On October 28, 2010, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an order approving a stipulation and consent agreement (the “Agreement”) between the Office of Enforcement (“Enforcement”) at FERC and North America Power Partners (“NAPP”).  Under the Agreement, NAPP will pay a civil penalty of $500,000 and disgorge $2,258,157, plus interest, in unjust profits.  Additionally, NAPP will begin compliance monitoring.
NAPP is a member of PJM Interconnection LLC (“PJM”) and is a Curtailment Service Provider (“CSP”).  As a CSP, NAPP registers resources in PJM’s Demand Response Programs, but the FERC investigation specifically focused on activities in the Synchronized Reserve Market, Interruptible Load for Reliability Program (“ILR”).  NAPP became subject to a FERC investigation on a referral from PJM after the former Senior Vice President of Operations (directly or through his employees) submitted offers to PJM for registered resources to reduce demand even after those resources had already reported they were unavailable to respond.  PJM then called Synchronized Reserve Events, and then NAPP resources were offered and cleared in the market.  NAPP then failed to notify the NAPP resources of the events, and in turn, the resources did not respond.  NAPP should have reported meter data for each resource to PJM to show reduced demand in order to show compliance with the events.  However, NAPP never submitted the meter data.

Enforcement found that NAPP violated the PJM Open Access Transmission Tariff (“OATT”) and received profits of $334,116 from their participation in the Synchronized Reserve Market of PJM.   Enforcement found their unjust profits for the ILR violations to be $1,924,011. Additionally, Enforcement found that NAPP offered a resource that had a real-time Locational Marginal Pricing rate into the day-ahead energy market in violation of the PJM OATT, and NAPP’s acts were considered fraudulent conduct.
In determining the remedy for this violation, Enforcement considered that NAPP’s Senior Vice President of Operations willfully and intentionally committed the most serious violations.  Also NAPP failed to cooperate at the beginning of the investigation.  Since the beginning of the investigation, however, NAPP has begun to develop a compliance program and improved compliance with the PJM OATT. 

Notably, in assessing the penalty amount Enforcement stated that it considered the risk that a high penalty could “jeopardize NAPP’s continued financial viability.”  Enforcement reviewed projected income statements and determined that the penalties in the Agreement would allow NAPP to continue to operate.  FERC stated Enforcement might seek a higher penalty for similar conduct in the future by an entity that was not financially vulnerable. 

A copy of the Commission’s order is available at www.ferc.gov and here.