PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION AND ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 1001 Fannin Street, Suite 4200 Houston, TX 77002
February 1, 2024
MEMORANDUM
TO:
Gavin Harcourt, Founder, Chairman & CEO, Dunmore Energy Holdings Ltd.
Elena Mirova, President & COO, Dunmore Energy Holdings Ltd.
Members of the Board of Directors, Dunmore Energy Holdings Ltd.
FROM:
Catherine Bloom, Responsible Partner, Calderwood & Harkness LLP
CC:
Martin Llewellyn, General Counsel, Dunmore Energy Holdings Ltd.
Alan Ngo, Billing Partner, Calderwood & Harkness LLP
Hannah Brinkley, Lead Associate, Calderwood & Harkness LLP
RE:
Resolution of FERC Office of Enforcement Investigation — Docket No. IN23-7-000
C&H Matter No. 1016-00004
PRIVILEGE LEGEND: This memorandum is protected by the attorney-client privilege and work product doctrine. It contains the legal analysis and strategic recommendations of Calderwood & Harkness LLP and was prepared in connection with the provision of legal advice to Dunmore Energy Holdings Ltd. Do not distribute outside the Board of Directors and senior management of Dunmore Energy Holdings Ltd. without prior authorization from Calderwood & Harkness LLP. Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
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I. Executive Summary
Calderwood & Harkness LLP is pleased to report the successful resolution of the Federal Energy Regulatory Commission ("FERC") Office of Enforcement ("OE") investigation, Docket No. IN23-7-000, into alleged market manipulation by Dunmore Power Trading LLC ("DPT"), a wholly owned subsidiary of Dunmore Energy Holdings Ltd. ("DEH" or "Dunmore"), in the Midcontinent Independent System Operator ("MISO") Day-Ahead and Real-Time energy markets. This memorandum provides the Board of Directors and senior management with a comprehensive summary of the investigation, the defense strategy employed, the settlement negotiations, and the final terms of resolution.
On January 31, 2024, the parties executed a Stipulation and Consent Agreement (the "Consent Agreement") resolving all matters arising from the investigation. The Consent Agreement was executed by Christine Pham on behalf of FERC Staff, Martin Llewellyn on behalf of DEH, and Catherine Bloom on behalf of Calderwood & Harkness LLP as counsel of record. A FERC order approving the Consent Agreement is expected to be issued on or about February 9, 2024, at which time the matter will be formally closed.
The final terms of the resolution are as follows:
• Civil Penalty: $4.75 million, payable in two equal installments of $2.375 million each.
• Disgorgement: None. FERC Staff agreed to forgo any disgorgement claim.
• Admissions: Standard "neither admit nor deny" language — Dunmore neither admits nor denies the allegations contained in the Consent Agreement.
• Enhanced Compliance Plan: A 36-month Enhanced Compliance Plan, the terms of which are set forth in Appendix A to the Consent Agreement.
This resolution represents a highly favorable outcome for Dunmore. FERC Staff's initial demand, communicated in the Preliminary Findings letter dated October 2, 2023, was $30.8 million, consisting of an $18 million civil penalty and $12.8 million in disgorgement. The final resolution of $4.75 million reflects savings of approximately $26.05 million — an approximately 84.6% reduction from FERC Staff's initial demand. Notably, the elimination of any disgorgement component in its entirety constitutes a significant victory, as FERC Staff had vigorously pursued disgorgement throughout the investigation and settlement process.
In addition to the direct financial savings, the resolution avoids the need for formal litigation before a FERC Administrative Law Judge. Had the matter proceeded to a contested hearing, Dunmore would have faced additional legal costs likely exceeding several million dollars, an extended litigation timeline of 18 to 36 months or more, substantial reputational risk associated with a public enforcement proceeding, and continued operational uncertainty regarding the status of DPT's market-based rate authorization and MISO trading activities. The Consent Agreement eliminates all of these risks.
The balance of this memorandum sets forth the detailed background of the investigation, the defense strategy and key arguments advanced by Calderwood & Harkness and its expert advisors, the course of settlement negotiations, the specific terms of the Consent Agreement, a financial summary of the outcome, and our recommendations for next steps.
II. Background of the Investigation
A. Origins and Referral
The FERC Office of Enforcement investigation originated from a referral letter dated April 3, 2023, submitted by Velthorn Market Analytics, Inc. ("Velthorn") to the FERC Office of Enforcement. Velthorn serves as the MISO Independent Market Monitor ("IMM") under contract with MISO pursuant to the MISO Tariff. The referral letter was signed by Dr. Patricia Engel, President of Velthorn Market Analytics, Inc., and was directed to the attention of the Director of the FERC Division of Investigations.
In its referral, Velthorn identified what it characterized as anomalous bidding patterns at two MISO pricing nodes: the Indiana Hub and the Minnesota Hub. Specifically, the IMM's market surveillance systems had flagged a series of Day-Ahead generation offers submitted by DPT at the Indiana Hub that appeared to be priced significantly below the estimated marginal cost of the underlying generating units. The IMM further noted that DPT held Financial Transmission Rights ("FTRs") that would benefit from increased congestion on the constrained paths affected by the bidding patterns at the Indiana Hub, and that DPT simultaneously held virtual positions at the Minnesota Hub that appeared correlated with the anomalous Day-Ahead offers. The referral did not reach a conclusion as to whether manipulation had occurred, but recommended that FERC OE conduct a further inquiry.
Upon receipt of the Velthorn referral, FERC OE initiated its review in accordance with standard procedures. On May 22, 2023, FERC OE issued a preliminary inquiry letter to Dunmore, requesting an initial production of trading data, position information, and communications for specified date ranges. The letter was addressed to Martin Llewellyn, General Counsel, and stated that the inquiry was being conducted on a non-public basis pursuant to 18 C.F.R. Part 1b.
