settlement-proposal-letter.docx

1016-00004 · Dunmore Energy Holdings · Settlement Negotiations

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CALDERWOOD & HARKNESS LLP Attorneys at Law 1001 Fannin Street, Suite 4200 Houston, Texas 77002 Telephone: (713) 555-8400 Facsimile: (713) 555-8401

December 8, 2023

VIA ELECTRONIC MAIL AND HAND DELIVERY

Christine Pham, Senior Attorney Division of Investigations Office of Enforcement Federal Energy Regulatory Commission 888 First Street NE Washington, D.C. 20426

Re: Docket No. IN23-7-000 — Settlement Proposal on Behalf of Dunmore Energy Holdings Ltd. and Dunmore Power Trading LLC

Dear Ms. Pham:

I write on behalf of our clients, Dunmore Energy Holdings Ltd. ("DEH") and Dunmore Power Trading LLC ("DPT") (collectively, "Dunmore" or "Respondents"), to memorialize Dunmore's comprehensive settlement proposal in response to the Preliminary Findings letter issued by FERC Staff on October 2, 2023. This proposal follows, and builds upon, the productive discussions held during the first settlement conference on December 4, 2023, at which FERC Staff was represented by yourself, Margaret Hollowell (Director, Division of Investigations), Thomas Adebayo (Lead Investigator), and Dr. Samuel Breck (Senior Economist, Division of Analytics and Surveillance), and at which Dunmore was represented by counsel from this firm.

As the parties agreed during the December 4 conference, this letter sets forth in writing the substance of Dunmore's proposed resolution, including the proposed civil penalty, Dunmore's position regarding disgorgement, and a detailed Enhanced Compliance Plan. Dunmore submits this proposal in a spirit of good faith and with the objective of achieving a fair, reasonable, and expeditious resolution of this matter that appropriately vindicates the Commission's regulatory interests while acknowledging the strength of Dunmore's defenses and the substantial mitigating factors present in this case.

We acknowledge that this investigation and all communications relating thereto, including this letter and the settlement proposal contained herein, are non-public and confidential in accordance with 18 C.F.R. Part 1b. Dunmore respectfully requests that FERC Staff treat this submission accordingly and ensure that the contents of this letter are not disclosed outside the investigative and enforcement context of Docket No. IN23-7-000.

For reference, this proposal should be considered in conjunction with Calderwood & Harkness's comprehensive Response to Preliminary Findings, submitted on November 6, 2023, and the independent expert report of Dr. Leonard Whitfield of Whitfield Economic Advisors LLC, submitted on November 20, 2023 (the "Whitfield Report"). Both of those submissions address in detail the factual, economic, and legal deficiencies in FERC Staff's Preliminary Findings and provide important context for the settlement terms proposed herein.

I. Background and Procedural Posture

On May 22, 2023, the Office of Enforcement ("OE") of the Federal Energy Regulatory Commission ("FERC" or the "Commission") issued a preliminary inquiry letter to Dunmore Energy Holdings Ltd. and Dunmore Power Trading LLC, advising Dunmore that OE staff had identified certain trading patterns in the Midcontinent Independent System Operator ("MISO") energy markets that warranted further examination. Following the preliminary inquiry, the Commission issued a formal non-public order of investigation on June 12, 2023, establishing Docket No. IN23-7-000 and authorizing OE to conduct a formal investigation pursuant to Part 1b of the Commission's regulations.

The investigation concerns Dunmore's trading activity in the MISO Day-Ahead and Real-Time energy markets during the period from January 3, 2022, through March 17, 2023 (the "Relevant Period"). FERC Staff's Preliminary Findings letter, dated October 2, 2023, identified three categories of alleged manipulative conduct:

(1) Uneconomic Day-Ahead Bidding at Indiana Hub. FERC Staff alleges that DPT's MISO Day-Ahead desk submitted generation offers at prices ranging from negative $15 per MWh to negative $40 per MWh at Indiana Hub that were uneconomic and intended to increase congestion on certain MISO transmission paths, rather than reflecting legitimate supply economics.

(2) Cross-Product Manipulation via Virtual Positions at Minnesota Hub. FERC Staff alleges that DPT entered into virtual transactions — specifically, Increment Offers ("INCs") and Decrement Bids ("DECs") — at Minnesota Hub that were designed to amplify congestion differentials between Indiana Hub and Minnesota Hub, thereby benefiting DPT's Financial Transmission Rights ("FTR") positions.

(3) Physical-Financial Coordination Through Gas Nominations. FERC Staff alleges that Dunmore coordinated the gas nomination practices of its affiliate, Dunmore Midstream Partners LP, with DPT's trading strategies to influence fuel costs and generation dispatch at Indiana Hub in a manner that supported the alleged manipulative scheme.

In the Preliminary Findings letter, FERC Staff sought a total monetary resolution of $30.8 million, comprised of an $18 million civil penalty and $12.8 million in disgorgement of alleged unjust profits. The proposed civil penalty of $18 million was calculated by Staff on the basis of a $9 million base penalty, which Staff then doubled pursuant to the FERC Penalty Guidelines to account for the alleged duration and scope of the conduct. Staff characterized the alleged volumes as approximately 2,840 GWh of uneconomic Day-Ahead generation offers, FTR positions with a notional value of approximately $47.3 million, and approximately 1,620 GWh of virtual transactions at Minnesota Hub.

Dunmore submitted a comprehensive Response to Preliminary Findings on November 6, 2023. That submission challenged FERC Staff's factual assumptions, economic analysis, and legal theories on multiple grounds, including (a) the absence of evidence of manipulative intent, (b) the legitimate business justifications for DPT's bidding strategies, (c) the flawed methodology underlying Staff's calculation of alleged unjust profits, and (d) the attenuated causal nexus between DPT's trading activity and the congestion patterns identified by Staff. On November 20, 2023, Dunmore submitted the expert report of Dr. Leonard Whitfield, a well-recognized energy economist and the founder of Whitfield Economic Advisors LLC, which provided a rigorous, independent economic analysis of the market impact of DPT's trading activity during the Relevant Period. Dr. Whitfield's analysis concluded, among other things, that the actual market impact of DPT's trading was no more than $2.1 million — a fraction of the $12.8 million figure advanced by FERC Staff.

On December 4, 2023, counsel for Dunmore and FERC Staff met for the first settlement conference. The conference was constructive, and the parties agreed to exchange written proposals as a foundation for continued negotiations. This letter constitutes Dunmore's written proposal, as agreed upon during that conference.

II. Dunmore's Settlement Proposal

After careful consideration of the Preliminary Findings, the factual and economic record, the applicable law, and the discussions held during the December 4 settlement conference, Dunmore respectfully submits the following comprehensive settlement proposal.

A. Proposed Civil Penalty

Dunmore proposes a civil penalty of $4.0 million, payable in two equal installments, as follows:

• First Installment: $2,000,000, due and payable within thirty (30) calendar days of the date of the Commission's order approving the Stipulation and Consent Agreement (the "Effective Date").

• Second Installment: $2,000,000, due and payable within one hundred eighty (180) calendar days of the Effective Date.

The proposed penalty amount of $4.0 million reflects a resolution that appropriately accounts for the following considerations:

(i) Strength of Dunmore's Defenses. As set forth in detail in Dunmore's November 6 Response to Preliminary Findings and Dr. Whitfield's expert report, Dunmore has substantial and meritorious defenses to FERC Staff's allegations. These include, among others, the legitimate business justifications for DPT's bidding strategies, the absence of direct evidence of manipulative intent, and the significant weaknesses in Staff's economic causation analysis. A civil penalty of $4.0 million appropriately accounts for the litigation risk that FERC Staff would face in any formal proceeding.

(ii) Significantly Reduced Market Impact. Dr. Whitfield's independent analysis demonstrates that the actual market impact of DPT's trading activity was substantially lower than FERC Staff has estimated. Dr. Whitfield's conclusion that the total market impact was no more than $2.1 million — compared to Staff's figure of $12.8 million — underscores that Staff's base penalty calculation of $9 million, and the resulting doubled penalty of $18 million, are not supported by the evidentiary record.

(iii) Extraordinary Cooperation. As discussed in Section IV.A below, Dunmore has cooperated with FERC OE's investigation to an extraordinary degree, producing 187,000 documents from 11 custodians, making six employees available for testimony, and responding substantively to two comprehensive sets of data requests. This level of cooperation far exceeds the obligations of a respondent in a non-public investigation and warrants significant downward adjustment of any penalty under the FERC Penalty Guidelines.

