On November 19, 2012, the Commission approved a Stipulation and Consent Agreement (“Settlement”) between Gila River Power, LLC (“Gila River”) and the Commission’s Office of Enforcement (“OE”) under which Gila River agreed to pay a $2.5 million fine and disgorge $911,553 in profits plus interest. The Settlement states that Gila River: (1) violated FERC’s Anti-Manipulation Rule, and (2) violated the California Independent System Operator Corporation (“CAISO”) Tariff and FERC’s Regulations by submitting inaccurate information in booking invalid wheeling transactions.
During the period in question, Gila River owned and operated a 2,200 MW plant in Phoenix, Arizona, and sold the output of that facility into CAISO markets. Gila River typically preferred to sell its power at the Palo Verde intertie due to its low transmission costs. However, congestion at Palo Verde limited the quantity that Gila River could import and thus limited the price of power being delivered at Palo Verde.
In the Settlement, Gila River admitted that from July 2009 through October 2010, Gila River used “wheeling through transactions” to avoid losing money for power sales due to high congestion in the CAISO markets at certain nodes. First, Gila River admitted to labeling certain transactions as wheeling through transactions that did not meet the Tariff definition of such deals. Second, Gila River’s trader admitted that he submitted wheeling through transactions in an effort increase revenues paid for Gila River’s power at certain locations.
The Settlement explains that Gila River admitted to using two different “wheel” strategies to avoid being negatively impacted by congestion like that of the Palo Verde node. The first strategy, labeled “The Standalone Wheel Strategy,” involved knowingly mislabeling certain transactions as “wheel through” schedules, even though Gila River was not actually moving power through the CAISO system. A wheeling through transaction consists of an import and an export into CAISO. The CAISO Tariff requires that a wheeling through transaction originate from a unit outside of CAISO and is used for load outside of CAISO. Gila River did not use a resource outside of CAISO nor did Gila River have load to serve outside of CAISO with regard to the particular wheeling transactions in question. According to the Settlement, Gila River profited from the this strategy because “it was awarded the bid only when the price at the import node (sale) was greater than the price at the export node (purchase) and because it bid a spread great enough to cover its costs, such as transmission costs outside the CAISO and CAISO export fees.” Gila River made approximately $613,801 in the Standalone Wheel Strategy.
In the second strategy, “The Adjustment Wheel Strategy,” Gila River submitted an import transaction and a wheel-through transaction in the Day-Ahead Market. After the day-ahead market settled, Gila River would then place bids in the hourly market, redirecting all possible imports to the area where congestion was just relieved, usually Palo Verde. Gila River would then buy back the import and export legs of the Adjustment Wheel, in effect cancelling out the wheel-through all together. This strategy increased the amount of power it could import into the CAISO and to increase the price paid for its imports. Gila River made approximately $296,753 in this strategy.
A copy of the Commission order approving the settlement is available here.