Emera Energy Inc. agreed to pay a reduced civil penalty after self-reporting that it justified seeking higher fuel price payments for a power plant in the ISO New England footprint between 2015 and 2016 with price offers that an affiliated natural gas trading desk posted to an exchange.
The Federal Energy Regulatory Commission alleged that Emera's action violated a provision of ISO-NE's tariff rules requiring that companies support a request to exceed the fuel-cost calculations of the Independent Market Monitor, or IMM, by offering evidence that reflects "an arm's length transaction," according to an order the commission issued Jan. 10.
Emera agreed to pay a civil penalty of $5,000, along with a disgorgement of $14,120 plus interest, and stipulated certain facts, but the company neither admitted nor denied the alleged violations.
In reducing the fine, FERC placed "significant emphasis" on Emera's self-reporting. The penalty "would have been significantly higher" without the cooperation, the commission said in its order. (FERC docket IN20-2)
Illiquid trading point
At the time relevant to the proceeding, from August 2015 through November 2016, Emera was an affiliate of Rumford Power Inc., which operated a 265-MW gas-fired plant in Rumford, Maine. It also was an affiliate of Emera Energy Services Inc. subsidiary No. 6, the lead market participant for Rumford, according to FERC. Because the power plant connected only with Portland Natural Gas Transmission System LP at a lightly traded trading point, there were sometimes no offers to sell gas posted on Intercontinental Exchange, or ICE, for the location.
Among the stipulated facts in the consent order was the idea that when no offers were available on ICE, Emera personnel responsible for submitting fuel price adjustment requests would request that Emera's gas desk post to ICE an offer to sell gas to PNGTS. The purpose of the posting was to provide documentation that Emera could submit to the IMM to support a price adjustment, the stipulation said.
ISO-NE tariff rules allowed three forms of documentation to support a higher price than the IMM's expected price to procure fuel: an invoice or purchase confirmation; a quote from a named supplier; or a price from a publicly available trading platform.
'Arm's length' required
But following Nov. 9, 2016, FERC compliance training, an Emera employee flagged to in-house counsel the approach of having the gas trading desk post an offer during illiquid times. The company then submitted a self-report, ceased the practice, and consulted with the IMM. Emera is no longer affiliated with Rumford, according to FERC.
In its order, FERC noted that it has consistently held that affiliated entities should not engage in close transactions because there is not enough assurance that an agreed-upon price will "genuinely reflect market prices."
"The indirect quote of a price by Emera Energy's gas desk to Emera Energy's power desk did not reflect an 'arm's length' transaction," FERC concluded.
The commission said its revised policy statement on penalty guidelines issued in 2010 added "significant value" to overall industry compliance and emphasized self-reporting.
An Emera spokeswoman, in an email, said the company takes compliance and market obligations "very seriously" and pointed out that Emera voluntarily self-reported the matter to FERC. "We are pleased to have reached an agreement, together with FERC, to resolve this matter," said Dina Bartolacci Seely of Emera corporate communications.
Maya Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.