(iv) Robust Remedial Measures. Dunmore has taken proactive and substantial remedial steps, including the appointment of a Chief Compliance Officer prior to the commencement of the investigation and the retention of an independent compliance consultant to design and implement an enhanced compliance program. These measures demonstrate Dunmore's good faith commitment to compliance and significantly reduce any forward-looking regulatory risk.

The proposed civil penalty of $4.0 million falls within the range of outcomes supported by comparable FERC enforcement consent agreements involving similar alleged conduct. Dunmore has reviewed recent precedent involving allegations of uneconomic bidding and cross-product manipulation in organized wholesale electricity markets, and believes that this proposal is reasonable and consistent with the Commission's enforcement objectives.

B. No Disgorgement

Dunmore's settlement proposal does not include any disgorgement component. Dunmore respectfully submits that disgorgement is not warranted in this case for several independent reasons.

First, FERC Staff's estimated unjust profits of $12.8 million are speculative and cannot be quantified with the degree of certainty necessary to support a disgorgement award. As the Commission has recognized, disgorgement must be based on a reasonable approximation of the gains causally attributable to the alleged misconduct. Here, Staff's calculation rests on assumptions regarding the causal relationship between DPT's trading activity and market-wide congestion patterns that are contradicted by the record evidence and the independent analysis of Dr. Whitfield.

Second, Dr. Whitfield's expert report demonstrates that the actual market impact of DPT's trading activity was no more than $2.1 million — a figure that already represents an upper-bound estimate using conservative assumptions. Dr. Whitfield's analysis further shows that the congestion patterns observed at Indiana Hub during the Relevant Period were primarily attributable to a series of transmission outage events on the MISO system, not to DPT's Day-Ahead bidding behavior. Specifically, Dr. Whitfield identified seven significant transmission outage events during the Relevant Period that coincided with the periods of highest congestion at Indiana Hub, and demonstrated through regression analysis that these outage events, rather than DPT's offers, were the primary drivers of the observed congestion differentials.

Third, the FTR positions identified by FERC Staff were acquired by DPT months before the commencement of the Relevant Period on January 3, 2022. These FTR positions were acquired as routine portfolio hedging instruments in the normal course of DPT's business, consistent with standard industry practices for managing congestion risk associated with generation and load positions. The profits realized on these FTR positions reflect the legitimate economic value of hedging instruments, not unjust enrichment resulting from manipulative conduct.

Fourth, the virtual transactions at Minnesota Hub — the INCs and DECs identified by Staff — had a de minimis independent market impact when properly isolated from the effects of transmission outages and other exogenous factors. Dr. Whitfield's analysis demonstrates that these virtual positions did not materially amplify congestion differentials between Indiana Hub and Minnesota Hub.

Fifth, as a matter of law and Commission precedent, disgorgement should not be imposed where the causal nexus between the alleged conduct and the claimed profits is attenuated and genuinely disputed, as it is here. Imposing disgorgement in the absence of a reliable causal connection would be inconsistent with the remedial purpose of disgorgement and would effectively transform it into a punitive measure.

C. "Neither Admit Nor Deny" Resolution

Dunmore proposes that any Stipulation and Consent Agreement include standard "neither admit nor deny" language. Specifically, Dunmore would neither admit nor deny the allegations and findings set forth in FERC Staff's Preliminary Findings letter or in the Commission's order approving the consent agreement, for purposes of the consent agreement and any proceeding arising therefrom. This approach is consistent with the vast majority of FERC enforcement consent agreements and is the Commission's established practice for resolving non-public investigations at the settlement stage. The "neither admit nor deny" framework achieves important regulatory objectives — including ensuring compliance and deterrence through the imposition of monetary sanctions and compliance obligations — while avoiding the collateral consequences and litigation risk that would accompany admissions of liability. Dunmore submits that this approach serves both parties' interests and provides regulatory certainty.

D. Continuing Cooperation Commitment

As a further element of the proposed settlement, Dunmore will agree to continue cooperating with FERC OE in any related or collateral investigations arising from or connected to the subject matter of Docket No. IN23-7-000. This commitment reflects Dunmore's ongoing good faith engagement with the Commission and its recognition of the importance of cooperative relationships between market participants and regulatory authorities. Dunmore's continuing cooperation obligations would include, as reasonably requested by FERC Staff, making personnel available for interviews, providing documents and information, and facilitating access to relevant data and records.

III. Proposed Enhanced Compliance Plan (36-Month Term)

As a central element of the proposed settlement, Dunmore proposes a comprehensive Enhanced Compliance Plan (the "ECP") with a thirty-six (36) month term. The ECP is designed to ensure Dunmore's ongoing compliance with Section 222 of the Federal Power Act, 16 U.S.C. § 824v, and the Commission's Anti-Manipulation Rule, 18 C.F.R. § 1c.2, and to demonstrate Dunmore's commitment to maintaining the highest standards of integrity in its wholesale electricity trading operations. Dunmore proposes that the ECP be attached as an appendix to the Stipulation and Consent Agreement and made binding on Dunmore for the full thirty-six month compliance monitoring period.

The ECP encompasses the following components:

A. Chief Compliance Officer

Jennifer Caulfield was appointed as Dunmore's Chief Compliance Officer ("CCO") on February 6, 2023 — more than three months before FERC OE issued its preliminary inquiry letter on May 22, 2023. Ms. Caulfield will serve as the designated CCO under the ECP for the duration of the thirty-six month compliance monitoring period. In this role, Ms. Caulfield will have primary responsibility for overseeing and administering the ECP, ensuring that all trading personnel comply with applicable laws, regulations, and internal policies, and serving as the principal point of contact for FERC OE on compliance matters.

To ensure independence from trading operations, the CCO will report directly to the Board of Directors of DEH, rather than to any officer or manager with responsibility for DPT's trading operations. The CCO will have full authority over all compliance matters related to DPT's wholesale electricity trading activities, including the authority to halt trading activity, impose disciplinary measures, and require modifications to trading strategies or policies. In the event that Ms. Caulfield is unable or unwilling to continue serving as CCO during the compliance monitoring period, Dunmore will promptly designate a replacement with comparable qualifications, subject to notice to FERC OE.

B. Annual Compliance Training

All DPT trading personnel will be required to complete a minimum of sixteen (16) hours of compliance training per calendar year during the thirty-six month compliance monitoring period. This training requirement applies to all individuals engaged in wholesale electricity trading on behalf of DPT, including the fourteen (14) traders currently assigned to the MISO Day-Ahead and Real-Time trading desks, as well as additional SPP desk traders and supervisory personnel, including Senior Vice President Derek Sung.

The compliance training curriculum will cover, at a minimum, the following topics:

• Market manipulation prohibitions under Section 222 of the Federal Power Act and the Commission's Anti-Manipulation Rule (18 C.F.R. § 1c.2);

• Applicable FERC regulations governing wholesale electricity markets, including reporting and record-keeping requirements;

• MISO market rules, including rules governing Day-Ahead and Real-Time offers, virtual transactions, and Financial Transmission Rights;

• SPP market rules applicable to DPT's trading activities;

• Dunmore's internal trading policies and procedures, including the policies and procedures adopted or updated as part of the ECP;

• Case studies drawn from FERC enforcement actions, including consent agreements and orders to show cause, to illustrate prohibited conduct and compliance best practices;

• Identification and reporting of potential compliance violations, including internal escalation procedures and whistleblower protections.

The compliance training program will be developed and delivered by Ridgeway Compliance Solutions LLC, the independent compliance consultant retained by Dunmore, as described in Section III.C below. Training sessions will include both live instruction and written materials, and all participants will be required to certify their completion of the training in writing.

C. Independent Compliance Monitor

Dunmore has retained Ridgeway Compliance Solutions LLC ("Ridgeway") as an independent compliance consultant and monitor. The engagement became effective on October 15, 2023, and was initiated proactively by Dunmore before any settlement terms were discussed with FERC Staff. Ridgeway is led by Dr. Carolyn Whitford, Founder and Managing Director, who is a former attorney in FERC's Office of Enforcement with deep expertise in energy market regulation and compliance. Dr. Whitford's background and qualifications are well-suited to this engagement, and Dunmore believes that her involvement provides substantial assurance of the independence, rigor, and effectiveness of the compliance monitoring program.

