Dive Brief:
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GreenHat Energy, two of the trading firm’s founders and the estate of another founder will pay $181 million to settle allegations they manipulated the PJM Interconnection’s market, under agreements approved Friday by the Federal Energy Regulatory Commission.
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They will also end their suit in Texas against PJM and Shell Energy North America under the agreements with FERC’s enforcement office.
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PJM will receive $179.6 million under the agreements to cover the losses the grid operator’s members incurred when GreenHat defaulted on its obligations to PJM.
Dive Insight:
The settlement agreements are among the final steps in a market manipulation case that led PJM and other grid operators to tighten their credit policies for market participants. FERC late last month proposed allowing grid operators like PJM to share market participant credit information between themselves.
Under the agreements, two GreenHat founders and the estate of a third founder will pay a total of $1.4 million in disgorged profits, down from the $68.1 million FERC’s enforcement office recommended last year because they showed they didn’t have the financial ability to pay that much.
Two founders – John Bartholomew and Kevin Ziegenhorn – agreed not to participate in PJM’s markets again or in other FERC-jurisdictional markets for the next 10 years.
Between 2015 and 2018, GreenHat acquired a massive PJM portfolio of financial transmission rights, known as FTRs, according to FERC. In June 2018, the trading firm defaulted on the portfolio, leaving other PJM members to cover about $179 million in losses. PJM runs the grid and wholesale power markets in 13 Mid-Atlantic and Midwest states and the District of Columbia.
FERC’s enforcement office contends GreenHat manipulated PJM’s market for FTRs, which are used by utilities to hedge against congestion costs related to bottlenecks on the transmission system. Speculators also buy and sell them.
GreenHat’s alleged market manipulation included acquiring an FTR portfolio made up of primarily long-term FTRs with almost no supporting, upfront capital, planning not to pay for losses at settlement, and obtaining cash for the founders by selling profitable FTRs to third parties at a discount, according to FERC’s enforcement office.
Bartholomew, Ziegenhorn and the estate of Andrew Kittell, another founder, neither admitted nor denied the allegations, according to the settlement agreement.
GreenHat’s founders previously worked for a JP Morgan Chase & Co. unit at the center of a market manipulation case at FERC that ended when the investment firm in 2013 agreed to pay $410 million to settle allegations it manipulated power markets in California and Michigan.
