Docket No.: IN18-9-000
The Federal Energy Regulatory Commission (FERC) today ordered GreenHat Energy LLC and its owners to explain why they should not pay a total of $229 million in civil penalties and disgorge nearly $13.1 million in unjust profits for alleged electric market manipulation.
In a report attached to today’s order to show cause, FERC’s Office of Enforcement staff alleges that the GreenHat parties violated the Federal Power Act and PJM Interconnection LLC’s tariff and operating agreement by engaging in a manipulative scheme in the Financial Transmission Rights (FTR) market. The order directs GreenHat, John Bartholomew and Kevin Ziegenhorn to show why they should not be assessed civil penalties of $179 million, $25 million, and $25 million, respectively.
GreenHat, Bartholomew, Ziegenhorn and the estate of Andrew Kittell, who was the third owner of the company, also must explain why they should not be required to disgorge $13.1 million in unjust profits, plus interest. Issuance of the order does not indicate Commission adoption or endorsement of the staff report.
“Enforcement staff’s investigation and report raise very serious allegations about market manipulation that cost consumers in the PJM market nearly $180 million,” said Chairman Richard Glick. “This Commission takes very seriously our responsibility to ensure that FERC jurisdictional markets operate competitively and free from fraudulent schemes that harm other market participants and impose excessive, unjust costs on consumers.”
Between 2015 and 2018, GreenHat acquired the largest FTR portfolio in PJM. In June 2018, it defaulted on the portfolio, leaving other PJM members, including many utilities serving retail customers, to cover more than $179 million in losses over the next three years. At the time of its default in 2018, GreenHat had only $559,447 in collateral on deposit with PJM.
Enforcement staff alleges that GreenHat’s conduct was unlawful in several ways. Among them: GreenHat sent false price signals into the PJM market by purchasing FTRs based not on expected profitability but on which FTRs it could acquire with minimal collateral; GreenHat made deliberately false statements to PJM to try to avoid a collateral call; and GreenHat rigged FTR auctions by using inside information about Shell Energy North America (US) LP’s offers (on the seller side of the auction) in designing its own bids for the same FTRs (on the buyer side of the auction).
Although the alleged scheme generated enormous losses that were borne by all other PJM members, it was highly profitable for GreenHat’s owners. Kittell, Bartholomew and Ziegenhorn realized that although GreenHat’s enormous portfolio was unprofitable overall, it included some “winners,” that is, FTRs that increased in value after GreenHat bought them. GreenHat made four deals in which it sold winners to third parties for a total of $13.1 million in cash. According to the Enforcement staff report, this alleged scheme is an example of a type of fraud in which perpetrators acquire assets with no intent to pay for them, and then try to turn the assets into immediate cash for themselves.
The GreenHat parties have 30 days to respond to the Commission’s order.