Under the ECP, Ridgeway will conduct quarterly compliance audits of DPT's trading operations throughout the thirty-six month compliance monitoring period. Each quarterly audit will encompass a comprehensive review of the following areas:

• Day-Ahead and Real-Time generation offer practices, including review of offer prices, volumes, and economic justifications;

• Virtual trading activity, including Increment Offers and Decrement Bids, with particular attention to cross-product position correlations;

• Financial Transmission Rights positions, including acquisition, management, and disposition of FTR portfolios;

• Coordination between DPT's trading operations and the gas scheduling activities of Dunmore Midstream Partners LP, to ensure that such coordination is conducted in compliance with applicable laws and regulations;

• Compliance with internal trading policies and procedures, including adherence to approval protocols, position limits, and risk management controls;

• Identification of any potential compliance issues or patterns of concern.

Ridgeway will prepare a written report following each quarterly audit, summarizing its findings, identifying any compliance issues or areas of concern, and recommending remedial actions as appropriate. Copies of each quarterly audit report will be provided to the CCO, the DEH Board of Directors, and FERC OE as part of the quarterly reporting described in Section III.E below.

D. Automated Trade Surveillance Systems

As part of the ECP, Dunmore will implement automated trade surveillance systems capable of detecting potential market manipulation patterns in DPT's trading activity. These systems will be designed to identify, on a real-time or near-real-time basis, the following types of potentially anomalous activity:

• Anomalous bidding behavior, including Day-Ahead offers that deviate significantly from estimated marginal costs or established economic benchmarks;

• Unusual cross-product position correlations, including correlations between physical generation offers, virtual transactions, and FTR positions that may indicate coordination inconsistent with independent economic decision-making;

• Deviations from economic bidding thresholds established by internal trading policies;

• Patterns of trading activity that are inconsistent with stated trading strategies or that warrant further review by the CCO or Ridgeway.

Implementation of the automated trade surveillance systems will be completed within the first twelve (12) months of the compliance monitoring period. Dunmore will provide FERC OE with a description of the systems implemented, including their capabilities, the parameters and thresholds used to generate alerts, and the procedures for investigating and resolving alerts, as part of the first annual compliance report.

E. Quarterly Reporting to FERC OE

Dunmore will submit quarterly compliance reports to FERC OE for the full thirty-six month duration of the compliance monitoring period. The compliance monitoring period will commence on the Effective Date. Each quarterly report will include the following information:

• A summary of the results of the most recent quarterly compliance audit conducted by Ridgeway;

• A description of any compliance issues or potential violations identified during the quarter, whether through the quarterly audit process, the automated trade surveillance systems, or other means;

• A description of all remedial actions taken or planned in response to identified compliance issues;

• A summary of compliance training activities conducted during the quarter, including attendance records and certifications of completion;

• Any other information that the CCO or Ridgeway deems relevant to FERC OE's assessment of Dunmore's compliance posture.

Quarterly reports will be submitted within thirty (30) days following the close of each calendar quarter.

F. Annual CEO and CCO Certification

On an annual basis during the compliance monitoring period, Chief Executive Officer Gavin Harcourt and Chief Compliance Officer Jennifer Caulfield will execute written compliance certifications. Each annual certification will attest that, to the best of the signatory's knowledge and belief, after reasonable inquiry:

(a) Dunmore has complied with all terms and conditions of the Enhanced Compliance Plan during the preceding twelve-month period;

(b) Dunmore has complied with all terms and conditions of the Stipulation and Consent Agreement during the preceding twelve-month period;

(c) All compliance reports and other submissions to FERC OE have been accurate and complete in all material respects; and

(d) All identified compliance issues have been addressed through appropriate remedial actions.

Annual certifications will be submitted to FERC OE within sixty (60) days following the end of each twelve-month period of the compliance monitoring period.

G. Trading Desk Oversight and Policy Enhancements

In addition to the specific compliance measures described above, Dunmore will implement enhanced policies and procedures for trading desk oversight. These enhancements will include, but not be limited to:

• FTR Position Monitoring. Enhanced procedures for the monitoring and review of FTR positions held by DPT, including regular assessment of the economic rationale for FTR acquisitions and the relationship between FTR positions and DPT's physical generation and load portfolios.

• Cross-Product Transaction Review. New protocols requiring periodic review of cross-product transaction patterns, including correlations between physical offers, virtual positions, and FTR portfolios, by the CCO and Ridgeway.

• Bidding Strategy Approval Protocols. Updated approval protocols requiring that material changes to bidding strategies — including changes to the frequency, price, or volume of Day-Ahead generation offers — be reviewed and approved by the CCO before implementation.

• Coordination Controls. Updated internal controls governing coordination between DPT's trading operations and the gas scheduling activities of Dunmore Midstream Partners LP. These controls will include information barriers, documentation requirements, and supervisory review procedures designed to ensure that any coordination between the two entities is conducted in compliance with applicable law and regulation.

The enhanced policies and procedures will be developed in consultation with Ridgeway and will be implemented within the first six (6) months of the compliance monitoring period. Copies of all new or updated policies and procedures will be provided to FERC OE upon adoption.

IV. Mitigating Factors Supporting the Proposed Resolution

The proposed settlement terms are supported by a number of significant mitigating factors, each of which the Commission has recognized as relevant under its Penalty Guidelines and enforcement precedent. Dunmore respectfully submits that these factors, considered individually and cumulatively, warrant a resolution substantially below the monetary sanctions proposed by FERC Staff in its Preliminary Findings letter.

A. Full and Extraordinary Cooperation

Dunmore has cooperated fully, voluntarily, and in an extraordinary manner with FERC OE's investigation from its inception. The scope and nature of Dunmore's cooperation far exceed the obligations of a respondent in a non-public investigation and warrant significant credit under the FERC Penalty Guidelines.

Document Production. Dunmore produced approximately 187,000 documents, comprising approximately 1.24 million pages, from eleven (11) custodians identified in consultation with FERC Staff. The documents were produced in three rolling productions, as follows:

• July 24, 2023: 48,200 documents (first production);

• August 21, 2023: 63,400 documents (second production);

• October 30, 2023: 75,400 documents (third production).

The produced documents cover the date range of January 1, 2021, through May 22, 2023, extending well beyond the January 3, 2022 – March 17, 2023 Relevant Period identified by FERC Staff. The document productions were conducted on an expedited basis and included electronic communications, trading records, internal memoranda, compliance files, and corporate governance materials, among other categories of documents.

Testimony. Dunmore made six (6) employees available for investigative testimony under 18 C.F.R. § 1b.12. Notably, Dunmore made available the three individuals most central to the investigation:

• Kyle Renfro, Senior Trader, MISO Day-Ahead desk (testimony on September 5, 2023);

• Anastasia Petrov, Trader, MISO virtual trading desk (testimony on September 12, 2023);

• Derek Sung, Senior Vice President, Power Marketing & Trading (testimony on September 19, 2023).

Each of these individuals cooperated fully during their testimony and responded candidly to FERC Staff's questions.

Data Requests. Dunmore responded substantively and on a timely basis to two comprehensive sets of data requests issued by FERC Staff. The first set of data requests included forty-one (41) interrogatories and twenty-three (23) document requests. The second set included eighteen (18) supplemental interrogatories. Dunmore's responses were detailed, thorough, and accompanied by supporting documentation and data.

This level of cooperation — encompassing extensive document productions, voluntary testimony of key personnel, and substantive responses to comprehensive data requests — exceeds what is required of respondents in non-public investigations and demonstrates Dunmore's good faith commitment to resolving this matter. Under the FERC Penalty Guidelines, substantial and extraordinary cooperation warrants significant downward adjustment of any penalty.

B. Proactive Remedial Measures

Dunmore's remedial actions further support the proposed resolution. Two measures are particularly significant:

First, Dunmore appointed Jennifer Caulfield as Chief Compliance Officer on February 6, 2023 — more than three months before FERC OE issued its preliminary inquiry letter on May 22, 2023. The appointment of Ms. Caulfield was not made in response to the investigation or in anticipation of regulatory scrutiny; rather, it reflects Dunmore's independent recognition of the need to strengthen its compliance infrastructure and its good faith commitment to robust compliance with applicable laws and regulations. The timing of this appointment distinguishes Dunmore from respondents who take remedial action only after the initiation of an investigation.

