FERC Issues Order Approving Consent Agreement in City Power Marketing Case

by Cadwalader, Wickersham & Taft LLP
Contact

Cadwalader, Wickersham & Taft LLP

On August 22, 2017, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an Order Approving Stipulation and Consent Agreement with City Power Marketing, LLC (“City Power”) and its owner, K. Stephen Tsingas (“Tsingas”). This was the first order approving an enforcement settlement issued since the Commission re-established a quorum with the addition of Chairman Chatterjee and Commissioner Powelson.

The Order resolved allegations that City Power and Tsingas had engaged in market manipulation in violation of the Federal Power Act and the Commission’s Market Manipulation Rule by engaging in certain proscribed trading behavior in PJM Interconnection, Inc. (“PJM”), and had violated FERC’s regulation applicable to power marketers requiring a duty of candor in communications with, inter alia, the Commission or FERC’s Enforcement Staff.   City Power and Tsingas stipulated to the facts recited in the Stipulation and Consent Agreement, but neither admitted nor denied that they violated the Federal Power Act or FERC’s regulations. 

City Power is a virtual trader that has traded in PJM since 2006, and Tsingas is the company’s sole owner. FERC Enforcement Staff conducted an investigation of three types of City Power’s Up-To Congestion (“UTC”) trades in 2010:

  • So-called “round trip” trades in which a trader would place trades from location A to location B, and simultaneously place offsetting trades from location B to location A, allegedly to eliminate price risk and to collect marginal loss surplus allocations (“MLSA”).
  • Allegedly “uneconomic” trades placed between two pricing nodes that were mathematically equivalent (e., had a spread of zero), allegedly solely to collect MLSA payments.
  • Allegedly “uneconomic” trades between two nodes with very small price spreads, in which traders allegedly paid transmission charges equal to five times the price spread during the relevant period (even though zero cost transmission service was available) allegedly to collect MLSA payments.

Following the investigation, the Commission issued an Order to Show Cause why City Power and Tsingas’ trading behavior did not constitute market manipulation. 

The Commission subsequently issued an Order Assessing Civil Penalties, finding that the three types of trades constituted a scheme to engage in fraudulent UTC transactions, thereby violating the prohibitions against market manipulation. FERC concluded that City Power and Tsingas had engaged in “round trip” trading for the majority of the relevant period and instituted the second trading strategy for an eight-day period, but abandoned it and replaced it with the third trading strategy when Tsingas’ trading partner expressed concern about the former strategy. 

The Commission also found that, although Tsingas and his trading partner “extensively” used instant messages in connection with the trading strategies, Tsingas misled Enforcement Staff about the existence of these instant messages through testimony and data responses. Further, neither City Power nor Tsingas produced any instant messages during the investigation, but Enforcement Staff subsequently obtained the instant messages. The Commission found that this conduct violated the Commission’s regulations.  

The Order required City Power to pay a civil penalty of $14 million and Tsingas to pay a civil penalty of $1 million. The Order also required disgorgement of $1.3 million in unjust profits. The Order further imposed joint and several liability for City Power’s civil penalty and the disgorgement amount. 

When City Power and Tsingas failed to make the required payments, FERC filed an action in the U.S. District Court for the District of Columbia. After the court denied defendants’ motion to dismiss and FERC’s summary judgment motion, the parties engaged in mediation suggested by the court. That effort resulted in the Stipulation and Consent Agreement approved by FERC.

Under the Stipulation and Consent Agreement, the civil penalty amounts and payment obligations differ from those in the Order Assessing Civil Penalties. City Power will pay a $9 million civil penalty (a decrease of $5 million from the original amount) and Tsingas will pay a $1.42 million civil penalty (an increase of $420 thousand from the original amount). Although the disgorgement amount remains the same ($1.3 million), Tsingas, and not City Power, will pay the disgorgement amount. Furthermore, whereas the Order Assessing Civil Penalties imposed joint and several liability for City Power’s civil penalty, the Stipulation and Consent Agreement provides:

Solely for the purpose of resolving this matter through settlement, the Commission agrees that it (or any entity assigned to collect) will not now nor in the future assert that Tsingas is personally liable for the penalty against City Power under this Agreement, whether under a theory of joint and several liability or otherwise.

City Power’s civil penalty payment is due within 30 days. Tsingas agreed to a ten-year payment plan pursuant to which he will make an initial payment of $825 thousand within 60 days, annual payments of $50 thousand for the first three years thereafter, annual payments of $175 thousand for the next three years, and annual payments of $305 thousand for the remaining four years. All of Tsingas’ payments will be directed to PJM (which is to receive the disgorgement amount for the benefit of PJM ratepayers) until the disgorgement amount has been satisfied, and will thereafter be made to the United States Treasury as a civil penalty. 

Tsingas also agreed to a three-year trading ban for himself, or anyone acting on his behalf, from any transaction within FERC’s jurisdiction. The ban, however, does not extend to any business in which Tsingas has an ownership interest as long as he “does not personally engage or participate in, directly or indirectly, or otherwise operate or consult about, any trading transaction within the Commission’s jurisdiction. . . .” 

  1.    City Power Marketing, LLC, 160 FERC ¶ 61,013 (2017).
  2.    16 U.S.C. § 824v(a).
  3.    18 C.F.R. § 1c (2017).
  4.    Id. at § 35.41(b).
  5.    City Power Marketing, LLC, Order Assessing Civil Penalties, 152 FERC ¶ 61,012 at PP 45-48 (2015).
  6.    Id. at PP 49-50.
  7.    Id. at PP 51-52.
  8.    City Power Marketing, LLC, Order to Show Cause and Notice of Proposed Penalty, 150 FERC ¶ 61,176 (2015).
  9.    City Power Marketing, LLC, Order Assessing Civil Penalties, 152 FERC ¶ 61,012 (2015).
  10. Id. at PP 4, 47, 50.
  11. Id. at PP 53-57.
  12. 18 C.F.R. § 35.41(b) (2017).
  13. Stipulation and Consent Agreement at P 9.
  14. Id. at P 15.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Cadwalader, Wickersham & Taft LLP | Attorney Advertising

Written by:

Cadwalader, Wickersham & Taft LLP
Contact
more
less

Cadwalader, Wickersham & Taft LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.