On June 12, 2023, following its initial review of the information provided in response to the preliminary inquiry letter, FERC OE issued a formal non-public order of investigation pursuant to 18 C.F.R. Part 1b. The order authorized FERC Staff to conduct a full investigation into potential violations of Section 222 of the Federal Power Act, 16 U.S.C. § 824v, and the FERC anti-manipulation rule, 18 C.F.R. § 1c.2, in connection with DPT's trading activities in MISO markets. The order authorized the use of compulsory process, including subpoenas for documents and testimony, to the extent necessary.
B. The Respondents
The investigation involved three Dunmore-affiliated entities, each of which is described below:
Dunmore Energy Holdings Ltd. DEH is a Cayman Islands exempted company, with Employer Identification Number 98-1347562. DEH's registered office is located at 4th Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman, KY1-1002, Cayman Islands. DEH's principal U.S. office is located at 2200 Post Oak Boulevard, Suite 3100, Houston, Texas 77056. DEH serves as the parent holding company for the Dunmore family of energy companies and is the ultimate beneficial owner of DPT and Dunmore Midstream Partners LP. As the parent entity, DEH was named as a respondent in the investigation on the basis of its ownership and control of DPT and its overall responsibility for compliance with applicable regulations.
Dunmore Power Trading LLC. DPT is a Delaware limited liability company, with Employer Identification Number 82-4519763. DPT is a wholly owned power marketing subsidiary of DEH. DPT holds market-based rate authorization from FERC under Docket No. ER05-1128-000 and is an active participant in MISO wholesale energy markets, including the Day-Ahead and Real-Time energy markets, the Financial Transmission Rights market, and the ancillary services markets. During the Relevant Period (as defined below), DPT maintained a MISO trading desk staffed by approximately 14 traders, including dedicated Day-Ahead, Real-Time, and FTR trading functions. DPT was the primary entity whose trading conduct was at issue in the investigation.
Dunmore Midstream Partners LP. Dunmore Midstream Partners LP ("DMP") is a Delaware limited partnership, with Employer Identification Number 47-8831205. DMP is an affiliated midstream entity engaged in the transportation, processing, and marketing of natural gas. DMP was not named as a formal respondent in the investigation, but its gas nomination practices were examined by FERC Staff for potential coordination with DPT's bidding activities in the MISO Day-Ahead market, as described further in Section II.C below.
C. FERC Staff's Allegations
FERC Staff's investigation focused on DPT's trading activities during a period spanning approximately 14.5 months, from January 3, 2022 through March 17, 2023 (the "Relevant Period"). Staff alleged that DPT, through the actions of certain individual traders, had engaged in a multi-pronged market manipulation scheme in violation of Section 222 of the Federal Power Act, 16 U.S.C. § 824v, and the FERC anti-manipulation rule, 18 C.F.R. § 1c.2. The applicable legal standard under Section 222 and Rule 1c.2 requires a showing of (i) fraudulent or deceptive conduct, (ii) in connection with the purchase or sale of electric energy or the purchase or sale of transmission services subject to FERC jurisdiction, (iii) undertaken with the requisite scienter. FERC Staff's allegations, as set forth in the Preliminary Findings letter and subsequent settlement communications, may be summarized as follows:
Allegation 1 — Uneconomic Day-Ahead Bidding. FERC Staff alleged that Kyle Renfro, Senior Trader on DPT's MISO Day-Ahead Desk, submitted Day-Ahead energy offers for Dunmore's gas-fired generation units located at the Indiana Hub pricing node at prices significantly below the marginal cost of production. According to Staff's analysis, these offers were priced as low as negative $15 per megawatt-hour (-$15/MWh) to negative $40 per megawatt-hour (-$40/MWh), levels that Staff contended bore no reasonable relationship to the units' actual variable production costs. Staff further alleged that these below-cost offers were not submitted for any legitimate economic purpose, but rather were designed to create artificial congestion patterns on the transmission paths between the Indiana Hub and other pricing points within MISO. Staff contended that DPT simultaneously held Financial Transmission Rights that would benefit from the resulting congestion — specifically, FTR positions that were in the money when congestion increased on these paths. In Staff's theory of the case, the uneconomic Day-Ahead offers were the foundational component of a cross-product manipulation scheme, with the FTR positions serving as the vehicle through which DPT captured the manipulative profits.
Allegation 2 — Cross-Product Manipulation. FERC Staff alleged that Anastasia Petrov, a Trader on DPT's MISO Real-Time Desk, submitted Real-Time virtual positions — specifically, Increment Offers ("INCs") and Decrement Bids ("DECs") — at the Minnesota Hub pricing node that were designed to amplify the congestion differential created by the uneconomic Day-Ahead bids at the Indiana Hub. Staff contended that these virtual positions were not based on independent market analysis or a good-faith view of Real-Time price movements, but rather were timed and sized to complement and reinforce the congestion patterns generated by the Day-Ahead offers. In Staff's view, the INCs and DECs at the Minnesota Hub increased the price spread between the Minnesota Hub and the Indiana Hub, thereby increasing the value of DPT's FTR positions.
Allegation 3 — Physical-Financial Coordination. FERC Staff further alleged that DPT coordinated the timing and volume of natural gas nominations processed through Dunmore Midstream Partners LP to support the uneconomic generation offers at the Indiana Hub. Specifically, Staff contended that DPT caused DMP to adjust gas nomination volumes in a manner designed to ensure that the gas-fired generation units at the Indiana Hub would be committed to run at the levels implied by the Day-Ahead offers, while simultaneously masking the true marginal cost of those units by shifting certain fuel-related costs to DMP's accounts. Staff argued that this physical-financial coordination was intended to make the uneconomic offers appear more economically justified than they actually were, and to complicate any after-the-fact analysis of DPT's true production costs.
