Algonquin Power Windsor Locks LLC will pay just over $2 million to settle enforcement charges that the company failed to make required offers into ISO New England energy markets in 2012 and 2013, the Federal Energy Regulatory Commission said in an order that flagged a lack of personnel, knowledge and experience as factors that caused the compliance problems.
Following an investigation, FERC enforcement staff alleged that the bidding behavior exhibited by the owner of a cogeneration facility that served an adjacent paper mill in Connecticut violated ISO-NE's forward capacity market and forward reserve market rules as well as commission regulations mandating adherence to grid operators' tariff requirements.
Windsor Locks, an operating subsidiary of Algonquin Power & Utilities Corp., neither admitted nor denied the alleged violations, but it agreed to pay a $1 million civil penalty to the U.S. Treasury and to disgorge $1.12 million in profits, including interest, to ISO-NE. The company also agreed to be subject to at least one year of compliance monitoring, according to the Jan. 5 order (IN21-2) approving the settlement agreement.
Windsor Locks in 2010 began offering excess power from the cogeneration facility it acquired in 2003 as a dispatchable resource into ISO-NE's energy markets. The company initially relied on a third party to provide bidding strategies and guidance on compliance matters but eventually moved that function in-house, designating its affiliate and marketing arm of the parent utility, Algonquin Energy Services, to handle bidding, gas acquisition and other management services.
According to the order, the marketing affiliate "did not have sufficient experience scheduling resources in the ISO-NE markets or managing the attendant tariff obligations at the time it was designated Windsor Locks'" lead market participant.
Windsor Locks in July 2012 added a 15-MW gas generator to the cogeneration facility, which already had a dual-fueled 40-MW generator and a 16-MW steam turbine generator. Adding to compliance troubles, the so-called Solar Titan Generator was installed with the other generators in such a way that ISO-NE's grid monitoring software recorded the electricity being generated by all three generators as one resource, instead of recording separate meter data for each of the generation facilities, the order said.
"Windsor Locks and [the marketing affiliate] lacked the internal knowledge, personnel, and experience necessary to understand and manage compliance obligations" and, as such, tried to continue operating under the procedures the third-party lead market participant designed before the new generator was added, the commission said. The cogenerator and marketer assumed that the ISO-NE control room would alert them if Windsor Locks was violating its compliance obligations, the order said.
Bidding behavior described
At issue were Windsor Locks' offer obligations during the period from July 1, 2012, through Sept. 24, 2013. During that time, it had capacity supply obligations in the capacity market ranging between 32 MW and 37 MW. It also had a 35-MW obligation stemming from its participation in the 30-minute operating reserve FRM for the 2012-13 winter commitment period that ran from Oct. 1, 2012, to May 31, 2013.
ISO-NE's tariff required the company to offer the full 35 MW of reserves into the day-ahead energy market every weekday, excluding holidays, at or above a certain threshold price or face failure-to-reserve penalties.
Yet, after adding the 15-MW generator, the company generally kept the 40-MW Frame 6 Generator offline. It lessened its usual 38 MW to 43-MW offers into the day-ahead market to about 10 MW from the Solar Titan Generator but increased its offers to 35 MW at the start of the winter commitment period in October 2012 to comply with its obligation.
The company was notified by ISO-NE near the end of that year that its resource was modeled in the grid operator's system in a way that assumed the Frame 6 Generator was online when it was not. ISO-NE told Windsor Lock to either keep the generator online or bid in a different way into the day-ahead market.
With the cost to keep that generator online far exceeding potential revenues from the reserve market, Windsor Lock sought to shed its obligation for the entire winter period but was only able to do so for December 2012. The company then opted to pay the penalties for not offering into the market for the rest of the period rather than incur the significant costs to keep the 40-MW generator online.
As such, it only offered power from the Frame 6 Generator into the capacity market and reserve market when the market conditions justified starting up that generator.
Alleged violations
Enforcement staff found that the characteristics of the cogeneration facility allowed Windsor Locks to make offers in line with its capacity supply obligation yet neither it nor its marketing affiliate did so, allegedly in violation of ISO-NE's tariff.
"Moreover, [enforcement staff] determined that Windsor Locks should be required to disgorge a portion of the capacity payments it received during the relevant period commensurate with the degree to which the offers fell short of the FCM offer obligation," the order said.
With regard to the reserve market, enforcement staff said the failure to submit appropriate offers into the day-ahead market violated ISO-NE's tariff. Staff noted that the company's reserve market participation garnered $17,036 in gross payments and $102,936 in failure-to-reserve penalties by ISO-NE, resulting in a net charge to Windsor Locks of $85,900.
The settlement agreement acknowledged that "Windsor Locks has made significant improvements in its FERC compliance program, including enhancing its policies, procedures, and compliance training, and conducting ongoing compliance reviews," and also reengaged a third party to conduct its bidding in ISO-NE.
The agreement noted that a chief compliance and risk officer was appointed by the parent company, which also hired FERC compliance staff for Windsor Locks and AES.
As part of the settlement, Windsor Locks will have to file an annual compliance report with enforcement staff, which will decide whether such compliance monitoring is necessary for a second year.
Jasmin Melvin is a reporter for S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.
