PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT — PREPARED IN ANTICIPATION OF LITIGATION
MEMORANDUM
FROM: Hannah Brinkley, Associate, Calderwood & Harkness LLP
TO: Catherine Bloom, Responsible Partner, Calderwood & Harkness LLP
DATE: September 13, 2023
RE: Testimony Preparation Outline — Derek Sung, SVP Power Marketing & Trading, Dunmore Power Trading LLC — FERC OE Docket No. IN23-7-000
C&H Matter No.: 1016-00004
C&H Billing Code: 71420.00001
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I. Purpose and Scope of Memorandum
This memorandum sets forth a comprehensive preparation outline for the forthcoming investigative testimony of Derek Sung, Senior Vice President, Power Marketing & Trading, Dunmore Power Trading LLC ("DPT"), scheduled for September 19, 2023. The testimony is being taken pursuant to 18 C.F.R. § 1b.12 before staff of the Federal Energy Regulatory Commission's Office of Enforcement ("FERC OE" or "FERC Staff"), including Lead Investigator Thomas Adebayo and Senior Attorney Christine Pham. The testimony will take place at FERC headquarters, 888 First Street NE, Washington, D.C. 20426.
Catherine Bloom will attend as counsel of record for Mr. Sung and DPT; I will attend as second chair. This memorandum is designed to serve as a working preparation guide for the testimony preparation sessions scheduled for September 15–17, 2023, and as a reference for counsel during the testimony itself.
This memorandum should be read in conjunction with the following previously circulated materials:
(a) The testimony preparation outline for Kyle Renfro (Senior Trader, MISO Day-Ahead Desk), dated August 28, 2023;
(b) The testimony preparation outline for Anastasia Petrov (Trader, MISO Real-Time Desk), dated September 6, 2023; and
(c) The post-testimony memoranda summarizing the substance of the Renfro and Petrov testimony sessions, circulated internally on September 6, 2023 and September 12, 2023, respectively.
FERC Staff will likely probe for consistency across all three witnesses. Mr. Renfro testified on September 5, 2023, and Ms. Petrov testified on September 12, 2023. We now have the considerable benefit of understanding FERC Staff's lines of questioning from those sessions and can prepare Mr. Sung accordingly. In particular, Lead Investigator Adebayo's questioning pattern in the Renfro and Petrov sessions suggests a systematic effort to build a narrative of coordinated cross-product manipulation, moving from the traders who executed the transactions to their direct supervisor. Mr. Sung's testimony represents the final noticed witness in this round and is, in many respects, the most consequential: it is the session where FERC Staff will attempt to tie together the threads developed through the prior two witnesses and establish the supervisory knowledge and intent necessary to support a manipulation charge against DPT and potentially against Mr. Sung individually.
II. Background on Derek Sung
A. Position and Responsibilities
Mr. Sung's full name is Derek Sung. He currently holds the title of Senior Vice President, Power Marketing & Trading, Dunmore Power Trading LLC. He is 44 years old and is based at DPT's principal office in Houston, Texas, located at 2200 Post Oak Boulevard, Suite 3100, Houston, TX 77056.
Within the Dunmore corporate structure, Mr. Sung reports directly to Elena Mirova, President and Chief Operating Officer of Dunmore Energy Holdings Ltd. ("DEH"), the parent entity of DPT. Ms. Mirova in turn reports to Gavin Harcourt, Chairman and Chief Executive Officer of DEH.
Mr. Sung's operational responsibilities are substantial. He directly supervised the entire MISO trading desk during the Relevant Period, defined as January 3, 2022 through March 17, 2023. This desk consists of fourteen (14) traders, including two individuals already noticed for and who have provided testimony in this investigation:
• Kyle Renfro, Senior Trader, MISO Day-Ahead Desk; and
• Anastasia Petrov, Trader, MISO Real-Time Desk.
In addition to the MISO desk, Mr. Sung is responsible for DPT's trading operations in the Southwest Power Pool ("SPP"). His supervisory authority encompasses the approval of bidding strategies, trading limits, and risk parameters for the MISO desk. His role requires him to maintain awareness of the desk's overall portfolio composition, profit and loss performance, and strategic direction. He participates in weekly trading strategy meetings and receives daily P&L reports for each trader and each sub-portfolio (Day-Ahead physical, Real-Time physical, virtual, and financial transmission rights).
Mr. Sung joined DPT in October 2015 after approximately ten years of progressively senior roles at two other energy trading firms. Prior to joining DPT, he was a Vice President of Power Trading at Oakbridge Energy Trading, Inc. (2010–2015) and a Senior Trader at Whitfield Power Markets LLC (2005–2010). He holds a B.S. in Mechanical Engineering from the University of Texas at Austin and an M.B.A. from Rice University.