Second, Dunmore proactively retained Ridgeway Compliance Solutions LLC on October 15, 2023, to design and implement an enhanced compliance program, well before any settlement terms were discussed with FERC Staff. This retention was voluntary, undertaken at Dunmore's own initiative and expense, and reflects Dunmore's forward-looking commitment to compliance excellence. The work performed by Ridgeway to date has already resulted in meaningful improvements to Dunmore's compliance policies and procedures, and will continue to do so throughout the proposed thirty-six month compliance monitoring period.

C. Pre-Existing Compliance Program

While Dunmore acknowledges that its pre-existing compliance program may have been inadequate in certain respects — particularly with respect to the monitoring of cross-product position correlations and the oversight of coordination between DPT's trading operations and Dunmore Midstream Partners LP's gas scheduling activities — Dunmore did maintain compliance policies and procedures during the Relevant Period. These included, among other things, written trading policies, a code of business conduct, and periodic compliance reviews. The existence of a pre-existing compliance program, even if imperfect, distinguishes Dunmore from respondents that had no compliance infrastructure in place at the time of the alleged conduct and is a recognized mitigating factor under the Commission's Penalty Guidelines.

D. Market Impact Significantly Overstated by FERC Staff

A critical factor supporting the proposed resolution is the significant disparity between FERC Staff's estimate of the market impact of DPT's trading activity and the independently verified findings of Dr. Leonard Whitfield. As set forth in the Whitfield Report submitted on November 20, 2023:

• Dr. Whitfield's independent economic analysis demonstrates that the actual market impact of DPT's trading activity during the Relevant Period was no more than $2.1 million — a fraction of the $12.8 million claimed by FERC Staff.

• The congestion patterns at Indiana Hub during the Relevant Period were primarily attributable to transmission outage events on the MISO system, not to DPT's bidding behavior. Dr. Whitfield identified seven significant outage events that coincided with periods of elevated congestion and demonstrated, through multivariate regression analysis, that these events — rather than DPT's Day-Ahead offers — were the primary causal drivers.

• DPT's negative Day-Ahead offers (ranging from -$15/MWh to -$40/MWh) were consistent with a legitimate portfolio optimization strategy. These offers reflected the opportunity costs associated with DPT's gas-fired generation units, including contractual minimum generation commitments, gas transportation and delivery obligations, and the economic implications of decommitting and recommitting generation resources on a daily basis. Negative offers in this context are a recognized and economically rational practice in organized wholesale electricity markets.

• The FTR positions identified by FERC Staff were acquired months before the start of the Relevant Period on January 3, 2022, as routine portfolio hedging instruments. The profits realized on these FTR positions reflect the legitimate economic value of congestion hedges, not unjust enrichment attributable to manipulative conduct.

The substantial reduction in estimated market impact demonstrated by Dr. Whitfield's analysis confirms that FERC Staff's proposed sanctions of $30.8 million are disproportionate to the actual economic impact of DPT's trading activity and supports a resolution in the range proposed by Dunmore.

E. Financial and Organizational Profile

Finally, Dunmore's financial and organizational profile is relevant context for the proposed resolution. Dunmore Energy Holdings Ltd. is a significant energy company with substantial operations in the United States. For fiscal year 2022, DEH reported consolidated revenue of approximately $3.82 billion and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $891 million. DEH's U.S. generation portfolio consists of approximately 4,280 MW of net generation capacity, including approximately 2,650 MW of natural gas-fired generation, approximately 1,130 MW of wind generation, and approximately 500 MW of solar generation. Dunmore is actively investing in the growth of its renewable energy portfolio and is an important participant in the nation's ongoing energy transition.

DPT holds market-based rate authority under Docket No. ER05-1128-000 and is an active and important participant in the MISO wholesale electricity market. In 2022, DPT's MISO trading volume was approximately 18.4 million MWh, and DPT reported fiscal year 2022 revenue of approximately $614 million. DPT provides critical liquidity and competitive supply to the MISO market, and its continued robust participation benefits both the market and consumers.

An excessive penalty or protracted litigation arising from this investigation would create regulatory uncertainty disproportionate to the alleged conduct and could impair Dunmore's ability to invest in critical energy infrastructure, including the expansion of its renewable generation portfolio. A reasonable and timely settlement resolution serves the interests of all stakeholders, including the Commission, market participants, and the public.

V. Proposed Resolution Framework

In summary, Dunmore respectfully proposes the following terms for inclusion in a Stipulation and Consent Agreement:

(1) Civil Penalty: $4.0 million, payable in two equal installments of $2.0 million each — the first within thirty (30) days of the Effective Date, and the second within one hundred eighty (180) days of the Effective Date;

(2) No Disgorgement: The settlement would not include any disgorgement component;

(3) Enhanced Compliance Plan: A comprehensive thirty-six (36) month Enhanced Compliance Plan, as described in Section III above, to be attached as an appendix to the Stipulation and Consent Agreement;

(4) "Neither Admit Nor Deny" Language: Standard language providing that Dunmore neither admits nor denies the allegations set forth in FERC Staff's Preliminary Findings for purposes of the consent agreement; and

(5) Continuing Cooperation Commitment: Dunmore's agreement to continue cooperating with FERC OE in any related investigations.

Dunmore believes that this proposal represents a fair, reasonable, and appropriate resolution that vindicates the Commission's regulatory interests while giving proper weight to the strength of Dunmore's defenses, the mitigating factors present in this case, and the substantial compliance commitments Dunmore is prepared to make. The proposed resolution achieves the Commission's core enforcement objectives — deterrence, remediation, and market integrity — through the combination of a meaningful civil penalty and a rigorous, long-term compliance program, without requiring protracted and costly formal proceedings.

This resolution avoids the substantial cost, delay, and uncertainty associated with formal proceedings before an Administrative Law Judge, which would burden both parties and divert Commission resources from other enforcement priorities. A consensual resolution at this stage benefits the Commission, Dunmore, and the public interest.

VI. Proposed Next Steps

Dunmore respectfully requests that FERC Staff review this proposal and provide a written response or counter-proposal at Staff's earliest convenience. Dunmore understands that FERC Staff will need time to evaluate the terms set forth herein and to consult internally, and Dunmore is prepared to afford Staff reasonable time to do so.

Dunmore remains fully willing to participate in further settlement conferences and to engage in good-faith negotiations to reach a mutually acceptable resolution. Should Staff wish to discuss any element of this proposal — whether the monetary terms, the Enhanced Compliance Plan, or any other aspect of the proposed settlement — Dunmore and its counsel are available to meet in person or by videoconference at Staff's convenience. We would welcome the opportunity to address any questions or concerns that Staff may have and to work collaboratively toward a resolution that serves the interests of all parties.

To facilitate continued progress, Dunmore suggests that the parties schedule a second settlement conference during the first two weeks of January 2024, following Staff's review of this submission. We are, of course, flexible as to timing and format, and would be pleased to accommodate Staff's scheduling preferences.

VII. Conclusion and Confidentiality Notice

This letter and the settlement proposal set forth herein are submitted in the context of confidential settlement negotiations and are non-public and privileged pursuant to 18 C.F.R. Part 1b. Dunmore respectfully requests that FERC Staff treat this submission and its contents as confidential and not disclose them outside the context of the investigation and settlement negotiations in Docket No. IN23-7-000.

Nothing in this letter, including the settlement terms proposed herein, constitutes an admission of liability, wrongdoing, or violation of any law, regulation, or Commission order by Dunmore, DEH, DPT, or any of their officers, directors, employees, or affiliates. This letter is submitted solely for the purpose of facilitating settlement discussions and may not be used as evidence or for any other purpose in any proceeding, whether before the Commission, any court, or any other forum.

