dispatched in the RT market than it would have earned if it was dispatched.

Beginning in or around June 2011, GSEMNA implemented a strategy to profit from LOCs by offering CT units in the DA market below the CT units' calculated costs with the goal of clearing the DA market and then collecting LOCs if the units were not dispatched. GSEMNA discounted its DA price-based offers below calculated costs, knowing that the CT units likely would run at a loss if dispatched. In November 2011, after PJM corrected an error in which it was calculating LOCs based on price-based offers rather than the higher of the price-based or cost-based offers as required by its tariff, GSEMNA began discounting the cost-based offers for the units to the level of its price-based offers. As a result, the LOCs that GSEMNA received for the CT units would continue to be based on the discounted offer and would be higher than if they were based on estimated costs. GSEMNA continued to implement its strategy during the relevant period by discounting a given CT unit's DA offer based on an assessment of the likelihood that the CT unit would not be dispatched in the RT market, weighing the risk of running the CT unit at a loss if dispatched against the potential reward of LOCs if not dispatched. At times, GSEMNA discounted offers for the CT units to get DA awards in order to obtain LOCs by offering the units with discounts as deep as -$25/MWh. When GSEMNA expected a CT unit to be dispatched in the RT market, it did not discount its DA offer, and GSEMNA typically did not discount offers for units that were not eligible for LOCs.

Enforcement's Findings

Enforcement concluded that GSEMNA violated the Anti-Manipulation Rule by engaging in a strategy to target and inflate the receipt of LOCs in PJM. Enforcement found that GSEMNA's strategy of targeting and inflating LOCs was "contrary to supply and demand fundamentals" and "impaired the functioning of the LOC provisions of the PJM market and PJM's unit commitment process."1 Enforcement found that GSEMNA's offers "did not reflect the price at which it wanted to generate power, but rather the price at which it could obtain a DA award and then receive LOCs during periods when the discounted CT units likely could not be operated economically"—conduct Enforcement concluded was "contrary to LOCs' purpose of compensating generators for lost opportunity costs due to PJM's decision not to dispatch a generation unit."2

Key Takeaways

  • Only the fourth "gaming" settlement. While FERC's pursuit of electric market "gaming"3 cases has gained much attention in the industry, Enforcement has brought relatively few of these cases to date (whether through settlements or Orders to Show Cause and follow-on federal court litigation). This case is only the fourth such settlement. The other three were a $410 million settlement with JP Morgan Ventures Energy Corporation (JPMVEC) in 2013 for various bidding strategies in California (CAISO) and Midcontinent (MISO) markets, an approximately $81,000 settlement with Oceanside Power, LLC in 2013 for an up-to congestion product bidding strategy in PJM and an $8 million settlement with Maxim Power Corp. for certain bidding activities in ISO New England.4
  • Largest settlement in almost four years. In recent years, subjects in enforcement cases have increasingly elected to defend themselves in court rather than settle, particularly in cases involving large civil penalties. This case is by far the largest enforcement settlement in almost four years since JPMVEC's $410 million settlement in 2013. On the other hand, there are several cases involving potential eight-or nine-figure penalties that are being contested at the Commission or in court. Notwithstanding this settlement, we think the recent trend of subjects electing to litigate rather than settle large cases will continue, at least until there are more federal court decisions providing clarity on the scope of FERC's Anti-Manipulation Rule.
  • Lack of quorum could temporarily halt certain enforcement actions. FERC approved two enforcement settlements this week—the GSEMNA settlement and a $36,000 settlement with Covanta Haverhill Associates LP for allegedly violating ISO New England's tariff. FERC almost certainly made an effort to approve these settlements (along with numerous orders in other, non-enforcement cases) this week because, beginning next week after Commissioner Norman Bay resigns, FERC will not have a quorum of commissioners needed to issue orders in many types of proceedings. While it is not clear how long FERC will be without a quorum (i.e., how long it will take for the President to nominate, and the Senate to confirm, at least one new commissioner), the lack of a quorum will likely preclude enforcement cases requiring formal Commission action from moving forward. While most investigation work does not require formal Commission action, Commission orders are required to, among other things, approve settlements and initiate and issue orders in formal agency enforcement actions (i.e., Order to Show Cause proceedings).


1. Settlement at P 16.

2. Id.

3. Enforcement staff frequently characterizes these types of cases as involving "gaming" of RTO market rules. The Enforcement defense bar and other industry participants and FERC watchers use the term as well. The Commission itself—which must approve settlement orders and enforcement actions—rarely uses the term "gaming." In any case, whether the term "gaming" is used or not to describe allegedly improper RTO bidding strategies, what matters is whether the conduct violates the specific terms of the Anti-Manipulation Rule.

4. In Re Make-Whole Payments and Related Bidding Strategies, 144 FERC ¶ 61,068 (2013); In re PJM Up-To Congestion Transactions, 142 FERC ¶ 61,088 (2013); Maxim Power Corp., 156 FERC ¶ 61,223 (2016). There are also three related "gaming" cases—all of which involve up-to congestion transactions in PJM—that did not settle and are currently being litigated in federal district court. In one of these cases, the court agreed with FERC's legal theory that the gaming conduct at issue, if proved, would violate the Anti-Manipulation Rule. FERC v. City Power Mktg., LLC, 2016 WL 4250233 (D.D.C. Aug. 10, 2016). However, that was on a motion to dismiss, and neither that court nor any other court has yet ruled on the merits of a "gaming" case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.