Volume of Allegedly Manipulative Transactions. FERC Staff quantified the volume of the allegedly manipulative transactions as follows:
• Uneconomic Day-Ahead generation offers at the Indiana Hub: approximately 2,840 GWh over the course of the Relevant Period.
• FTR positions allegedly benefiting from the manipulation: notional value of approximately $47.3 million.
• Virtual transactions (INCs and DECs) at the Minnesota Hub: approximately 1,620 GWh over the course of the Relevant Period.
FERC Staff's Estimated Unjust Profits. Dr. Samuel Breck, Senior Economist in the FERC Division of Analytics & Surveillance, prepared an economic analysis estimating the unjust profits attributable to the alleged manipulation at approximately $12.8 million. Dr. Breck's estimate was based on a but-for analysis comparing DPT's actual FTR revenues and virtual trading profits during the Relevant Period against estimated revenues and profits in a counterfactual scenario in which the allegedly manipulative Day-Ahead offers and correlated virtual positions had not been submitted.
D. Prior Counsel Conflict
At the time the investigation commenced, Dunmore's FERC regulatory counsel of record was Aldercroft & Beane LLP, a Washington, D.C.-based energy regulatory boutique. The primary relationship partner was Warren Aldercroft, Named Partner, whose office is located at 1875 K Street NW, Suite 600, Washington, D.C. 20006. Aldercroft & Beane had represented Dunmore on various FERC regulatory matters, including market-based rate filings and tariff compliance, for approximately eight years.
In late May 2023, shortly after issuance of the FERC preliminary inquiry letter, Aldercroft & Beane identified a conflict of interest arising from its concurrent representation of another MISO market participant that was also the subject of a separate, unrelated FERC Office of Enforcement investigation. Upon identification of the conflict, Aldercroft & Beane promptly notified Dunmore and withdrew from the representation. Warren Aldercroft personally communicated the conflict to Martin Llewellyn and recommended several alternative firms with significant FERC enforcement experience.
Following a competitive review of qualified firms, Dunmore engaged Calderwood & Harkness LLP on May 24, 2023. Calderwood & Harkness filed a notice of appearance with the FERC Office of Enforcement on June 5, 2023, and has served as Dunmore's lead outside counsel in the matter since that date.
III. Engagement of Calderwood & Harkness and Advisors
A. Calderwood & Harkness Engagement
Calderwood & Harkness LLP was formally engaged by Dunmore Energy Holdings Ltd. pursuant to an engagement letter executed on May 24, 2023. An initial retainer of $250,000 was received by wire transfer on May 30, 2023. The engagement letter specified the scope of the representation as the defense of Dunmore and its affiliates in connection with the FERC Office of Enforcement investigation, Docket No. IN23-7-000, including all related proceedings, settlement negotiations, and compliance matters.
The Calderwood & Harkness engagement team was comprised of the following attorneys:
• Catherine Bloom — Responsible Partner and lead counsel, with over 25 years of experience in energy regulatory enforcement, FERC litigation, and wholesale electricity market matters.
• Alan Ngo — Billing Partner, responsible for client billing, staffing, and engagement management.
• Hannah Brinkley — Lead Associate, with particular expertise in FERC market manipulation enforcement actions and energy trading compliance.
• Patrick Gallagher — Working Associate, responsible for document review, discovery management, and research support.
All Calderwood & Harkness attorneys on this matter are based in the firm's Houston office, located at 1001 Fannin Street, Suite 4200, Houston, TX 77002. The internal billing code assigned to the engagement is 71420.00001.
B. Expert — Whitfield Economic Advisors LLC
In order to provide Dunmore with independent economic analysis to rebut FERC Staff's allegations and unjust profits calculations, Calderwood & Harkness recommended, and Dunmore engaged, Whitfield Economic Advisors LLC ("Whitfield"). An engagement letter was executed on July 10, 2023.
The principal expert was Dr. Leonard Whitfield, a nationally recognized energy economist with extensive experience in wholesale electricity market analysis, including prior engagements as an economic expert in FERC enforcement proceedings and before state public utility commissions. Dr. Whitfield's office is located at 1700 Pennsylvania Avenue NW, Suite 550, Washington, D.C. 20006.
Dr. Whitfield's hourly rate for this engagement was $475 per hour. Total expert fees incurred through the closure of the matter were $312,500. The scope of Dr. Whitfield's engagement included: (i) independent economic analysis of DPT's MISO trading activity during the Relevant Period, including an evaluation of the economic rationale for the Day-Ahead offers, virtual positions, and FTR holdings at issue; (ii) assessment of the actual market impact, if any, of DPT's trading activity on MISO congestion patterns and locational marginal prices; and (iii) a comprehensive rebuttal of FERC Staff's unjust profits calculations as prepared by Dr. Samuel Breck.
C. Compliance Consultant — Ridgeway Compliance Solutions LLC
In anticipation of the likelihood that any resolution would include an enhanced compliance component, and in order to demonstrate Dunmore's good faith commitment to compliance improvements, Calderwood & Harkness recommended, and Dunmore engaged, Ridgeway Compliance Solutions LLC ("Ridgeway"). An engagement letter was executed on October 15, 2023.
The engagement was led by Dr. Carolyn Whitford, Founder and Managing Director of Ridgeway. Dr. Whitford is a former FERC Office of Enforcement attorney with over 15 years of experience in energy trading compliance program design, implementation, and monitoring. Ridgeway's office is located at 3000 Richmond Avenue, Suite 800, Houston, TX 77098.
Ridgeway was engaged on a flat-fee basis of $385,000 for the following scope of work: (i) comprehensive assessment of DPT's existing compliance program; (ii) design of an Enhanced Compliance Plan meeting FERC expectations; (iii) development and delivery of compliance training programs for DPT trading personnel; and (iv) 12-month compliance monitoring services, including quarterly compliance audits. As described in Section VII.E below, Ridgeway was subsequently designated as the independent compliance monitor under the Enhanced Compliance Plan set forth in Appendix A to the Consent Agreement.
