On December 30, 2014, the Federal Energy Regulatory Commission (FERC) issued an Order Approving Stipulation and Consent Agreements (Order) approving four Stipulation and Consent Agreements (Settlement Agreements) between FERC’s Office of Enforcement (OE) and the following: (1) Twin Cities Power – Canada, Ltd., Twin Cities Energy, LLC, and Twin Cities Power, LLC (collectively, Twin Cities); (2) Jason F. Vaccaro; (3) Allan Cho; and (4) Gaurav Sharma (collectively, the Traders).1 The Order resolves OE’s investigation, about which we wrote in June 2014, into whether Twin Cities and the Traders violated FERC’s Anti-Manipulation Rule by scheduling and trading physical power into and out of markets operated by the Midcontinent Independent System Operator, Inc. (MISO) in order to benefit related financial positions that settle off of real-time MISO prices, including the MISO Cinergy Hub Balance-of-Day Swap traded on IntercontinentalExchange, Inc., during the period from January 1, 2010 through January 31, 2011.
Under the Settlement Agreements, Twin Cities and the Traders agree to pay collectively $4,228,186 in civil penalties and disgorgement, and to implement various additional compliance measures, including filing semi-annual compliance reports. While Twin Cities admits OE’s alleged violations, the Traders neither admit nor deny the allegations against them.
OE’s investigation focused on Twin Cities’ and the Traders’ physical power flows and their relationship with Twin Cities’ financial positions and determined that, on 144 days during the relevant period, one or more of the Traders scheduled physical power in the direction of Twin Cities’ financial swaps with the intent of affecting prices at the MISO Cinergy Hub to benefit those financial positions. The physical power flows, OE determined, “were not intended to get the best price and were not in response to market fundamentals.” Rather, they were “occasionally profitable, but over time produced significant losses.” Yet, they “consistently resulted in gains to, or avoided losses from, the Traders’ financial swap positions,” representing yet another example of the “tool and target” market manipulation framework that then-OE director and new FERC Commissioner Norman C. Bay described in Senate subcommittee testimony in January 2014. OE determined that, “during the Relevant Period, the Traders’ financial swap positions benefitted by $978,186 from the manipulative scheme.”
FERC notes in the Order that Twin Cities’ acceptance of responsibility for its violations and avoidance of a trial-type hearing factored into its remedy determination and emphasized that “using physical power flows to influence physical prices for the purpose of enhancing the value of financial positions violates [its] Anti-Manipulation Rule.” Commissioner Bay, who was the director of OE during the Relevant Period, did not vote on the Order.