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June 21, 2024
FERC Sets Dynegy’s MISO Market Manipulation Case for Hearing
The Coffeen Power Station, once part of Dynegy's Southern Illinois fleet, closed in 2019
The Coffeen Power Station, once part of Dynegy's Southern Illinois fleet, closed in 2019 | Dynegy
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Nearly a decade after the MISO capacity auction in which Dynegy was found to have manipulated clearing prices, FERC has directed hearing and settlement procedures in the case (EL15-70, et al.).

The commission’s June 6 order initiated a hearing to resolve the issue while denying Dynegy’s request for oral argument before FERC. The commission had been considering briefs from Dynegy and complainants Public Citizen and the Illinois Office of the Attorney General on whether Dynegy should refund $429 million to Illinois ratepayers.

Two years ago, FERC staff concluded that Dynegy knowingly manipulated the 2015/16 Planning Resource Auction to produce Southern Illinois’ Zone 4 clearing price of $150/MW-day. FERC’s arrival at that conclusion followed a twisty course, including an abruptly closed nonpublic investigation, an initial finding that cleared Dynegy with little explanation, a remand from the D.C. Circuit Court of Appeals and an announcement that the commission would revisit its decision. (See FERC Staff Finds Dynegy Manipulated 2015 MISO Capacity Auction.)

In its briefs, Dynegy maintained the process unfurled unjustly, saying FERC’s order on remand “reflects bad policy, is fundamentally unfair and is inconsistent with existing norms.” It said the commission improperly raised questions about the “finality” of its decision to close the investigation while “importing” nonpublic information gathered in an investigation under Federal Power Act Section 222 into a public proceeding under Section 206.

“According to Dynegy, this departure from policy, this departure from policy ‘threatens public confidence in the integrity of [FERC’s] enforcement process’ and ‘negatively affect[s] the perceived fairness of commission investigations,’” the commission said.

Dynegy also argued its due process was violated because the commission’s Office of Enforcement had to file a remand report outlining allegations in a Section 206 proceeding using evidence from its closed, nonpublic investigation. Because of the nonpublic nature of the investigation, Dynegy said it couldn’t participate in discovery or cross-examination.

It claimed the remand order exceeded FERC’s authority because, according to the commission itself, a Section 206 filing isn’t the “proper vehicle to prosecute claims of market manipulation.”

The Illinois AG and Public Citizen fired back that “Dynegy cannot now claim, at this late stage of the proceeding, and at the risk of further delay, that its procedural rights have been violated due to the absence of an evidentiary hearing that it never requested.”

FERC said its actions were “an appropriate response” to the D.C. Circuit’s findings, were consistent with its precedent and do not rise to violations of due process.

“We acknowledge that this case, and the issues that the commission must address on remand, present complicated questions regarding the interplay of the closed FPA Section 222 investigation and resolution of the still-pending FPA Section 206 complaints,” FERC said. It added that it takes seriously its decisions to disclose nonpublic information from its investigations and doesn’t foresee itself regularly releasing such information in the future.

“However, we continue to conclude that submission of the remand report and the opportunity for parties to submit initial and reply briefs was an appropriate response,” the commission said.

FERC also pointed out that it’s allowed to release nonpublic information from an investigation and that it’s common practice for it to initiate further briefings following a remand, “particularly where an appellate court rules that the commission failed to adequately explain its decision.”

Dynegy also argued that it wasn’t made aware via Enforcement staff that its behavior leading up to and during the 2015/16 auction could constitute market manipulation. It said it didn’t have a legal or regulatory requirement to sell capacity, nor was it “on notice” that FERC expected it to do so.

The commission didn’t buy the second argument from Dynegy and ruled the company had “adequate notice that its behavior could constitute market manipulation under relevant commission regulations and precedent.”

FERC pointed out that Enforcement staff said in their briefs that Dynegy took pains ahead of the auction to increase the chance an offer from it would set the clearing price in Zone 4. Staff said Dynegy “engaged in a scheme to amass and hoard megawatts that might otherwise have been offered into the 2015/16 auction at a zero price, thereby increasing the likelihood that a non-zero-priced Dynegy resource would be the marginal resource and set the Zone 4 clearing price.”

The division said evidence pointed to Dynegy expecting that the 2015/16 auction would clear below its lowest non-zero offer of $108/MW-day. Rather than submit all its supply at the cost-based $108 price, Dynegy engaged in pre-auction sales at approximately $66/MW-day until it offloaded enough supply to create a specific gap and therefore ensure its own resource would set the clearing price in the zone.

Staff said Dynegy then took steps to maintain the gap by increasing the price of the capacity component of its retail sales offers from $66/MW-day to $164/MW-day, resulting in 125.4 MW of unsold capacity, and refusing to offer a price to two customers for 385 MW of capacity.

“Dynegy also sought to increase the ‘gap’ by purchasing 50 MW of capacity for $61/MW-day — an act that made no economic sense given that it already held thousands of megawatts of unsold capacity,” Enforcement staff wrote.

The company claims its actions were “motivated by a legitimate intent to recover its costs,” not to commit fraud. It said after it lost money in the 2013/14 auction, it devised a strategy to recover its costs by offering capacity both prior to and in auctions. Dynegy said its attempts to receive price signals that could help it make decisions, including resource retirement, were “not only economically rational, but the only way for an independent power producer, reliant on market revenues, to stay in business.”

Vistra, which acquired Dynegy in 2018, said it disagrees with FERC setting the case for hearing. In an email to RTO Insider, Vistra insisted that the matter has “been investigated several times and adjudicated in Dynegy’s favor,” and it continues to believe “Dynegy’s actions were completely appropriate.”

“When FERC cleared Dynegy in 2019, they found that no market manipulation occurred and that the MISO 2015/2016 capacity auction results were just and reasonable. No new facts, circumstances or evidence have come to light in the five years since that decision,” Vistra said, adding that it will participate in the FERC-directed settlement discussions.

Capacity MarketIllinoisPublic Policy