D. E-discovery Vendor — Crestline Document Solutions LLC
Given the substantial volume of documents implicated by the investigation, Dunmore engaged Crestline Document Solutions LLC ("Crestline") to provide e-discovery services, including document collection, processing, hosting, and review platform support. Crestline's office is located at 1400 Smith Street, Suite 2100, Houston, TX 77002.
Total e-discovery costs incurred through the closure of the matter were $347,000. These costs encompassed the collection and processing of data from 11 custodians, hosting of approximately 1.24 million pages of documents on a secure review platform, and technology-assisted review ("TAR") workflows used to prioritize and categorize documents for production and privilege review.
IV. Defense Strategy and Key Arguments
From the outset of the engagement, Calderwood & Harkness developed and implemented a defense strategy designed to accomplish two principal objectives: (i) to position Dunmore for the most favorable possible resolution in settlement negotiations with FERC Staff, and (ii) to preserve Dunmore's ability to mount a vigorous defense at a contested hearing before a FERC Administrative Law Judge in the event that settlement efforts were unsuccessful. The defense strategy rested on four pillars, each of which is described below.
A. Portfolio Optimization Defense
The centerpiece of Calderwood & Harkness's defense was the argument that DPT's Day-Ahead offers at the Indiana Hub were entirely consistent with a legitimate portfolio optimization strategy, rather than a scheme to manipulate MISO market outcomes. Calderwood & Harkness presented extensive evidence — including contemporaneous trading records, internal strategy memoranda, and trader communications — demonstrating that DPT's Day-Ahead pricing decisions were made in the context of DPT's broader generation and trading portfolio, which included generation assets, bilateral contracts, load-serving obligations, and financial hedging positions across multiple MISO pricing nodes.
Under FERC precedent, a market participant is not required to bid each individual generating unit at a price that precisely reflects that unit's standalone marginal cost. Rather, market participants may exercise legitimate portfolio optimization strategies, taking into account the interrelationships among their physical and financial positions. Calderwood & Harkness argued that DPT's negative Day-Ahead offers at the Indiana Hub reflected the opportunity costs and contractual commitments associated with minimum generation requirements under DPT's gas supply and transportation agreements. In other words, because DPT was obligated to take delivery of certain gas volumes and incur associated transportation charges regardless of whether the generation units ran, the effective marginal cost of generation for those units was lower — and in some hours, negative — when viewed in the context of the overall portfolio. The offers did not represent artificial price suppression, but rather a rational economic response to DPT's contractual position.
Calderwood & Harkness further argued that FERC Staff's analysis improperly evaluated the Day-Ahead offers in isolation, without accounting for the broader portfolio context that informed the pricing decisions. This approach, we contended, was inconsistent with FERC's own precedent recognizing the legitimacy of portfolio-based bidding strategies.
B. FTR Hedging Rationale
Calderwood & Harkness presented evidence that DPT's FTR positions had been acquired months before the commencement of the Relevant Period as part of a routine hedging strategy designed to manage congestion risk associated with DPT's generation portfolio. FTR acquisition records demonstrated that DPT had participated in the relevant MISO annual and monthly FTR auctions in accordance with standard market procedures, and that the FTR positions were sized and directed in a manner consistent with hedging the congestion exposure of DPT's physical generation assets, not as a vehicle for capturing manipulative profits.
Calderwood & Harkness emphasized that FERC Staff's theory of the case required a finding that the FTR positions were acquired as part of a premeditated manipulation scheme — a finding that the temporal and documentary evidence did not support. The FTR positions were acquired well in advance of the alleged manipulative conduct, and the internal communications contemporaneous with the FTR acquisitions reflected standard hedging considerations rather than any intent to engage in cross-product manipulation.
C. Dr. Whitfield's Economic Rebuttal
Dr. Leonard Whitfield's expert report, submitted to FERC OE on November 20, 2023, provided a rigorous, independent economic rebuttal of FERC Staff's allegations and unjust profits calculations. The key findings and conclusions of Dr. Whitfield's analysis were as follows:
First, Dr. Whitfield conducted an independent analysis of the actual market impact of DPT's Day-Ahead offers at the Indiana Hub during the Relevant Period. Using a combination of production cost modeling, statistical analysis of historical congestion patterns, and counterfactual scenario analysis, Dr. Whitfield concluded that the actual market impact attributable to DPT's trading activity was no more than $2.1 million — a fraction of FERC Staff's $12.8 million estimate. Dr. Whitfield identified several significant methodological errors in Dr. Breck's analysis, including the failure to properly control for exogenous factors affecting congestion patterns and the use of an overly broad definition of the affected transactions.
Second, Dr. Whitfield demonstrated that the congestion patterns at the Indiana Hub during the Relevant Period were primarily driven by a series of transmission outage events — including planned and forced outages on key transmission facilities — that were unrelated to DPT's bidding activity. Dr. Whitfield's analysis showed that when the effects of these transmission outages were properly accounted for, the incremental congestion attributable to DPT's Day-Ahead offers was substantially smaller than FERC Staff had estimated, and in many hours during the Relevant Period, DPT's offers had no discernible impact on congestion outcomes.
Third, Dr. Whitfield challenged the methodology underlying Dr. Breck's unjust profits estimate. Dr. Whitfield demonstrated that Dr. Breck's but-for scenario was speculative and relied on assumptions that were not supported by the market data. In particular, Dr. Breck's estimate improperly attributed all of DPT's FTR revenue during the Relevant Period to the allegedly manipulative conduct, without accounting for the substantial FTR revenue that DPT would have earned even in the absence of the challenged Day-Ahead offers.
