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FERC Settles Investigation Concerning Demand Response Products in PJM

On June 7, 2013, FERC approved a Stipulation and Consent Agreement (“Settlement”) with Enerwise Global Technologies, Inc. (“Enerwise”) for violations of the PJM Interconnection, LLC(“PJM”) Open Access Transmission Tariff (“Tariff”) and the Commission’s Anti-Manipulation Rule 18 C.F.R. § 1c.2 (2012).  Enerwise committed these violations in connection with its activities as a Curtailment Service Provider (“CSP”) in PJM, and specifically, its demand response activities with one customer, the Maryland Stadium Authority (“MSA”).  MSA acted as a certified, guaranteed load drop (“GLD”) demand response customer in PJM’s Interruptible Load for Reliability (“ILR”) program (the ILR program was a demand response program in PJM that is no longer in existence).  Enerwise allegedly registered MSA as a GLD, despite operational problems with simultaneous operation of its generators, and directed MSA to increase its load prior to a PJM emergency event to inflate potential payments.  In the Settlement, Enerwise agreed to pay a $780,000 civil penalty, disgorge $20,726 plus interest in unjust profits, make $500,000 in certain technology improvements for PJM customers in the calendar year 2013, and make compliance reports on compliance efforts to FERC.

In November 2010, FERC’s Office of Enforcement (“Enforcement”) opened a preliminary non-public investigation of Enerwise after a referral from PJM based on “irregular electricity consumption activity” by MSA right before three PJM emergency events in the Baltimore Gas & Electric zone.  Specifically, witnesses told PJM that MSA turned on the lighting at the Camden Yards stadium on a day when the Baltimore Orioles were not playing a game, and immediately after PJM declared an emergency event.  In PJM, the ILR program paid participants who agreed to reduce load during certain zonal emergency events.  The ILR program also allowed CSPs like Enerwise to combine their customers’ demand response commitments by zone with PJM.  PJM paid CSPs a fixed annual capacity payment for their “zonal portfolio of ILR resources” by MW, which was then divided with the CSP’s individual customers.

In July 2012, FERC issued an order converting the preliminary, non-public investigation of Enerwise into a formal investigation.  During the formal investigation, Enforcement’s found that Enerwise registered MSA for the ILR program in violation of the PJM Tariff.  Specifically, the Tariff required CSPs to nominate ILR values for individual resources limited to the value “appropriate for the method by which the load reduction would be accomplished.”  According to the Settlement, MSA’s registration was based on operation of two backup generators and an ice storage facility; however, operational problems could cause the generators to trip off-line if operated simultaneously.  Enerwise proceeded to register MSA despite the knowledge that intended repairs to stop this operational problem had not been made or scheduled.

Enforcement also made a number of other findings regarding Enerwise’s activities:

  • Enerwise violated the Commission’s Anti-Manipulation Rule, as Enerwise knew or should have known that MSA could not reliably operate both generators simultaneously to provide demand response.
  • Enerwise violated the Anti-Manipulation Rule by registering MSA for a 4.6 MW load reduction and arranging for an engineer to assist MSA to temporarily operate its generators simultaneously for a PJM test event.
  • Enerwise instructed MSA to increase its load at Camden Yards before the PJM test event to show a larger load profile and therefore larger load reduction than had actually occurred.
  • Enerwise was paid for 1.8 MW of load reduction MSA could not have reliably provided.

In determining the appropriate civil penalty, Enforcement considered that the violations caused less than $200,000 in market harm, the violation lasted less than 250 days, Enerwise had no prior history of violations, and cooperated fully.  Enerwise, however, had no documented compliance program at the time of its violations, and senior management was involved in the violations.

A copy of the Settlement is available here.