Contract analysis

I. Purpose and Executive Summary The purpose of this memorandum is to analyze the Preliminary Findings letter issued by the staff of the Federal Energy Regulatory Commission's Office of Enforcement ("FERC Staff" or "Staff") on October 2, 2023, to evaluate the relative strengths and weaknesses of Staff's position and Dunmore's available defenses, and to recommend a comprehensive strategy for the preparation of a forma

II. Background and Procedural History This investigation originated with a referral from MISO's Independent Market Monitor. On April 3, 2023, Velthorn Market Analytics, Inc. ("Velthorn"), acting in its capacity as the MISO Independent Market Monitor under the direction of its President, Dr. Patricia Engel, issued a referral letter to FERC's Office of Enforcement ("OE"). The Velthorn referral flagged what Dr. Engel ch

III. Summary of FERC Staff's Allegations and Findings A. The Alleged Manipulative Scheme Staff's Preliminary Findings letter identifies what it characterizes as a three-part manipulative scheme orchestrated by DPT personnel during the Relevant Period of January 3, 2022 through March 17, 2023 — a span of approximately fourteen and a half months. The three components of the alleged scheme are described below.

1. Uneconomic Day-Ahead Bidding The first and central component of Staff's theory involves DPT's Day-Ahead generation offers at the Indiana Hub pricing node. Staff alleges that Kyle Renfro, in his capacity as Senior Trader on DPT's MISO Day-Ahead Desk, submitted Day-Ahead offers for Dunmore's gas-fired generation units at prices significantly below the marginal cost of generation. According to Staff's analysis, these

2. Cross-Product Manipulation The second component of Staff's theory involves DPT's virtual transaction activity at the Minnesota Hub pricing node. Staff alleges that Anastasia Petrov, a Trader on DPT's MISO Real-Time Desk, submitted Increment Offers ("INCs") and Decrement Bids ("DECs") at the Minnesota Hub that were designed to amplify the congestion differential created by Renfro's uneconomic Day-Ahead bids at the

3. Physical-Financial Coordination The third component of Staff's theory addresses the role of gas nominations through Dunmore Midstream Partners LP ("DMP"), a related entity within the Dunmore corporate family. Staff alleges that DPT coordinated the timing and volume of gas nominations through DMP to support the uneconomic generation offers, effectively masking the true marginal cost of the gas-fired units. Specific

IV. Assessment of FERC Staff's Position — Strengths It is important to acknowledge candidly the areas in which Staff's position is strong or will be difficult to challenge. A realistic assessment of these strengths is essential to calibrating Dunmore's defensive strategy and settlement positioning. A. Pattern Evidence Staff has assembled strong statistical evidence of a persistent and consistent correlation between D

V. Assessment of Dunmore's Defenses — Strengths Despite the strengths identified in Staff's position, Dunmore has a number of robust defenses available, several of which are capable of substantially undermining Staff's theory and, critically, Staff's unjust profits and penalty calculations. A. Portfolio Optimization Defense The strongest defense available to Dunmore is the portfolio optimization rationale for the Day

VI. Assessment of Dunmore's Defenses — Weaknesses A candid assessment requires identification of the areas in which Dunmore's defenses are weaker or more difficult to sustain. These weaknesses must be factored into the settlement calculus and addressed proactively in the Response to Preliminary Findings. A. Renfro-Petrov Communications Certain internal communications between Renfro and Petrov present the most signifi

VII. Analysis of FERC Penalty Guidelines Application A. Base Penalty Calculation Staff's $9 million base penalty is derived from its assessment of the seriousness level of the alleged violation, taking into account the nature of the cross-product scheme (involving physical and financial products), the estimated market impact, and DPT's financial scale. Staff notes DPT's fiscal year 2022 revenue of $614 million and DE

VIII. Recommended Strategy A. Response to Preliminary Findings We recommend preparing a comprehensive formal written Response to Preliminary Findings, analogous to a Wells submission in the SEC context, targeting submission by November 6, 2023. The Response should be a substantial document presenting Dunmore's complete defense and positioning the matter for either a favorable settlement or, if necessary, a strong def

1. Portfolio Optimization Defense. The Response should present the portfolio optimization defense in detail, with supporting documentation including contractual minimum generation obligations, internal risk management protocols, portfolio optimization models, and FTR acquisition records. The defense should demonstrate that DPT's negative Day-Ahead offers were economically rational when assessed on a portfolio basis a

2. Expert Economic Analysis. The Response should submit Dr. Whitfield's expert report, or if the full report is not yet available, a preliminary summary of Dr. Whitfield's conclusions with a commitment to submit the full report promptly thereafter. The expert analysis should challenge Dr. Breck's unjust profits calculation on the grounds discussed above, including the transmission outage causation analysis, the specu

3. Mitigating Credit. The Response should argue forcefully for significant mitigating credit under the FERC Penalty Guidelines, citing Dunmore's cooperation, remedial measures, clean enforcement history, and pre-existing compliance program. The Response should document each of these factors in detail and argue that the appropriate penalty, after mitigating credits, is substantially below Staff's demand.

4. Disgorgement Challenge. The Response should challenge the disgorgement calculation as speculative and urge waiver or substantial reduction based on Dr. Whitfield's analysis and applicable FERC precedent.

5. Remediation and Compliance Enhancement. The Response should emphasize Dunmore's ongoing remedial efforts, including the February 2023 appointment of Jennifer Caulfield as CCO and the planned comprehensive enhanced compliance program (to be developed in partnership with Ridgeway Compliance Solutions LLC, as discussed below). B. Settlement Positioning In parallel with the preparation of the formal Response, we recom

IX. Financial Impact Summary The following table summarizes the key financial parameters of the matter as currently assessed: The foregoing estimates reflect the costs associated with a settlement-oriented resolution. In the event the matter proceeds to ALJ litigation, estimated additional legal fees of $2 million to $4 million would be incurred, and expert, compliance, and e-discovery costs would likely increase mat

X. Immediate Next Steps The following action items should be prioritized in the near term:

1. October 10 Meeting Preparation. Complete preparation for the October 10, 2023 meeting with FERC Enforcement leadership, including Margaret Hollowell (Director, Division of Investigations), Kwame Adebayo (Deputy Director), and Christine Pham (Senior Attorney). Prepare a presentation outline previewing Dunmore's defenses and signaling settlement willingness.

2. Ridgeway Compliance Solutions Engagement. Finalize the engagement of Ridgeway Compliance Solutions LLC (Dr. Carolyn Whitford) for design and oversight of the enhanced 36-month compliance program. Target execution date for the engagement letter: October 15, 2023. Flat fee: $385,000.

3. Third Document Production. Complete the third and final document production of approximately 75,400 documents through Crestline Document Solutions LLC. Target completion: October 30, 2023.

4. Response to Preliminary Findings. Draft the formal Response to Preliminary Findings for submission to FERC Staff by November 6, 2023. Assign primary drafting responsibility and establish internal review milestones.

5. Expert Report Coordination. Coordinate with Dr. Leonard Whitfield on the expert report timeline, confirm the preliminary summary for inclusion with the November 6 Response, and ensure the full report is completed by November 20, 2023.

6. Management and Board Briefing. Brief Dunmore senior management and the DEH Board of Directors — specifically Gavin Har