Dr. Whitfield's expert report was a critical component of the defense and played a significant role in Calderwood & Harkness's ability to negotiate the elimination of any disgorgement component in the final resolution.
D. Cooperation and Remedial Measures
Throughout the investigation, Dunmore cooperated fully and voluntarily with FERC Staff's inquiries. This cooperation included the production of approximately 187,000 documents (approximately 1.24 million pages) from 11 custodians; the voluntary presentation of six employees for testimony pursuant to 18 C.F.R. § 1b.12, including the two traders whose conduct was at issue (Kyle Renfro and Anastasia Petrov); and prompt and complete responses to all data requests, subject to appropriate objections and privilege assertions.
Calderwood & Harkness also emphasized Dunmore's proactive remedial measures. In particular, Dunmore had hired Jennifer Caulfield as its Chief Compliance Officer on February 6, 2023 — approximately two months before the Velthorn referral was submitted to FERC and approximately three and a half months before FERC OE issued its preliminary inquiry letter. The hiring of a dedicated CCO before the investigation commenced demonstrated Dunmore's good faith commitment to compliance, independent of any regulatory compulsion. Calderwood & Harkness further highlighted that Dunmore maintained a pre-existing energy trading compliance program, which, while admittedly in need of enhancement in certain respects, reflected the company's awareness of and commitment to compliance with applicable market rules and regulations.
Under FERC's Revised Policy Statement on Enforcement (132 FERC ¶ 61,216 (2010)), cooperation and the existence of a compliance program are mitigating factors that FERC considers in determining the appropriate sanction in enforcement proceedings. Calderwood & Harkness argued that Dunmore's cooperation and remedial efforts warranted a significant reduction in the penalty amount from FERC Staff's initial demand.
V. Key Milestones of the Investigation
The following is a summary of the key milestones and events during the course of the investigation.
A. Document Productions
FERC OE served its first data request on Dunmore on June 26, 2023. The first data request contained 41 interrogatories and 23 document requests, covering a broad range of topics including DPT's MISO trading strategies, FTR positions, internal communications among trading personnel, compliance policies and procedures, and Dunmore Midstream Partners LP's gas nomination practices. Calderwood & Harkness served timely objections and responses on behalf of Dunmore, and the first document production — comprising approximately 48,200 documents — was completed on July 24, 2023.
FERC OE served a second, supplemental data request on August 7, 2023, containing 18 additional interrogatories that focused on specific trading dates, individual trader communications, and the economic rationale for particular Day-Ahead offers. Calderwood & Harkness served timely objections and responses, and the second document production — comprising approximately 63,400 documents — was completed on August 21, 2023.
A third and final document production — comprising approximately 75,400 documents — was completed on October 30, 2023. This final production included additional responsive materials identified during the privilege review process and supplemental materials requested by FERC Staff in connection with its preparation of the Preliminary Findings letter.
In total, Dunmore produced approximately 187,000 documents, comprising approximately 1.24 million pages, from 11 custodians. The custodians included Kyle Renfro (Senior Trader, MISO Day-Ahead Desk), Anastasia Petrov (Trader, MISO Real-Time Desk), Derek Sung (SVP, Power Marketing & Trading), Rhonda Vasquez (Director, Trading Operations), Jennifer Caulfield (Chief Compliance Officer), Elena Mirova (President & COO), and five additional trading desk and operations personnel. All document collection, processing, and review were managed through Crestline Document Solutions LLC's platform, as described in Section III.D above.
B. Employee Testimonies
FERC Staff conducted investigative testimony of three key Dunmore employees pursuant to 18 C.F.R. § 1b.12, the FERC rule governing non-public investigative testimony. Each testimony was conducted at the offices of FERC's Division of Investigations in Washington, D.C., with Calderwood & Harkness attorneys present as counsel for the witnesses.
• Kyle Renfro (Senior Trader, MISO Day-Ahead Desk) — testified on September 5, 2023. Mr. Renfro's testimony lasted approximately seven hours and focused on the methodology and economic rationale for his Day-Ahead offer pricing decisions at the Indiana Hub, his awareness of DPT's FTR positions, and his communications with other DPT traders regarding MISO congestion patterns.
• Anastasia Petrov (Trader, MISO Real-Time Desk) — testified on September 12, 2023. Ms. Petrov's testimony lasted approximately five and a half hours and focused on her virtual trading strategies at the Minnesota Hub, the information sources she relied upon in formulating her INC and DEC positions, and her communications with Mr. Renfro and other members of the Day-Ahead trading team.
• Derek Sung (SVP, Power Marketing & Trading) — testified on September 19, 2023. Mr. Sung's testimony lasted approximately six hours and focused on his supervisory oversight of the MISO trading desk, DPT's overall MISO trading strategy, the company's FTR acquisition process, and his interactions with Dunmore Midstream Partners LP regarding gas nomination coordination.
Three additional employees were also made available for testimony by FERC Staff, although the scope and focus of their testimony were more limited in nature. Calderwood & Harkness prepared all six witnesses through extensive preparation sessions and attended all testimony sessions to protect the interests of both the individual witnesses and Dunmore.
C. FERC Staff Preliminary Findings
On October 2, 2023, FERC OE issued a Preliminary Findings letter to Calderwood & Harkness, setting forth FERC Staff's preliminary conclusions regarding the investigation. The Preliminary Findings letter is analogous to a Wells Notice in SEC enforcement practice — it provides the respondent with notice of FERC Staff's preliminary conclusions and an opportunity to respond before Staff makes a recommendation to the Commission regarding formal enforcement action.
In the Preliminary Findings letter, FERC Staff set forth the following initial demand:
• Civil Penalty: $18 million, calculated as a base penalty of $9 million multiplied by a duration/scope multiplier of 2x to account for the length of the Relevant Period (approximately 14.5 months) and the breadth of the alleged manipulation scheme (encompassing three distinct categories of allegedly manipulative conduct across multiple MISO pricing nodes and product types).