Dunmore remains committed to achieving a constructive and expeditious resolution of this matter. We appreciate FERC Staff's professionalism and good faith throughout this process, and we look forward to continuing our productive dialogue.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Catherine Bloom, Partner 1001 Fannin Street, Suite 4200 Houston, Texas 77002 Telephone: (713) 555-8400

Email: c.bloom@calderwoodharkness.com

Counsel for Dunmore Energy Holdings Ltd. and Dunmore Power Trading LLC

cc: (via electronic mail)

Margaret Hollowell, Director, Division of Investigations, FERC Office of Enforcement Thomas Adebayo, Lead Investigator, FERC Office of Enforcement Dr. Samuel Breck, Senior Economist, Division of Analytics and Surveillance Martin Llewellyn, General Counsel, Dunmore Energy Holdings Ltd. Alan Ngo, Calderwood & Harkness LLP Hannah Brinkley, Calderwood & Harkness LLP

CALDERWOOD & HARKNESS LLP Attorneys at Law 1001 Fannin Street, Suite 4200 Houston, Texas 77002 Telephone: (713) 555-8400 Facsimile: (713) 555-8401
December 8, 2023
VIA ELECTRONIC MAIL AND HAND DELIVERY
Christine Pham, Senior Attorney Division of Investigations Office of Enforcement Federal Energy Regulatory Commission 888 First Street NE Washington, D.C. 20426
Re: Docket No. IN23-7-000 — Settlement Proposal on Behalf of Dunmore Energy Holdings Ltd. and Dunmore Power Trading LLC
Dear Ms. Pham:
I write on behalf of our clients, Dunmore Energy Holdings Ltd. ("DEH") and Dunmore Power Trading LLC ("DPT") (collectively, "Dunmore" or "Respondents"), to memorialize Dunmore's comprehensive settlement proposal in response to the Preliminary Findings letter issued by FERC Staff on October 2, 2023. This proposal follows, and builds upon, the productive discussions held during the first settlement conference on December 4, 2023, at which FERC Staff was represented by yourself, Margaret Hollowell (Director, Division of Investigations), Thomas Adebayo (Lead Investigator), and Dr. Samuel Breck (Senior Economist, Division of Analytics and Surveillance), and at which Dunmore was represented by counsel from this firm.
As the parties agreed during the December 4 conference, this letter sets forth in writing the substance of Dunmore's proposed resolution, including the proposed civil penalty, Dunmore's position regarding disgorgement, and a detailed Enhanced Compliance Plan. Dunmore submits this proposal in a spirit of good faith and with the objective of achieving a fair, reasonable, and expeditious resolution of this matter that appropriately vindicates the Commission's regulatory interests while acknowledging the strength of Dunmore's defenses and the substantial mitigating factors present in this case.
We acknowledge that this investigation and all communications relating thereto, including this letter and the settlement proposal contained herein, are non-public and confidential in accordance with 18 C.F.R. Part 1b. Dunmore respectfully requests that FERC Staff treat this submission accordingly and ensure that the contents of this letter are not disclosed outside the investigative and enforcement context of Docket No. IN23-7-000.
For reference, this proposal should be considered in conjunction with Calderwood & Harkness's comprehensive Response to Preliminary Findings, submitted on November 6, 2023, and the independent expert report of Dr. Leonard Whitfield of Whitfield Economic Advisors LLC, submitted on November 20, 2023 (the "Whitfield Report"). Both of those submissions address in detail the factual, economic, and legal deficiencies in FERC Staff's Preliminary Findings and provide important context for the settlement terms proposed herein.
I. Background and Procedural Posture
On May 22, 2023, the Office of Enforcement ("OE") of the Federal Energy Regulatory Commission ("FERC" or the "Commission") issued a preliminary inquiry letter to Dunmore Energy Holdings Ltd. and Dunmore Power Trading LLC, advising Dunmore that OE staff had identified certain trading patterns in the Midcontinent Independent System Operator ("MISO") energy markets that warranted further examination. Following the preliminary inquiry, the Commission issued a formal non-public order of investigation on June 12, 2023, establishing Docket No. IN23-7-000 and authorizing OE to conduct a formal investigation pursuant to Part 1b of the Commission's regulations.
The investigation concerns Dunmore's trading activity in the MISO Day-Ahead and Real-Time energy markets during the period from January 3, 2022, through March 17, 2023 (the "Relevant Period"). FERC Staff's Preliminary Findings letter, dated October 2, 2023, identified three categories of alleged manipulative conduct:
(1) Uneconomic Day-Ahead Bidding at Indiana Hub. FERC Staff alleges that DPT's MISO Day-Ahead desk submitted generation offers at prices ranging from negative $15 per MWh to negative $40 per MWh at Indiana Hub that were uneconomic and intended to increase congestion on certain MISO transmission paths, rather than reflecting legitimate supply economics.
(2) Cross-Product Manipulation via Virtual Positions at Minnesota Hub. FERC Staff alleges that DPT entered into virtual transactions — specifically, Increment Offers ("INCs") and Decrement Bids ("DECs") — at Minnesota Hub that were designed to amplify congestion differentials between Indiana Hub and Minnesota Hub, thereby benefiting DPT's Financial Transmission Rights ("FTR") positions.
(3) Physical-Financial Coordination Through Gas Nominations. FERC Staff alleges that Dunmore coordinated the gas nomination practices of its affiliate, Dunmore Midstream Partners LP, with DPT's trading strategies to influence fuel costs and generation dispatch at Indiana Hub in a manner that supported the alleged manipulative scheme.
In the Preliminary Findings letter, FERC Staff sought a total monetary resolution of $30.8 million, comprised of an $18 million civil penalty and $12.8 million in disgorgement of alleged unjust profits. The proposed civil penalty of $18 million was calculated by Staff on the basis of a $9 million base penalty, which Staff then doubled pursuant to the FERC Penalty Guidelines to account for the alleged duration and scope of the conduct. Staff characterized the alleged volumes as approximately 2,840 GWh of uneconomic Day-Ahead generation offers, FTR positions with a notional value of approximately $47.3 million, and approximately 1,620 GWh of virtual transactions at Minnesota Hub.
Dunmore submitted a comprehensive Response to Preliminary Findings on November 6, 2023. That submission challenged FERC Staff's factual assumptions, economic analysis, and legal theories on multiple grounds, including (a) the absence of evidence of manipulative intent, (b) the legitimate business justifications for DPT's bidding strategies, (c) the flawed methodology underlying Staff's calculation of alleged unjust profits, and (d) the attenuated causal nexus between DPT's trading activity and the congestion patterns identified by Staff. On November 20, 2023, Dunmore submitted the expert report of Dr. Leonard Whitfield, a well-recognized energy economist and the founder of Whitfield Economic Advisors LLC, which provided a rigorous, independent economic analysis of the market impact of DPT's trading activity during the Relevant Period. Dr. Whitfield's analysis concluded, among other things, that the actual market impact of DPT's trading was no more than $2.1 million — a fraction of the $12.8 million figure advanced by FERC Staff.
On December 4, 2023, counsel for Dunmore and FERC Staff met for the first settlement conference. The conference was constructive, and the parties agreed to exchange written proposals as a foundation for continued negotiations. This letter constitutes Dunmore's written proposal, as agreed upon during that conference.
II. Dunmore's Settlement Proposal
After careful consideration of the Preliminary Findings, the factual and economic record, the applicable law, and the discussions held during the December 4 settlement conference, Dunmore respectfully submits the following comprehensive settlement proposal.
A. Proposed Civil Penalty
Dunmore proposes a civil penalty of $4.0 million, payable in two equal installments, as follows:
• First Installment: $2,000,000, due and payable within thirty (30) calendar days of the date of the Commission's order approving the Stipulation and Consent Agreement (the "Effective Date").
• Second Installment: $2,000,000, due and payable within one hundred eighty (180) calendar days of the Effective Date.
The proposed penalty amount of $4.0 million reflects a resolution that appropriately accounts for the following considerations:
(i) Strength of Dunmore's Defenses. As set forth in detail in Dunmore's November 6 Response to Preliminary Findings and Dr. Whitfield's expert report, Dunmore has substantial and meritorious defenses to FERC Staff's allegations. These include, among others, the legitimate business justifications for DPT's bidding strategies, the absence of direct evidence of manipulative intent, and the significant weaknesses in Staff's economic causation analysis. A civil penalty of $4.0 million appropriately accounts for the litigation risk that FERC Staff would face in any formal proceeding.
(ii) Significantly Reduced Market Impact. Dr. Whitfield's independent analysis demonstrates that the actual market impact of DPT's trading activity was substantially lower than FERC Staff has estimated. Dr. Whitfield's conclusion that the total market impact was no more than $2.1 million — compared to Staff's figure of $12.8 million — underscores that Staff's base penalty calculation of $9 million, and the resulting doubled penalty of $18 million, are not supported by the evidentiary record.
(iii) Extraordinary Cooperation. As discussed in Section IV.A below, Dunmore has cooperated with FERC OE's investigation to an extraordinary degree, producing 187,000 documents from 11 custodians, making six employees available for testimony, and responding substantively to two comprehensive sets of data requests. This level of cooperation far exceeds the obligations of a respondent in a non-public investigation and warrants significant downward adjustment of any penalty under the FERC Penalty Guidelines.
