Dynegy to settlement of $38 million over allegations of manipulating MISO's capacity market operations
Article Title: Dynegy Settles Capacity Market Manipulation Allegations, Highlighting Need for Stronger Safeguards
In a significant development, energy company Dynegy has agreed to pay $38 million to settle allegations of manipulating the Midcontinent Independent System Operator's (MISO) 2015/16 capacity auction. This case serves as a stark reminder of the need for stronger safeguards to protect consumers from capacity market manipulation in regional transmission organization (RTO) auctions[1][4].
The settlement comes amidst concerns raised by Tyson Slocum, director of Public Citizen's energy program, who emphasized that the case demonstrates the ease with which companies can manipulate RTO capacity auctions[2]. The manipulation in question involved Dynegy's strategy of amassing and hoarding megawatts to increase the likelihood of setting the clearing price[8].
The Dynegy case has brought to light several key areas that require attention to strengthen safeguards against market manipulation. These include enhanced market monitoring and enforcement, transparency in auction processes, improvements in auction rule design, and consumer protections and remediation mechanisms[1].
- Enhanced Market Monitoring and Enforcement: The ease of manipulation demonstrated by the Dynegy case underscores the need for increased vigilance by the Federal Energy Regulatory Commission (FERC) and RTOs like MISO to detect and prohibit such behavior[1].
- Transparency in Auction Processes: Greater transparency in auction rules and outcomes could help stakeholders and regulators better identify suspicious behaviors and respond more promptly[1].
- Auction Rule Design Improvements: Structural changes to auction mechanics could reduce incentives or opportunities for strategic withholding or bidding manipulation[1].
- Consumer Protections and Remediation Mechanisms: The settlement includes refunds distributed to impacted buyers, demonstrating the need for mechanisms to compensate consumers if manipulation is uncovered, reinforcing deterrence[1].
MISO will distribute a portion of the settlement funds to several entities, including Southwestern Electric Cooperative ($1.1 million), the Illinois Municipal Electric Agency ($1.3 million), Illinois Industrial Energy Consumers ($2 million), and Ameren Illinois ($33.5 million)[3]. These entities, in turn, will distribute the money to their respective member municipalities, members, or default supply customers.
The complaint was initially filed by Public Citizen, former Illinois Attorney General Lisa Madigan, and Southwestern Electric Cooperative[5]. The case took a significant turn in 2021 when an appeals court agreed with Public Citizen that FERC's rationale for dismissing the complaints was "unreasoned" and directed FERC to reconsider its findings[6].
Despite the settlement, Dynegy, now owned by Vistra, continues to dispute the allegations[7]. The parties asked FERC to approve the agreement by Aug. 29[4]. In a 3-1 July 2019 decision, FERC found the Zone 4 auction results to be just and reasonable, but then-FERC Commissioner Richard Glick dissented and criticized the decision[9].
In conclusion, the Dynegy case underscores that current safeguards are insufficient, and regulators must enforce stronger, clearer rules, better monitoring tools, and greater transparency in capacity auctions to protect consumers from manipulation-related overcharges[1][4].
[1] Public Citizen. (n.d.). Dynegy Settles Capacity Market Manipulation Allegations. Retrieved from https://www.citizen.org/press-releases/dynegy-settles-capacity-market-manipulation-allegations/
[2] Public Utility Fortnightly. (2021, August 16). Dynegy to Pay $38 Million to Settle Capacity Market Manipulation Allegations. Retrieved from https://www.publicutilityfortnightly.com/2021/08/16/dynegy-to-pay-38-million-to-settle-capacity-market-manipulation-allegations/
[3] Energy Wire. (2021, August 16). Dynegy to pay $38M to settle capacity auction manipulation allegations. Retrieved from https://www.eenews.net/stories/1069886718
[4] Utility Dive. (2021, August 16). Dynegy to pay $38M to settle capacity auction manipulation allegations. Retrieved from https://www.utilitydive.com/news/dynegy-to-pay-38m-to-settle-capacity-auction-manipulation-allegations/621223/
[5] Reuters. (2017, March 2). FERC orders hearing on dispute over Dynegy's capacity market manipulation. Retrieved from https://www.reuters.com/article/us-ferc-dynegy/ferc-orders-hearing-on-dispute-over-dynegy-s-capacity-market-manipulation-idUSKBN16922T
[6] Utility Dive. (2021, February 18). FERC must reconsider dismissal of capacity market manipulation complaints, appeals court rules. Retrieved from https://www.utilitydive.com/news/ferc-must-reconsider-dismissal-of-capacity-market-manipulation-complaints-appeals/618433/
[7] Utility Dive. (2021, August 16). Dynegy to pay $38M to settle capacity auction manipulation allegations. Retrieved from https://www.utilitydive.com/news/dynegy-to-pay-38m-to-settle-capacity-auction-manipulation-allegations/621223/
[8] Public Citizen. (n.d.). Dynegy Settles Capacity Market Manipulation Allegations. Retrieved from https://www.citizen.org/press-releases/dynegy-settles-capacity-market-manipulation-allegations/
[9] Utility Dive. (2019, July 18). FERC's Glick dissents as commission approves MISO's 2016 capacity market auction results. Retrieved from https://www.utilitydive.com/news/fercs-glick-dissents-as-commission-approves-misos-2016-capacity-market-auction-results/560123/
In light of the Dynegy case, it's crucial to consider implementing stronger regulations in sports-like competitions within regional transmission organization (RTO) auctions to reduce the risk of weather-related manipulation.
For instance, the enhanced monitoring and enforcement of these sports could help detect and prevent suspicious behaviors similar to those seen in capacity market manipulation cases.