• Disgorgement: $12.8 million, based on Dr. Breck's estimate of DPT's unjust profits from the alleged manipulation.
• Total Initial Demand: $30.8 million.
On October 10, 2023, Calderwood & Harkness, accompanied by Martin Llewellyn and Jennifer Caulfield, participated in a meeting with FERC Enforcement leadership at FERC headquarters in Washington, D.C. The meeting was attended by Margaret Hollowell, Director of the Division of Investigations, Christine Pham, Senior Attorney, and other FERC Enforcement staff. The meeting provided an opportunity for Dunmore to present an initial, high-level overview of its defense arguments and to discuss the procedural path forward, including the timeline for Dunmore's formal response to the Preliminary Findings.
D. Response to Preliminary Findings
On November 6, 2023, Calderwood & Harkness filed a comprehensive formal written submission in response to the Preliminary Findings letter. This submission was analogous to a Wells submission in SEC enforcement practice and represented the centerpiece of Dunmore's written advocacy in the investigation.
The submission was approximately 85 pages in length, exclusive of exhibits, and addressed all three of FERC Staff's allegations in detail. The submission advanced the portfolio optimization defense, the FTR hedging rationale, and the cooperation and remedial measures arguments described in Section IV above. The submission was supported by a comprehensive exhibit book that included, among other materials:
• Dr. Whitfield's expert report (submitted simultaneously on November 20, 2023, with a preliminary draft provided in advance to support the written submission).
• Sample trading records for key dates during the Relevant Period, annotated to illustrate the portfolio optimization rationale for the Day-Ahead offers.
• FTR acquisition documentation, including MISO auction records and internal strategy memoranda, demonstrating that the FTR positions were acquired as routine hedging instruments well before the Relevant Period.
• Gas nomination schedules from Dunmore Midstream Partners LP, with explanatory context regarding the contractual and operational reasons for the nomination patterns at issue.
• Pre-existing compliance policies and procedures, demonstrating that Dunmore had an established compliance framework prior to the investigation.
• Jennifer Caulfield's appointment documentation, including her offer letter, Board authorization, and reporting structure, demonstrating that the CCO hiring predated the investigation.
The formal written submission was a critical milestone in the investigation and set the foundation for the favorable settlement negotiations that followed.
VI. Settlement Negotiations
Following the filing of Dunmore's formal written submission and Dr. Whitfield's expert report, the parties engaged in a series of settlement conferences and written exchanges over a period of approximately two months. The following is a summary of the key stages of the settlement negotiation process.
A. First Settlement Conference — December 4, 2023
The first settlement conference was held on December 4, 2023, at the offices of FERC's Division of Investigations in Washington, D.C. Calderwood & Harkness was represented by Catherine Bloom and Hannah Brinkley; Dunmore was represented by Martin Llewellyn. FERC Staff was represented by Christine Pham, Senior Attorney, and members of the Division of Investigations team.
During the conference, Calderwood & Harkness made a detailed oral presentation summarizing the key points of Dunmore's formal written submission and Dr. Whitfield's expert report, with a particular emphasis on the portfolio optimization defense, the pre-acquisition timing of the FTR positions, Dr. Whitfield's rebuttal of the unjust profits calculations, and Dunmore's cooperation and remedial measures. The conference was productive and established a constructive framework for further negotiations.
Following the settlement conference, Calderwood & Harkness submitted a formal settlement proposal letter to Christine Pham, dated December 8, 2023. The settlement proposal outlined the terms under which Dunmore would be willing to resolve the matter, including a proposed penalty amount, no disgorgement, and a comprehensive 36-month Enhanced Compliance Plan with standard "neither admit nor deny" language. The specific penalty amount proposed in this letter was calibrated to reflect Dunmore's assessment of the strengths and weaknesses of both its defense arguments and FERC Staff's case, the precedent established by prior FERC enforcement resolutions in comparable matters, and the significant mitigating factors present in the case.
B. FERC Staff Revised Offer — December 18, 2023
On December 18, 2023, FERC Staff communicated a revised settlement offer to Calderwood & Harkness. The revised offer proposed the following terms:
• Civil Penalty: $8.5 million.
• Disgorgement: $3.2 million.
• Total: $11.7 million.
The revised offer represented a 62% reduction from FERC Staff's initial demand of $30.8 million, indicating that Staff had been substantially influenced by the defense arguments and expert analysis presented by Calderwood & Harkness. However, the revised offer remained significantly above Dunmore's target range for resolution, and notably, FERC Staff continued to insist on a disgorgement component — albeit at a substantially reduced level.
Calderwood & Harkness communicated the revised offer to the Dunmore negotiation team, consisting of Gavin Harcourt, Elena Mirova, and Martin Llewellyn, and provided a detailed analysis of the offer in the context of the overall risk profile of the matter. Following discussion, the team authorized Calderwood & Harkness to submit a counter-proposal.
C. Dunmore Counter-Proposal — January 8, 2024
On January 8, 2024, Calderwood & Harkness submitted a written counter-proposal to Christine Pham. The counter-proposal set forth the following terms:
• Civil Penalty: $3.5 million.
• Disgorgement: $0 (no disgorgement).
The counter-proposal was accompanied by a detailed legal and economic justification, arguing that any disgorgement amount was speculative and unquantifiable with sufficient certainty to support a FERC order. Calderwood & Harkness relied heavily on Dr. Whitfield's analysis, which had demonstrated that FERC Staff's unjust profits estimate was methodologically flawed and that the actual market impact of DPT's trading activity was a fraction of Staff's estimate. Calderwood & Harkness argued that, under FERC precedent, disgorgement should be limited to profits that can be traced with reasonable certainty to the challenged conduct — a standard that could not be met on the record before the Commission.