(iv) Robust Remedial Measures. Dunmore has taken proactive and substantial remedial steps, including the appointment of a Chief Compliance Officer prior to the commencement of the investigation and the retention of an independent compliance consultant to design and implement an enhanced compliance program. These measures demonstrate Dunmore's good faith commitment to compliance and significantly reduce any forward-looking regulatory risk.
The proposed civil penalty of $4.0 million falls within the range of outcomes supported by comparable FERC enforcement consent agreements involving similar alleged conduct. Dunmore has reviewed recent precedent involving allegations of uneconomic bidding and cross-product manipulation in organized wholesale electricity markets, and believes that this proposal is reasonable and consistent with the Commission's enforcement objectives.
B. No Disgorgement
Dunmore's settlement proposal does not include any disgorgement component. Dunmore respectfully submits that disgorgement is not warranted in this case for several independent reasons.
First, FERC Staff's estimated unjust profits of $12.8 million are speculative and cannot be quantified with the degree of certainty necessary to support a disgorgement award. As the Commission has recognized, disgorgement must be based on a reasonable approximation of the gains causally attributable to the alleged misconduct. Here, Staff's calculation rests on assumptions regarding the causal relationship between DPT's trading activity and market-wide congestion patterns that are contradicted by the record evidence and the independent analysis of Dr. Whitfield.
Second, Dr. Whitfield's expert report demonstrates that the actual market impact of DPT's trading activity was no more than $2.1 million — a figure that already represents an upper-bound estimate using conservative assumptions. Dr. Whitfield's analysis further shows that the congestion patterns observed at Indiana Hub during the Relevant Period were primarily attributable to a series of transmission outage events on the MISO system, not to DPT's Day-Ahead bidding behavior. Specifically, Dr. Whitfield identified seven significant transmission outage events during the Relevant Period that coincided with the periods of highest congestion at Indiana Hub, and demonstrated through regression analysis that these outage events, rather than DPT's offers, were the primary drivers of the observed congestion differentials.
Third, the FTR positions identified by FERC Staff were acquired by DPT months before the commencement of the Relevant Period on January 3, 2022. These FTR positions were acquired as routine portfolio hedging instruments in the normal course of DPT's business, consistent with standard industry practices for managing congestion risk associated with generation and load positions. The profits realized on these FTR positions reflect the legitimate economic value of hedging instruments, not unjust enrichment resulting from manipulative conduct.
Fourth, the virtual transactions at Minnesota Hub — the INCs and DECs identified by Staff — had a de minimis independent market impact when properly isolated from the effects of transmission outages and other exogenous factors. Dr. Whitfield's analysis demonstrates that these virtual positions did not materially amplify congestion differentials between Indiana Hub and Minnesota Hub.
Fifth, as a matter of law and Commission precedent, disgorgement should not be imposed where the causal nexus between the alleged conduct and the claimed profits is attenuated and genuinely disputed, as it is here. Imposing disgorgement in the absence of a reliable causal connection would be inconsistent with the remedial purpose of disgorgement and would effectively transform it into a punitive measure.
C. "Neither Admit Nor Deny" Resolution
Dunmore proposes that any Stipulation and Consent Agreement include standard "neither admit nor deny" language. Specifically, Dunmore would neither admit nor deny the allegations and findings set forth in FERC Staff's Preliminary Findings letter or in the Commission's order approving the consent agreement, for purposes of the consent agreement and any proceeding arising therefrom. This approach is consistent with the vast majority of FERC enforcement consent agreements and is the Commission's established practice for resolving non-public investigations at the settlement stage. The "neither admit nor deny" framework achieves important regulatory objectives — including ensuring compliance and deterrence through the imposition of monetary sanctions and compliance obligations — while avoiding the collateral consequences and litigation risk that would accompany admissions of liability. Dunmore submits that this approach serves both parties' interests and provides regulatory certainty.
D. Continuing Cooperation Commitment
As a further element of the proposed settlement, Dunmore will agree to continue cooperating with FERC OE in any related or collateral investigations arising from or connected to the subject matter of Docket No. IN23-7-000. This commitment reflects Dunmore's ongoing good faith engagement with the Commission and its recognition of the importance of cooperative relationships between market participants and regulatory authorities. Dunmore's continuing cooperation obligations would include, as reasonably requested by FERC Staff, making personnel available for interviews, providing documents and information, and facilitating access to relevant data and records.
III. Proposed Enhanced Compliance Plan (36-Month Term)
As a central element of the proposed settlement, Dunmore proposes a comprehensive Enhanced Compliance Plan (the "ECP") with a thirty-six (36) month term. The ECP is designed to ensure Dunmore's ongoing compliance with Section 222 of the Federal Power Act, 16 U.S.C. § 824v, and the Commission's Anti-Manipulation Rule, 18 C.F.R. § 1c.2, and to demonstrate Dunmore's commitment to maintaining the highest standards of integrity in its wholesale electricity trading operations. Dunmore proposes that the ECP be attached as an appendix to the Stipulation and Consent Agreement and made binding on Dunmore for the full thirty-six month compliance monitoring period.
The ECP encompasses the following components:
A. Chief Compliance Officer
Jennifer Caulfield was appointed as Dunmore's Chief Compliance Officer ("CCO") on February 6, 2023 — more than three months before FERC OE issued its preliminary inquiry letter on May 22, 2023. Ms. Caulfield will serve as the designated CCO under the ECP for the duration of the thirty-six month compliance monitoring period. In this role, Ms. Caulfield will have primary responsibility for overseeing and administering the ECP, ensuring that all trading personnel comply with applicable laws, regulations, and internal policies, and serving as the principal point of contact for FERC OE on compliance matters.
To ensure independence from trading operations, the CCO will report directly to the Board of Directors of DEH, rather than to any officer or manager with responsibility for DPT's trading operations. The CCO will have full authority over all compliance matters related to DPT's wholesale electricity trading activities, including the authority to halt trading activity, impose disciplinary measures, and require modifications to trading strategies or policies. In the event that Ms. Caulfield is unable or unwilling to continue serving as CCO during the compliance monitoring period, Dunmore will promptly designate a replacement with comparable qualifications, subject to notice to FERC OE.
B. Annual Compliance Training
All DPT trading personnel will be required to complete a minimum of sixteen (16) hours of compliance training per calendar year during the thirty-six month compliance monitoring period. This training requirement applies to all individuals engaged in wholesale electricity trading on behalf of DPT, including the fourteen (14) traders currently assigned to the MISO Day-Ahead and Real-Time trading desks, as well as additional SPP desk traders and supervisory personnel, including Senior Vice President Derek Sung.
The compliance training curriculum will cover, at a minimum, the following topics:
• Market manipulation prohibitions under Section 222 of the Federal Power Act and the Commission's Anti-Manipulation Rule (18 C.F.R. § 1c.2);
• Applicable FERC regulations governing wholesale electricity markets, including reporting and record-keeping requirements;
• MISO market rules, including rules governing Day-Ahead and Real-Time offers, virtual transactions, and Financial Transmission Rights;
• SPP market rules applicable to DPT's trading activities;
• Dunmore's internal trading policies and procedures, including the policies and procedures adopted or updated as part of the ECP;
• Case studies drawn from FERC enforcement actions, including consent agreements and orders to show cause, to illustrate prohibited conduct and compliance best practices;
• Identification and reporting of potential compliance violations, including internal escalation procedures and whistleblower protections.
The compliance training program will be developed and delivered by Ridgeway Compliance Solutions LLC, the independent compliance consultant retained by Dunmore, as described in Section III.C below. Training sessions will include both live instruction and written materials, and all participants will be required to certify their completion of the training in writing.
C. Independent Compliance Monitor
Dunmore has retained Ridgeway Compliance Solutions LLC ("Ridgeway") as an independent compliance consultant and monitor. The engagement became effective on October 15, 2023, and was initiated proactively by Dunmore before any settlement terms were discussed with FERC Staff. Ridgeway is led by Dr. Carolyn Whitford, Founder and Managing Director, who is a former attorney in FERC's Office of Enforcement with deep expertise in energy market regulation and compliance. Dr. Whitford's background and qualifications are well-suited to this engagement, and Dunmore believes that her involvement provides substantial assurance of the independence, rigor, and effectiveness of the compliance monitoring program.
Under the ECP, Ridgeway will conduct quarterly compliance audits of DPT's trading operations throughout the thirty-six month compliance monitoring period. Each quarterly audit will encompass a comprehensive review of the following areas:
• Day-Ahead and Real-Time generation offer practices, including review of offer prices, volumes, and economic justifications;
• Virtual trading activity, including Increment Offers and Decrement Bids, with particular attention to cross-product position correlations;
• Financial Transmission Rights positions, including acquisition, management, and disposition of FTR portfolios;
• Coordination between DPT's trading operations and the gas scheduling activities of Dunmore Midstream Partners LP, to ensure that such coordination is conducted in compliance with applicable laws and regulations;
• Compliance with internal trading policies and procedures, including adherence to approval protocols, position limits, and risk management controls;
• Identification of any potential compliance issues or patterns of concern.
Ridgeway will prepare a written report following each quarterly audit, summarizing its findings, identifying any compliance issues or areas of concern, and recommending remedial actions as appropriate. Copies of each quarterly audit report will be provided to the CCO, the DEH Board of Directors, and FERC OE as part of the quarterly reporting described in Section III.E below.
D. Automated Trade Surveillance Systems
As part of the ECP, Dunmore will implement automated trade surveillance systems capable of detecting potential market manipulation patterns in DPT's trading activity. These systems will be designed to identify, on a real-time or near-real-time basis, the following types of potentially anomalous activity:
• Anomalous bidding behavior, including Day-Ahead offers that deviate significantly from estimated marginal costs or established economic benchmarks;
• Unusual cross-product position correlations, including correlations between physical generation offers, virtual transactions, and FTR positions that may indicate coordination inconsistent with independent economic decision-making;
• Deviations from economic bidding thresholds established by internal trading policies;
• Patterns of trading activity that are inconsistent with stated trading strategies or that warrant further review by the CCO or Ridgeway.
Implementation of the automated trade surveillance systems will be completed within the first twelve (12) months of the compliance monitoring period. Dunmore will provide FERC OE with a description of the systems implemented, including their capabilities, the parameters and thresholds used to generate alerts, and the procedures for investigating and resolving alerts, as part of the first annual compliance report.
E. Quarterly Reporting to FERC OE
Dunmore will submit quarterly compliance reports to FERC OE for the full thirty-six month duration of the compliance monitoring period. The compliance monitoring period will commence on the Effective Date. Each quarterly report will include the following information:
• A summary of the results of the most recent quarterly compliance audit conducted by Ridgeway;
• A description of any compliance issues or potential violations identified during the quarter, whether through the quarterly audit process, the automated trade surveillance systems, or other means;
• A description of all remedial actions taken or planned in response to identified compliance issues;
• A summary of compliance training activities conducted during the quarter, including attendance records and certifications of completion;
• Any other information that the CCO or Ridgeway deems relevant to FERC OE's assessment of Dunmore's compliance posture.
Quarterly reports will be submitted within thirty (30) days following the close of each calendar quarter.
F. Annual CEO and CCO Certification
On an annual basis during the compliance monitoring period, Chief Executive Officer Gavin Harcourt and Chief Compliance Officer Jennifer Caulfield will execute written compliance certifications. Each annual certification will attest that, to the best of the signatory's knowledge and belief, after reasonable inquiry:
(a) Dunmore has complied with all terms and conditions of the Enhanced Compliance Plan during the preceding twelve-month period;
(b) Dunmore has complied with all terms and conditions of the Stipulation and Consent Agreement during the preceding twelve-month period;
(c) All compliance reports and other submissions to FERC OE have been accurate and complete in all material respects; and
(d) All identified compliance issues have been addressed through appropriate remedial actions.
Annual certifications will be submitted to FERC OE within sixty (60) days following the end of each twelve-month period of the compliance monitoring period.
G. Trading Desk Oversight and Policy Enhancements
In addition to the specific compliance measures described above, Dunmore will implement enhanced policies and procedures for trading desk oversight. These enhancements will include, but not be limited to:
• FTR Position Monitoring. Enhanced procedures for the monitoring and review of FTR positions held by DPT, including regular assessment of the economic rationale for FTR acquisitions and the relationship between FTR positions and DPT's physical generation and load portfolios.
• Cross-Product Transaction Review. New protocols requiring periodic review of cross-product transaction patterns, including correlations between physical offers, virtual positions, and FTR portfolios, by the CCO and Ridgeway.
• Bidding Strategy Approval Protocols. Updated approval protocols requiring that material changes to bidding strategies — including changes to the frequency, price, or volume of Day-Ahead generation offers — be reviewed and approved by the CCO before implementation.
• Coordination Controls. Updated internal controls governing coordination between DPT's trading operations and the gas scheduling activities of Dunmore Midstream Partners LP. These controls will include information barriers, documentation requirements, and supervisory review procedures designed to ensure that any coordination between the two entities is conducted in compliance with applicable law and regulation.
The enhanced policies and procedures will be developed in consultation with Ridgeway and will be implemented within the first six (6) months of the compliance monitoring period. Copies of all new or updated policies and procedures will be provided to FERC OE upon adoption.
IV. Mitigating Factors Supporting the Proposed Resolution
The proposed settlement terms are supported by a number of significant mitigating factors, each of which the Commission has recognized as relevant under its Penalty Guidelines and enforcement precedent. Dunmore respectfully submits that these factors, considered individually and cumulatively, warrant a resolution substantially below the monetary sanctions proposed by FERC Staff in its Preliminary Findings letter.
A. Full and Extraordinary Cooperation
Dunmore has cooperated fully, voluntarily, and in an extraordinary manner with FERC OE's investigation from its inception. The scope and nature of Dunmore's cooperation far exceed the obligations of a respondent in a non-public investigation and warrant significant credit under the FERC Penalty Guidelines.
Document Production. Dunmore produced approximately 187,000 documents, comprising approximately 1.24 million pages, from eleven (11) custodians identified in consultation with FERC Staff. The documents were produced in three rolling productions, as follows:
• July 24, 2023: 48,200 documents (first production);
• August 21, 2023: 63,400 documents (second production);
• October 30, 2023: 75,400 documents (third production).
The produced documents cover the date range of January 1, 2021, through May 22, 2023, extending well beyond the January 3, 2022 – March 17, 2023 Relevant Period identified by FERC Staff. The document productions were conducted on an expedited basis and included electronic communications, trading records, internal memoranda, compliance files, and corporate governance materials, among other categories of documents.
Testimony. Dunmore made six (6) employees available for investigative testimony under 18 C.F.R. § 1b.12. Notably, Dunmore made available the three individuals most central to the investigation:
• Kyle Renfro, Senior Trader, MISO Day-Ahead desk (testimony on September 5, 2023);
• Anastasia Petrov, Trader, MISO virtual trading desk (testimony on September 12, 2023);
• Derek Sung, Senior Vice President, Power Marketing & Trading (testimony on September 19, 2023).
Each of these individuals cooperated fully during their testimony and responded candidly to FERC Staff's questions.
Data Requests. Dunmore responded substantively and on a timely basis to two comprehensive sets of data requests issued by FERC Staff. The first set of data requests included forty-one (41) interrogatories and twenty-three (23) document requests. The second set included eighteen (18) supplemental interrogatories. Dunmore's responses were detailed, thorough, and accompanied by supporting documentation and data.
This level of cooperation — encompassing extensive document productions, voluntary testimony of key personnel, and substantive responses to comprehensive data requests — exceeds what is required of respondents in non-public investigations and demonstrates Dunmore's good faith commitment to resolving this matter. Under the FERC Penalty Guidelines, substantial and extraordinary cooperation warrants significant downward adjustment of any penalty.
B. Proactive Remedial Measures
Dunmore's remedial actions further support the proposed resolution. Two measures are particularly significant:
First, Dunmore appointed Jennifer Caulfield as Chief Compliance Officer on February 6, 2023 — more than three months before FERC OE issued its preliminary inquiry letter on May 22, 2023. The appointment of Ms. Caulfield was not made in response to the investigation or in anticipation of regulatory scrutiny; rather, it reflects Dunmore's independent recognition of the need to strengthen its compliance infrastructure and its good faith commitment to robust compliance with applicable laws and regulations. The timing of this appointment distinguishes Dunmore from respondents who take remedial action only after the initiation of an investigation.
