On October 25, 2019, FERC found that Vitol, Inc. (“Vitol”) and one of its traders, Federico Corteggiano, violated the Federal Power Act (“FPA”) and FERC’s rules prohibiting energy market manipulation by importing power at a loss from October 28 through November 1, 2013, at the border of the California Independent System Operator Corporation’s (“CAISO”) wholesale electric market in order to relieve transmission congestion and to benefit Vitol’s congestion revenue rights (“CRRs”) sourced at that location. The order follows an investigation into Vitol’s and Corteggiano’s trading practices that was initiated in 2014 by FERC’s Office of Enforcement. In July 2019, following the completion of Enforcement Staff’s investigation, FERC issued an order directing Vitol and Corteggiano to show cause why they should not be assessed Enforcement Staff’s recommended civil penalties of $6 million and $800,000 respectively, and directing Vitol to show cause why it should not disgorge $1,227,143 in unjust profits. FERC’s October 25 order affirmed Enforcement Staff’s conclusion that Vitol and Corteggiano engaged in market manipulation, and ordered Vitol to disgorge $1,227,143 in unjust profits. However, FERC significantly reduced Vitol’s civil penalty to $1.5 million and increased Corteggiano’s civil penalty to $1 million after concluding that Corteggiano was primarily responsible for the manipulative conduct.
The October 25 order explained that FERC has consistently found that cross-market manipulation schemes, in which market participants trade in one market with the intent to move prices to benefit their positions in a related market, violate the FPA and FERC’s anti-manipulation rules. Those rules prohibit entities from engaging in intentionally deceptive or manipulative conduct in connection with the purchase, sale, or transmission of energy subject to FERC’s jurisdiction. FERC concluded that Vitol and Corteggiano engaged in cross-market manipulation by importing physical power into CAISO at a loss, for the purpose of benefiting Vitol’s corresponding CRR positions, rather than to profit based on supply and demand fundamentals. CRRs are financial instruments issued by CAISO that allow market participants to manage their exposure to congestion costs in the day-ahead market. A CRR holder receives a payment if congestion in a given hour is in the same direction as the CRR; the holder incurs a charge if congestion occurs in the opposite direction.
In considering whether to adopt Enforcement Staff’s recommended civil penalties, FERC found that Vitol’s and Corteggiano’s trading activities caused at least $2.5 million in market harm, and pointed to deficiencies in Vitol’s compliance program and to the involvement of high-level company personnel in the manipulative transactions. While FERC acknowledged that Vitol should be required to pay civil penalties of at least $2.5 million under a strict application of its Penalty Guidelines, FERC concluded it would be unfair and unreasonable to assign Vitol a penalty of that size. Rather, in recognition of Corteggiano’s primary responsibility for the manipulative trading scheme and his efforts to withhold material information about his trading practices from Vitol’s compliance officers, FERC reduced Vitol’s civil penalty by the amount of Corteggiano’s separately-calculated civil penalty ($1 million), assigning Vitol a total civil penalty of $1.5 million. In assessing civil penalties of $1 million against Corteggiano, FERC pointed out that Corteggiano’s manipulative conduct was serious and intentional, and that there is a critical need to discourage and deter similar unlawful conduct.
FERC’s October 25 order is available here.