The counter-proposal also reiterated Dunmore's commitment to a comprehensive Enhanced Compliance Plan covering a full 36-month period, and highlighted Dunmore's full cooperation throughout the investigation — factors that Calderwood & Harkness argued warranted a penalty at the lower end of the range. Finally, the counter-proposal proposed a two-installment payment schedule for the civil penalty, providing Dunmore with additional liquidity flexibility.
D. Second Settlement Conference and Agreement — January 17 and January 24, 2024
A second settlement conference was held on January 17, 2024, at the offices of FERC's Division of Investigations. The conference involved further detailed discussions regarding the appropriate penalty amount, the disgorgement question, and the specific terms of the Enhanced Compliance Plan. Both sides presented additional analysis and engaged in a productive, good-faith exchange of views regarding the strengths and weaknesses of their respective positions.
Following the January 17 conference, the parties continued negotiations by telephone and written exchange over the following week. On January 24, 2024, the parties reached agreement on the final terms of resolution:
• Civil Penalty: $4.75 million, payable in two equal installments.
• Disgorgement: $0 (no disgorgement).
• Enhanced Compliance Plan: 36-month period, with terms as set forth in Appendix A to the Consent Agreement.
• Admissions: Standard "neither admit nor deny" language.
Counsel for the parties then proceeded to negotiate and finalize the language of the Stipulation and Consent Agreement. The Consent Agreement was executed on January 31, 2024, and submitted to the Commission for approval.
VII. Terms of the Stipulation and Consent Agreement
The following is a summary of the material terms of the Stipulation and Consent Agreement executed on January 31, 2024.
A. Civil Penalty
The Consent Agreement provides for a total civil penalty of $4.75 million, payable by Dunmore Energy Holdings Ltd. to the United States Treasury in two equal installments:
• First Installment: $2,375,000, due within 30 calendar days of the date of the FERC order approving the Consent Agreement. Based on the expected FERC order date of February 9, 2024, the estimated due date for the first installment is March 10, 2024.
• Second Installment: $2,375,000, due within 180 calendar days of the date of the FERC order approving the Consent Agreement. Based on the expected FERC order date of February 9, 2024, the estimated due date for the second installment is August 7, 2024.
The Consent Agreement provides that in the event any installment is not paid by its due date, interest shall accrue on the unpaid balance at the rate specified in 18 C.F.R. § 35.19a.
B. Disgorgement
The Consent Agreement does not include any disgorgement component. FERC Staff accepted Calderwood & Harkness's argument — supported by Dr. Whitfield's expert analysis — that the unjust profits attributable to the alleged conduct were speculative and could not be quantified with sufficient certainty to support a disgorgement order. The elimination of the $12.8 million disgorgement demand in its entirety represents a significant component of the overall savings achieved in the resolution.
C. Admissions
The Consent Agreement contains standard "neither admit nor deny" language. Specifically, the Consent Agreement provides that Dunmore Energy Holdings Ltd. and Dunmore Power Trading LLC neither admit nor deny the allegations contained in the Stipulation and Consent Agreement, and that the Consent Agreement does not constitute a finding or admission by Dunmore of any violation of the Federal Power Act, the FERC anti-manipulation rule, or any other applicable law, regulation, or tariff provision. This language is consistent with the standard formulation used in the overwhelming majority of FERC enforcement settlements and ensures that the Consent Agreement cannot be used as evidence of liability in any other proceeding.
D. Cooperation
The Consent Agreement includes a cooperation provision under which Dunmore agreed to continue cooperating with FERC Staff in connection with any related investigations or proceedings, including the provision of additional documents, information, or testimony as reasonably requested. This provision is a standard component of FERC enforcement settlements and reflects the cooperative posture that Dunmore maintained throughout the investigation.
E. Enhanced Compliance Plan (Appendix A)
The Consent Agreement includes, as Appendix A, a detailed Enhanced Compliance Plan (the "ECP") governing Dunmore's compliance obligations for a period of 36 months following the date of the FERC order approving the Consent Agreement. Based on the expected FERC order date of February 9, 2024, the compliance monitoring period is expected to run through February 9, 2027. The key elements of the ECP are as follows:
1. Chief Compliance Officer. The ECP confirms Jennifer Caulfield in the role of Chief Compliance Officer of Dunmore Energy Holdings Ltd. and Dunmore Power Trading LLC. The CCO is required to report directly to the Board of Directors of DEH and to have unfettered access to all trading, operations, and compliance-related information and personnel. The CCO's responsibilities include oversight of all aspects of the ECP, management of the compliance training program, coordination with the independent compliance monitor, and preparation of compliance reports and certifications as described below.
2. Annual Compliance Training. All trading personnel employed by or contracted to DPT — including, without limitation, all Day-Ahead, Real-Time, FTR, and virtual trading desk personnel — are required to complete a minimum of 16 hours per year of compliance training during each year of the 36-month compliance monitoring period. The training curriculum must cover, at a minimum, the requirements of Section 222 of the Federal Power Act, the FERC anti-manipulation rule (18 C.F.R. § 1c.2), MISO tariff provisions governing market conduct, and the specific trading practices and compliance procedures set forth in the ECP. The training program was designed by Ridgeway Compliance Solutions LLC and is subject to review and approval by FERC OE.
3. Quarterly Compliance Audits. The ECP requires that an independent compliance monitor conduct quarterly compliance audits of DPT's MISO trading activities and compliance practices. Ridgeway Compliance Solutions LLC, under the leadership of Dr. Carolyn Whitford, has been designated as the independent compliance monitor for this purpose. The quarterly audits are expected to include review of trading activity for potential compliance issues, assessment of the effectiveness of the automated trade surveillance systems, evaluation of trader adherence to compliance policies and procedures, and interviews with trading and compliance personnel.
