The recent Enerwise settlement order provides another example of the Federal Energy Regulatory Commission’s willingness to pursue million dollar penalties in gaming strategies of demand response programs, despite the Chairman’s long-standing support of such programs.1

Introduction

On June 7, 2013, the Commission issued an order approving a settlement between FERC’s Office of Enforcement and Enerwise Global Technologies, Inc. The settlement resolves an Enforcement investigation into Enerwise’s violations of the PJM Interconnection, LLC’s Tariff and the Commission’s Anti-Manipulation Rule in connection with PJM’s former demand response program. Enerwise, a demand response aggregator, misrepresented the amount of MWs that one of its “demand response resources” customers – Camden Yards – could provide reliably in the PJM market. Pursuant to the settlement, Enerwise agrees to pay a $780,000 civil penalty, $500,000 in technology improvements and a $20,726 disgorgement fee.

Background

Under PJM’s now-terminated Interruptible Load for Reliability (“ILR”) demand response program, PJM compensated participating resources for reducing electric load during emergency events. PJM’s ILR program permitted Curtailment Service Providers such as Enerwise to aggregate participating resources’ demand response commitments and to share in the revenues from such demand response activities under individual customer agreements. The Maryland Stadium Authority, a Maryland state-owned entity responsible for facilities in downtown Baltimore, was a customer of and received demand response services from Enerwise.

Violations

In November 2010, Enforcement initiated an investigation into Enerwise stemming from MSA’s illumination of Camden Yards Baseball Park’s stadium lighting immediately after PJM declared that a September 2010 test emergency event would begin in two hours. The investigation uncovered three actions committed by Enerwise which violated PJM’s then-effective Tariff and the Commission’s Anti-Manipulation Rule. First, despite the fact that MSA’s two backup generators could not operate simultaneously, Enerwise arranged for an engineer to perform a temporary “work-around” during an August 18, 2009 test event, thereby misrepresenting to PJM that MSA had the ability to operate both backup generators reliably during an actual emergency event. Second, Enerwise instructed MSA to “turn on everything that [MSA] could” to increase its load profile immediately before PJM performed the September 2010 test emergency event. In so doing, Enerwise created a false baseline so as to increase potential demand reduction payments to Enerwise and MSA. Third, Enerwise registered MSA for 4.6 MWs of load reduction based on MSA’s ability to operate its two backup generators simultaneously, despite knowing that operational problems caused both generators to “trip off-line” when operating simultaneously and that MSA could only operate one 1.8 MW backup generator at a time.

Conclusion

The Commission determined that Enerwise violated the Anti-Manipulation Rule by arranging a “workaround” during the August 18, 2009 test event to enable MSA to operate its two backup generators on a temporary basis; violated the same Anti-Manipulation Rule by instructing MSA to increase its “load profile” prior to the August 18, 2009 test event to portray a larger load reduction than actually occurred; and violated a then-effective Tariff provision by registering MSA for 4.6 MWs of load reduction, despite knowing that MSA’s two backup generators could not support such reduction. The Commission also determined that, as a result of these violations, Enerwise received compensation for 1.8 MWs of load reduction that MSA could not have provided reliably in an actual emergency event. Based on these findings, the Commission approved a settlement by which Enerwise agreed to pay a $780,000 civil penalty, a $20,726 disgorgement fee and $500,000 in investments in real-time metering equipment and automatic demand response technology, and agreed to develop and maintain an effective compliance program and make semiannual reports to Enforcement for an adjustable time period.