For power customers which have flexibility to change their power use in response to route from a utility or the related transmission operator (i.e., to scale back load by altering or rescheduling what they’re doing), promoting demand response (DR) could be a profitable extra income stream.
Relying on the placement, such customers could have a number of choices for participation. However this exercise shouldn’t be taken flippantly. The Federal Power Regulatory Fee (FERC), which oversees the wholesale power markets, together with wholesale DR, possesses civil penalty authority exceeding $1 million per violation, per day.
COMMENTARY
Towards this backdrop, the settlement of FERC Enforcement’s investigation into Large River Metal LLC’s participation as DR within the Midcontinent Impartial System Operator’s (MISO’s) power market presents a teachable second for utilities and business/industrial load reducers alike. All details mentioned herein come from the publicly filed stipulation and consent settlement accepted by the Fee in Docket No. IN23-11-000.
The Details
Large River operates a metal mill in Osceola, Arkansas, that makes use of as much as 300 MW in its day-to-day industrial operations. Entergy Arkansas is the load-serving entity offering retail service to Large River, and likewise served because the MISO market participant by means of which Large River supplied DR into the MISO market.
Large River supplied into MISO as a Demand Response Useful resource Sort-1 (DRR-1) from September 2016 to April 2022. Underneath the settlement, Large River is to disgorge about $16 million and pay a civil penalty of $6 million, whereas Entergy will disgorge roughly $5 million. The details concerned are on the similar time easy and nuanced.
First, the easy overview: Large River participated within the MISO day-ahead and real-time power markets as a DRR-1 for a number of years by means of its retail utility/MISO market participant Entergy. Though Large River’s DR gives continuously cleared, and it collected greater than $14 million in power revenues, it by no means made any changes to its operations or energy consumption in response to route from MISO. FERC Enforcement concluded that this violated the MISO tariff provision requiring market contributors to answer MISO’s directives, as specified within the useful resource’s supply.
There are extra particulars value mentioning. First, MISO employees apparently delivered a presentation to Large River in 2016 containing the language “deliberate outages will be utilized by providing into the power market.” From 2016 to 2020, Large River participated by providing power (within the type of DR) during times when it anticipated to be on outages.
Second, Entergy gave Large River entry to the MISO portal, the place Large River positioned its personal power gives. Entergy’s involvement appears to have been restricted to serving because the MISO market participant, although its compensation for this was straight primarily based on Large River’s power revenues. These earnings have been handed by means of to Entergy’s ratepayers.
Perception #1: Utilities ought to know that when you act as market participant on your prospects, you would be topic to enforcement motion primarily based on their exercise. Plan and draft accordingly.
There isn’t any indication from the settlement that Entergy ever suggested Large River about the way it may take part in MISO, the way to supply its DR, or whether or not what it was doing was permissible. Entergy’s function in Large River’s exercise seems to have been restricted to serving because the MISO market participant and, notably, gathering a portion of the revenues from such participation.
Underneath the MISO tariff, it’s the market participant that’s promoting power into the market and that has the duty to make sure that the services or products offered are delivered. Different regional transmission organizations, or RTOs, have related frameworks. If a utility is facilitating retail buyer entry to a wholesale market, it ought to be clear-eyed in regards to the potential dangers and contemplate applicable phrases round indemnification, collateral, exercise monitoring, and the way the utility is compensated for performing as market participant.
Would Entergy have needed to disgorge $5 million if it had been compensated for performing as market participant in a method that was circuitously sharing within the earnings from Large River’s allegedly violative habits? Possibly, perhaps not.
It May Have Been Worse
Observe that whereas the enforcement group may have exercised discretion to utterly spare Entergy, the sanctions additionally may have been greater! Entergy was not assessed any civil penalty, nevertheless it may have been. Rote software of FERC’s penalty pointers may have simply yielded a civil penalty within the thousands and thousands to accompany the disgorgement.
Perception #2: Even when it comes from the unbiased system operator, or ISO, casual steerage just isn’t a “get out of jail free card” and doesn’t trump the tariff or FERC laws.
Casual steerage—even when written, even when straight on-point—doesn’t foreclose the opportunity of enforcement motion. Right here, Large River’s DR exercise between 2016 and late 2019 was in line with steerage communicated on to the corporate by MISO. An affordable individual may have interpreted MISO’s language to imply: “you’ll be able to supply DR into the market and receives a commission for load discount related to a interval the place you have been already planning to be on an outage.” But the settlement requires Large River and Entergy to disgorge earnings regarding this era and Large River’s civil penalty possible was decided taking these earnings into consideration. Why?
Casual steerage from the ISO doesn’t render compliant habits that in any other case violates the tariff or FERC’s guidelines, laws, or orders. Right here, providing DR after which not lowering load in line with the cleared supply violates the clear language of the MISO tariff, no matter whether or not MISO advised this was permissible.
It’s critically necessary that DR contributors—or any type of market participant—take a step again and contemplate holistically whether or not and the way their technique poses enforcement dangers. By all appearances, Large River’s participation in MISO consisted of getting paid for doing what it already deliberate to do. For FERC’s enforcement group, this can be a big crimson flag.
Perception #3: Apologies to followers of the band Dire Straits, however there isn’t a such factor as cash for nothing within the power markets. FERC calls that market gaming.
Due to its nature, demand response is prone to abuse and has been an space of focus for FERC’s enforcement since early days (see e.g., Aggressive Power Companies, 140 FERC 61,032 (2012) [relating to behavior in 2007]). That is unlikely to alter.
Any transaction or technique the place that might doubtlessly be considered as receiving funds with out doing or offering something in return ought to be approached with excessive warning, even whether it is in line with, or not explicitly prohibited by, the related tariff.
Right here, FERC concluded there was a tariff violation. However even when there wasn’t, the fee’s enforcement group would possible take a tough have a look at whether or not Large River’s habits constituted a “gaming” sort market manipulation. Skilled counsel will help ventilate potential methods and analyze each the danger of enforcement and potential mitigating measures.
—Maxwell Multer, a Charlotte, N.C., and Washington, D.C.-based counsel with Bryan Cave Leighton Paisner, represents power and monetary purchasers in regulatory and enforcement issues earlier than the Federal Power Regulatory Fee, in addition to state utility commissions, and different regulatory authorities. He beforehand served as an attorney-adviser in FERC’s Workplace of Enforcement in addition to in-house counsel at a big mixture utility.
