On January 11, 2012, FERC issued an order approving a settlement relating to allegations that a Senior Vice President of North America Power Partners (NAPP) engaged in fraudulent conduct in violation of FERC’s prohibition against market manipulation and committed violations of the PJM Interconnection, LLC’s (PJM’s) Open Access Transmission Tariff (OATT).[1] Under the settlement, the officer was obligated to pay a civil penalty of $50,000 and is banned from participating in PJM’s Demand Response activities for two years. Further, the ban against the individual’s participation in PJM’s Demand Response activities also extends to any person or entity acting on his behalf or in which he has a financial interest. In the settlement, the officer did not admit or deny the allegations made by FERC’s Office of Enforcement.

The Office of Enforcement’s investigation stems from NAPP’s activities in PJM’s Demand Response programs in 2007 and 2008. NAPP, a Curtailment Service Provider, acts as an agent for individual resources that seek to participate in PJM’s Demand Response programs. In March 2008, PJM referred to the Office of Enforcement certain issues relating to NAPP’s participation in PJM’s Synchronized Reserve Market (SRM), Interruptible Load for Reliability Program (ILR), and the Interchange Energy Market (IEM).

FERC reached a settlement with NAPP in October 2010. As a result of the Office of Enforcement’s investigation and the settlement, FERC directed NAPP to (a) pay a civil penalty of $500,000; (b) disgorge $2,258,127, plus interest, in unjust profits; and (c) undertake a compliance program that provides semiannual reports to the Office of Enforcement for two years.

The current settlement resolves issues related to the officer’s conduct. Through the course of its investigation, the Office of Enforcement alleged the following:

• The officer, on behalf of NAPP, offered resources into PJM’s SRM at times when NAPP was aware that the resources were unavailable to respond to a Synchronized Reserve Event.
• The officer, on behalf of NAPP, failed to notify NAPP’s resources of nine separate SRM events even though the officer personally received messages from PJM regarding the events.
• The officer, on behalf of NAPP, failed to submit meter data to PJM demonstrating that NAPP’s resources responded to SRM events.
• The officer, through NAPP, registered 101 resources as participants in PJM’s ILR before obtaining authorization from the resources.

Similar to the Office of Enforcement’s conclusions in its October 2010 settlement with NAPP, the Office of Enforcement concluded in the instant proceeding that the officer violated FERC’s prohibition against market manipulation even though his activities on behalf of NAPP did not affect market prices or cause actual harm to system reliability. Instead, the Office of Enforcement asserted that FERC’s market manipulation prohibition was violated because the relevant actions operated as a fraud upon PJM and were committed willfully and intentionally. FERC specifically stated that in fashioning a remedy, the Office of Enforcement considered the individual’s “limited financial resources” and absent consideration of his limited resources “would have sought a significantly higher penalty for similar conduct by an individual.”

[1] In re Joseph Polidoro, 138 F.E.R.C. ¶ 61,018 (2012).