Dynegy manipulated the Midcontinent Independent System Operator’s 2015/16 capacity auction, driving up capacity prices in Illinois, according to the Federal Energy Regulatory Commission’s enforcement office.
Public Citizen, a consumer watchdog group, and the Illinois attorney general’s office aim to use the report to recover more than $425 million from Vistra, which merged with Dynegy in 2018, representatives from the organizations said Friday and Monday.
“Dynegy engaged in a scheme to corner the relevant portion of the market, consisting of those megawatts that MISO would likely need to clear the auction and that could be offered into the auction at a zero price if not held on Dynegy’s unsold books,” FERC enforcement office staff said in a redacted report released in mid-September.
In 2013, Dynegy bought from Ameren power plants totaling 3,152 MW in MISO’s Zone 4, which covers most of Illinois, and 1,241 MW next to the zone, according to enforcement office staff.
Dynegy, an independent power producer, unsuccessfully tried to set the pricing in Zone 4 in MISO’s 2014/15 capacity auction, FERC staff said. Capacity in Zone 4 cleared at $16.75/MW-day in the auction.
However, Dynegy took four steps that weren’t based on market fundamentals to successfully set the clearing price in the following auction, according to FERC staff. Those steps were redacted.
“Dynegy engaged in a scheme … to amass and hoard megawatts that might otherwise have been offered into the auction at a zero price, thereby increasing the likelihood that a Dynegy resource offered into the auction at a non-zero price would become the marginal resource, setting the clearing price,” enforcement office staff said.
In the 2015/16 MISO capacity auction, capacity in Zone 4 cleared at $150/MW-day. Capacity cleared at $3.29/MW-day to $3.48/MW-day in MISO’s eight other zones.
Dynegy’s conduct showed signs of fraud FERC has relied on to make decisions in manipulation cases, such as changes in trading behavior, uneconomic trading, and communications and documentation substantiating the scheme, and failure of a company to adequately explain its positions and trading behavior, according to the enforcement office.
Dynegy denies allegations
Dynegy strongly disagrees with the enforcement office’s allegations, according to Meranda Cohn, Vistra senior director of communications and media relations.
“This matter has thoroughly been investigated several times and adjudicated,” Cohn said Monday. “In the auction, Dynegy acted in accordance with all applicable market rules and procedures. No market manipulation occurred.”
When FERC cleared Dynegy in 2019, the agency found that no market manipulation occurred, according to Cohn. “No new facts, circumstances, or evidence have come to light in the three years since this decision,” Cohn said.
The auction results triggered complaints by Public Citizen, the Illinois attorney general and Southwestern Electric Cooperative. They argued the Zone 4 auction results were caused by unjust and unreasonable tariff rules, illegal market manipulation by Dynegy and/or the exercise of market power by Dynegy.
FERC responded to the complaints with two decisions. In December 2015, the commission ordered MISO to change its tariff provisions related to market power mitigation and with calculating capacity import limits, which the agency said were no longer just and reasonable. In a 3-1 July 2019 decision, FERC found the Zone 4 auction results to be just and reasonable.
Then-FERC Commissioner Richard Glick dissented from the second decision and criticized then-FERC Chairman Neil Chatterjee for unilaterally ending the enforcement office’s investigation into Dynegy’s market behavior.
“Today’s order does not provide even the scantest reasoning to support its finding that the nearly 1,000% year-over-year increase in the MISO Zone 4 capacity price had nothing to do with market manipulation,” said Glick, who is now FERC chairman.
Glick said he couldn’t explain why he disagreed with Chatterjee’s decision to end the investigation because it was confidential.
“Suffice it to say that I believe that the evidence uncovered to date was more-than-sufficient to justify continuing the enforcement process,” Glick said in his dissent.
Chatterjee didn’t respond to a request for comment.
Glick’s tenure at FERC will end this year unless the Senate confirms his nomination for a second term. Senate Energy and Natural Resources Committee Chairman Joe Manchin, D-W.Va., earlier this month said he wouldn’t hold a confirmation hearing for Glick.
In August 2021, the U.S. Court of Appeals for the District of Columbia Circuit said FERC failed to reconcile its decision ordering the grid operator to change its market rules to protect against anticompetitive behavior and its later finding that the auction results were just and reasonable.
In February, the Illinois Attorney General and Public Citizen jointly asked FERC to order Dynegy to disgorge $428.6 million in “unlawful profits” and refund the money to Illinois ratepayers.
FERC in June decided to hold “paper hearings” to consider the court’s remand order and examine Dynegy’s conduct related to the 2015/16 auction. The agency also directed its enforcement office to issue the redacted report. Opening briefs dealing with the remand report are due in March and replies are due in May.
Public Citizen to seek reforms
Public Citizen plans to use the enforcement office’s report to ensure that Illinois consumers are made whole and to press for long-term reforms, according to Tyson Slocum, the watchdog group’s Energy Program director.
“The fight will be over how much money to penalize the company and how much money to return to ratepayers,” Slocum said Friday.
The group also wants to see a consumer advocate position or office created in MISO similar to the Consumer Advocates of the PJM States, an organization that was funded through a market manipulation settlement agreement with Constellation Energy Commodities Group in 2012, according to Slocum.
Public Citizen would also like all capacity auction results to be subject to FERC review and public comment like they are for ISO New England, Slocum said. Outside New England, capacity auction results automatically take effect, he said.
The Illinois attorney general’s office declined to comment on the FERC proceeding. “However, facts contained in the report support our allegations that ratepayers in Central and Southern Illinois paid hundreds of millions of dollars more for capacity than other zones as a result of Dynegy exercising market power in the 2015 MISO capacity auction for Zone 4,” April McLaren, deputy press secretary, said Monday.