Second, Dunmore proactively retained Ridgeway Compliance Solutions LLC on October 15, 2023, to design and implement an enhanced compliance program, well before any settlement terms were discussed with FERC Staff. This retention was voluntary, undertaken at Dunmore's own initiative and expense, and reflects Dunmore's forward-looking commitment to compliance excellence. The work performed by Ridgeway to date has already resulted in meaningful improvements to Dunmore's compliance policies and procedures, and will continue to do so throughout the proposed thirty-six month compliance monitoring period.
C. Pre-Existing Compliance Program
While Dunmore acknowledges that its pre-existing compliance program may have been inadequate in certain respects — particularly with respect to the monitoring of cross-product position correlations and the oversight of coordination between DPT's trading operations and Dunmore Midstream Partners LP's gas scheduling activities — Dunmore did maintain compliance policies and procedures during the Relevant Period. These included, among other things, written trading policies, a code of business conduct, and periodic compliance reviews. The existence of a pre-existing compliance program, even if imperfect, distinguishes Dunmore from respondents that had no compliance infrastructure in place at the time of the alleged conduct and is a recognized mitigating factor under the Commission's Penalty Guidelines.
D. Market Impact Significantly Overstated by FERC Staff
A critical factor supporting the proposed resolution is the significant disparity between FERC Staff's estimate of the market impact of DPT's trading activity and the independently verified findings of Dr. Leonard Whitfield. As set forth in the Whitfield Report submitted on November 20, 2023:
• Dr. Whitfield's independent economic analysis demonstrates that the actual market impact of DPT's trading activity during the Relevant Period was no more than $2.1 million — a fraction of the $12.8 million claimed by FERC Staff.
• The congestion patterns at Indiana Hub during the Relevant Period were primarily attributable to transmission outage events on the MISO system, not to DPT's bidding behavior. Dr. Whitfield identified seven significant outage events that coincided with periods of elevated congestion and demonstrated, through multivariate regression analysis, that these events — rather than DPT's Day-Ahead offers — were the primary causal drivers.
• DPT's negative Day-Ahead offers (ranging from -$15/MWh to -$40/MWh) were consistent with a legitimate portfolio optimization strategy. These offers reflected the opportunity costs associated with DPT's gas-fired generation units, including contractual minimum generation commitments, gas transportation and delivery obligations, and the economic implications of decommitting and recommitting generation resources on a daily basis. Negative offers in this context are a recognized and economically rational practice in organized wholesale electricity markets.
• The FTR positions identified by FERC Staff were acquired months before the start of the Relevant Period on January 3, 2022, as routine portfolio hedging instruments. The profits realized on these FTR positions reflect the legitimate economic value of congestion hedges, not unjust enrichment attributable to manipulative conduct.
The substantial reduction in estimated market impact demonstrated by Dr. Whitfield's analysis confirms that FERC Staff's proposed sanctions of $30.8 million are disproportionate to the actual economic impact of DPT's trading activity and supports a resolution in the range proposed by Dunmore.
E. Financial and Organizational Profile
Finally, Dunmore's financial and organizational profile is relevant context for the proposed resolution. Dunmore Energy Holdings Ltd. is a significant energy company with substantial operations in the United States. For fiscal year 2022, DEH reported consolidated revenue of approximately $3.82 billion and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $891 million. DEH's U.S. generation portfolio consists of approximately 4,280 MW of net generation capacity, including approximately 2,650 MW of natural gas-fired generation, approximately 1,130 MW of wind generation, and approximately 500 MW of solar generation. Dunmore is actively investing in the growth of its renewable energy portfolio and is an important participant in the nation's ongoing energy transition.
DPT holds market-based rate authority under Docket No. ER05-1128-000 and is an active and important participant in the MISO wholesale electricity market. In 2022, DPT's MISO trading volume was approximately 18.4 million MWh, and DPT reported fiscal year 2022 revenue of approximately $614 million. DPT provides critical liquidity and competitive supply to the MISO market, and its continued robust participation benefits both the market and consumers.
An excessive penalty or protracted litigation arising from this investigation would create regulatory uncertainty disproportionate to the alleged conduct and could impair Dunmore's ability to invest in critical energy infrastructure, including the expansion of its renewable generation portfolio. A reasonable and timely settlement resolution serves the interests of all stakeholders, including the Commission, market participants, and the public.
V. Proposed Resolution Framework
In summary, Dunmore respectfully proposes the following terms for inclusion in a Stipulation and Consent Agreement:
(1) Civil Penalty: $4.0 million, payable in two equal installments of $2.0 million each — the first within thirty (30) days of the Effective Date, and the second within one hundred eighty (180) days of the Effective Date;
(2) No Disgorgement: The settlement would not include any disgorgement component;
(3) Enhanced Compliance Plan: A comprehensive thirty-six (36) month Enhanced Compliance Plan, as described in Section III above, to be attached as an appendix to the Stipulation and Consent Agreement;
(4) "Neither Admit Nor Deny" Language: Standard language providing that Dunmore neither admits nor denies the allegations set forth in FERC Staff's Preliminary Findings for purposes of the consent agreement; and
(5) Continuing Cooperation Commitment: Dunmore's agreement to continue cooperating with FERC OE in any related investigations.
Dunmore believes that this proposal represents a fair, reasonable, and appropriate resolution that vindicates the Commission's regulatory interests while giving proper weight to the strength of Dunmore's defenses, the mitigating factors present in this case, and the substantial compliance commitments Dunmore is prepared to make. The proposed resolution achieves the Commission's core enforcement objectives — deterrence, remediation, and market integrity — through the combination of a meaningful civil penalty and a rigorous, long-term compliance program, without requiring protracted and costly formal proceedings.
This resolution avoids the substantial cost, delay, and uncertainty associated with formal proceedings before an Administrative Law Judge, which would burden both parties and divert Commission resources from other enforcement priorities. A consensual resolution at this stage benefits the Commission, Dunmore, and the public interest.
VI. Proposed Next Steps
Dunmore respectfully requests that FERC Staff review this proposal and provide a written response or counter-proposal at Staff's earliest convenience. Dunmore understands that FERC Staff will need time to evaluate the terms set forth herein and to consult internally, and Dunmore is prepared to afford Staff reasonable time to do so.
Dunmore remains fully willing to participate in further settlement conferences and to engage in good-faith negotiations to reach a mutually acceptable resolution. Should Staff wish to discuss any element of this proposal — whether the monetary terms, the Enhanced Compliance Plan, or any other aspect of the proposed settlement — Dunmore and its counsel are available to meet in person or by videoconference at Staff's convenience. We would welcome the opportunity to address any questions or concerns that Staff may have and to work collaboratively toward a resolution that serves the interests of all parties.
To facilitate continued progress, Dunmore suggests that the parties schedule a second settlement conference during the first two weeks of January 2024, following Staff's review of this submission. We are, of course, flexible as to timing and format, and would be pleased to accommodate Staff's scheduling preferences.
VII. Conclusion and Confidentiality Notice
This letter and the settlement proposal set forth herein are submitted in the context of confidential settlement negotiations and are non-public and privileged pursuant to 18 C.F.R. Part 1b. Dunmore respectfully requests that FERC Staff treat this submission and its contents as confidential and not disclose them outside the context of the investigation and settlement negotiations in Docket No. IN23-7-000.
Nothing in this letter, including the settlement terms proposed herein, constitutes an admission of liability, wrongdoing, or violation of any law, regulation, or Commission order by Dunmore, DEH, DPT, or any of their officers, directors, employees, or affiliates. This letter is submitted solely for the purpose of facilitating settlement discussions and may not be used as evidence or for any other purpose in any proceeding, whether before the Commission, any court, or any other forum.
Dunmore remains committed to achieving a constructive and expeditious resolution of this matter. We appreciate FERC Staff's professionalism and good faith throughout this process, and we look forward to continuing our productive dialogue.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Catherine Bloom, Partner 1001 Fannin Street, Suite 4200 Houston, Texas 77002 Telephone: (713) 555-8400
Email: c.bloom@calderwoodharkness.com
Counsel for Dunmore Energy Holdings Ltd. and Dunmore Power Trading LLC
cc: (via electronic mail)
Margaret Hollowell, Director, Division of Investigations, FERC Office of Enforcement Thomas Adebayo, Lead Investigator, FERC Office of Enforcement Dr. Samuel Breck, Senior Economist, Division of Analytics and Surveillance Martin Llewellyn, General Counsel, Dunmore Energy Holdings Ltd. Alan Ngo, Calderwood & Harkness LLP Hannah Brinkley, Calderwood & Harkness LLP

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CALDERWOOD & HARKNESS LLP

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