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FERC fines Dominion $14M for manipulating PJM's energy markets

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FERC fines Dominion $14M for manipulating PJM's energy markets

Federal regulators have penalized a Dominion Energy Inc. subsidiary $14 million for engaging in a market manipulation scheme that improperly boosted the amount of lost opportunity cost credits it received from the PJM Interconnection from April 2010 through March 2011.

In a recent order, the Federal Energy Regulatory Commission approved a stipulation and consent agreement with Virginia Electric and Power Co., which goes by the name of Dominion Energy Virginia, following a FERC staff investigation. Under the agreement, the utility will pay a $7 million civil penalty to the U.S. Department of Treasury and disgorge $7 million to PJM.

PJM established lost opportunity costs, or LOCs, to encourage generators to offer resources into its day-ahead energy markets. The credits compensate generators that receive a day-ahead award and then are directed by PJM to reduce their output or PJM does not dispatch in the real-time energy market.

Units that clear the day-ahead market but are not dispatched in the real-time market receive LOCs equal to the higher of the difference between the real-time price and the day-ahead price, or the difference between the real-time price and the higher of the unit’s price-based or cost-based incremental energy offers.

Before 2015, the LOC formula for combustion turbines, or CTs, did not subtract startup and no-load costs that are incurred by generators when they dispatch into the real-time market. As a result, FERC explained, a generator with a day-ahead award could earn a greater margin when it received LOCs and was not dispatched by PJM in the real-time market than the margin it would earn if it was dispatched.

In its investigation, FERC found that Dominion violated the agency’s anti-manipulation rule to maximize its receipt of LOCs by offering CT units into the day-ahead market with price-based offers with substantially increased startup and no-load values than previously used, and with discounted incremental energy offers. According to FERC, the utility pursued this strategy to obtain more day-ahead commitments while at the same time reducing the chance that the units would be dispatched by PJM in the real-time market rather than making the units available to the market based on supply and demand fundamentals.

FERC "further determined that this strategy increased LOC payouts in certain hours when the CT units had a risk of operating at a loss," the order stated. Dominion's conduct "was contrary to the purpose of LOCs and impaired the functioning of the LOC provisions of the PJM market and PJM’s unit commitment process. LOCs are not intended to be an incentive to generators to design offers that seek to target and maximize LOCs or discourage PJM’s dispatch of units" in real time.

In a May 6 letter to FERC, PJM asked the agency to direct Dominion to disgorge $7 million after which the grid operator would disperse those funds via the same "negative operating reserve charge" it used to distribute funds from a previous LOC market manipulation case involving GDF Suez. FERC signed off on that plan, and PJM intends to process the billing adjustments in monthly bills for May 2019.

In a statement, Dominion spokesperson Bonita Harris said that the company's decision to resolve the dispute dates back to efforts from 2010-2011 to optimize the value of certain quick-start generation units for the benefit of their Virginia customers. "While we deny the claim of any rules violations, we look forward to putting this matter behind us," Harris said. (FERC Docket No. IN19-3)