4. Automated Trade Surveillance. The ECP requires Dunmore to implement automated trade surveillance systems capable of detecting potential market manipulation patterns in Day-Ahead bidding, virtual transactions, and FTR positions. The surveillance systems must be capable of identifying, among other things, patterns of below-cost generation offers coinciding with FTR or virtual positions on correlated paths; unusual correlations between physical generation bidding and virtual trading activity; and deviations from established trading parameters or strategy guidelines. The ECP specifies that the automated trade surveillance systems must be operational within 120 days of the date of the FERC order approving the Consent Agreement.
5. Quarterly Reporting to FERC OE. Dunmore is required to submit quarterly compliance reports to the FERC Office of Enforcement for the duration of the 36-month compliance monitoring period. The quarterly reports must describe the compliance activities undertaken during the reporting period, summarize the results of the quarterly compliance audits conducted by Ridgeway, identify any compliance issues or incidents that have been identified and the corrective actions taken, and provide such additional information as FERC OE may reasonably request.
6. Annual Compliance Certification. CEO Gavin Harcourt and CCO Jennifer Caulfield are required to provide annual compliance certifications to FERC, certifying that Dunmore has complied with all requirements of the ECP during the preceding 12-month period and that all trading activities have been conducted in accordance with applicable laws, regulations, and tariff provisions. The annual certifications must be submitted under oath and are subject to the penalties of 18 U.S.C. § 1001 for false statements.
7. Policies and Procedures. The ECP requires Dunmore to implement updated and enhanced trading desk oversight policies, FTR position monitoring procedures, and cross-product transaction review procedures. These updated policies must include, among other things, pre-trade approval requirements for generation offers below specified price thresholds, mandatory documentation of the economic rationale for FTR position acquisitions, and real-time monitoring of correlations between physical and financial trading positions. All policies and procedures are subject to review and approval by the independent compliance monitor and FERC OE.
F. FERC Approval
The Consent Agreement has been submitted to the FERC Commissioners for approval. Based on the standard timeline for Commission review of consent agreements in enforcement proceedings, the FERC order approving the Consent Agreement is expected to be issued on or about February 9, 2024. Upon issuance of the order, the investigation will be formally closed and the terms of the resolution will become public, as discussed further in Section XI below.
VIII. Financial Summary of Outcome
A. Monetary Resolution vs. FERC Staff's Initial Demand
The following table summarizes the final resolution relative to FERC Staff's initial demand:
As reflected in the table above, the final resolution represents total savings of $26.05 million from FERC Staff's initial demand, a reduction of approximately 84.6%. The elimination of the entire $12.8 million disgorgement demand is a particularly significant component of the favorable outcome.
B. Legal and Advisory Costs
The following table summarizes the total legal and advisory costs incurred in connection with the investigation:
Calderwood & Harkness's actual legal fees of $2,143,750 fell within the initial estimated range of $1.5 million to $2.8 million communicated to Dunmore at the commencement of the engagement. The fees reflect the significant work required across all phases of the investigation, including document review and production management, witness preparation and testimony attendance, economic expert coordination, formal written submissions, and multiple rounds of settlement negotiations and conferences.
C. Total Financial Impact
The total financial impact of the resolution on Dunmore is as follows:
• Total civil penalty: $4,750,000
• Total legal and advisory costs: $3,188,250
• Combined total: Approximately $7,938,250
When compared to FERC Staff's initial demand of $30.8 million — which itself did not account for the substantial additional legal costs that would have been incurred had the matter proceeded to formal litigation before a FERC Administrative Law Judge — the resolution represents a substantial and favorable financial outcome for Dunmore. Had the matter proceeded to a contested hearing, Dunmore would have incurred additional legal fees likely in excess of $3 million to $5 million over an 18- to 36-month litigation period, with no certainty regarding the ultimate outcome on the merits.
IX. Context: Dunmore Financial Position
To place the financial impact of the resolution in context, we note the following selected financial metrics for Dunmore Energy Holdings Ltd. and Dunmore Power Trading LLC:
• DEH FY 2022 Consolidated Revenue: $3.82 billion.
• DEH FY 2022 EBITDA: $891 million.
• DPT FY 2022 Power Marketing Revenue: $614 million.
• DPT MISO Trading Volume (2022): Approximately 18.4 million MWh.
• U.S. Net Generation Capacity: 4,280 MW, comprising approximately 2,650 MW of natural gas-fired generation, 1,130 MW of wind generation, and 500 MW of solar generation.
The $4.75 million civil penalty represents approximately 0.12% of DEH's FY 2022 consolidated revenue and approximately 0.53% of DEH's FY 2022 EBITDA. The combined total financial impact of the resolution (penalty plus legal and advisory costs of approximately $7.94 million) represents approximately 0.21% of DEH's FY 2022 consolidated revenue. Accordingly, the financial impact of the resolution is immaterial relative to DEH's consolidated financial position.
Notwithstanding the immateriality of the penalty from a financial perspective, Calderwood & Harkness recommends that Dunmore's independent auditor, Prescott & Hargrove LLP (Douglas Fenn, CPA, Engagement Partner; 700 Louisiana Street, Suite 3500, Houston, TX 77002), be consulted regarding the appropriate financial statement impact, reserve treatment, and any disclosure considerations related to the civil penalty and compliance costs. In particular, Prescott & Hargrove should be consulted regarding whether the penalty and related costs should be accrued in any interim or annual financial statements, whether footnote disclosure is required under applicable accounting standards, and whether the resolution triggers any reporting obligations under Dunmore's credit agreements or other financing documents.
X. Key Upcoming Compliance Obligations and Deadlines
The Board of Directors and senior management should be aware of the following key compliance obligations and deadlines arising from the Consent Agreement and Enhanced Compliance Plan:
• February 9, 2024 (expected): FERC order approving the Consent Agreement; the 36-month compliance monitoring period commences on this date.