B. Significance as a Witness
Mr. Sung is the most senior operational witness in this investigation. FERC Staff has identified him as the person with direct supervisory authority over both Mr. Renfro and Ms. Petrov, the two traders who executed the transactions at the center of the investigation. His testimony will be critical to establishing — or, from our perspective, negating — scienter, i.e., whether Mr. Sung knew of, approved, or directed the bidding strategies that FERC alleges were manipulative in violation of Section 222 of the Federal Power Act and the Commission's Anti-Manipulation Rule, 18 C.F.R. § 1c.2.
From FERC Staff's perspective, Mr. Sung occupies a pivotal position in the evidentiary chain. He bridges the gap between the trading desk (Renfro and Petrov) and senior management (Mirova, Harcourt, and Martin Llewellyn, General Counsel). FERC Staff will probe upward knowledge and authorization — that is, whether the bidding strategies were known to and approved by management above the trading desk level. Mr. Sung is the conduit through which that knowledge would have traveled, and his testimony will either confirm or deny the existence of such a chain of awareness.
Mr. Sung is the third and final witness FERC Staff has noticed for testimony in this round of the investigation. It is possible, though not confirmed, that FERC Staff may seek to notice additional witnesses (including potentially Ms. Mirova, Mr. Llewellyn, or Mr. Harcourt) in a subsequent round depending on the results of the Renfro, Petrov, and Sung testimony sessions. How Mr. Sung performs in his testimony may directly influence FERC Staff's decision on whether additional testimony is necessary or whether they have sufficient evidence to proceed to the next phase of the investigation.
C. Prior Statements and Document Exposure
Mr. Sung is one of the eleven (11) custodians identified in the document production undertaken in response to FERC Staff's data requests. His documents were included in both productions made to date:
• First Production (July 24, 2023): 48,200 documents, including documents from all eleven custodians, covering the initial scope of FERC Staff's first data request.
• Second Production (August 21, 2023): 63,400 documents, responsive to FERC Staff's second data request (served August 7, 2023), which expanded the scope to include trader compensation records, gas nomination schedules, and communications with Dunmore Midstream Partners LP.
FERC Staff will have reviewed — or at least will have had the opportunity to review — Mr. Sung's emails, instant messages (including Vireo Software messages and internal DPT chat logs), trading records, and internal memoranda produced to date. Given the volume of documents and the fourteen-day interval between the second production and Mr. Sung's testimony, it is reasonable to assume that FERC Staff has focused its document review on the most probative communications and that Lead Investigator Adebayo will come to the testimony session with specific documents in hand for use as exhibits.
It is important to note that Mr. Sung has not previously provided any written statement, declaration, affidavit, or other formal account of his perspective in this proceeding. Unlike certain enforcement matters where a witness may have submitted a response to a preliminary findings letter or a Wells-type submission, there is no prior articulation of Mr. Sung's position that FERC Staff could use as a baseline for impeachment. This is an advantage in that Mr. Sung has not locked himself into any specific narrative, but it is also a consideration in that FERC Staff will view this testimony as their first and potentially primary opportunity to establish Mr. Sung's account.
Mr. Sung was copied on various internal strategy memoranda and trading desk communications that are in the production set. Of particular significance are the following categories of documents on which Mr. Sung appears as a recipient, author, or participant:
• Weekly MISO Trading Desk strategy memoranda, distributed by Mr. Renfro to Mr. Sung and other desk personnel;
• FTR auction strategy memoranda, authored by DPT's quantitative analytics group and circulated to Mr. Sung for approval;
• Daily P&L reports showing performance by trader, product, and delivery point;
• Internal chat messages between Mr. Sung and Mr. Renfro discussing Day-Ahead offer pricing at the Indiana Hub;
• Communications between Mr. Sung and DMP operations personnel regarding gas nomination volumes and scheduling; and
• Periodic reports from Mr. Sung to Ms. Mirova summarizing trading desk performance and strategy.
These documents form the backbone of the anticipated questioning areas discussed in Section III below.
III. Anticipated Areas of FERC Staff Questioning
Based on our review of the investigation record, the two prior testimony sessions, and the pattern of FERC Staff's data requests, we anticipate that FERC Staff will focus on the following areas during Mr. Sung's testimony. Each subsection below identifies the anticipated line of questioning, the key documents and facts at issue, and our recommended approach for Mr. Sung's responses.
A. Organizational Structure and Supervisory Role
FERC Staff will begin — as they did with Mr. Renfro and Ms. Petrov — by establishing Mr. Sung's position within the organizational structure and the scope of his supervisory responsibilities. While these questions may appear routine, they serve the critical function of establishing the foundation for attributing knowledge and intent to Mr. Sung.
Anticipated questions will include:
• Mr. Sung's reporting lines: his direct report to Ms. Mirova (President & COO), and Ms. Mirova's report to Mr. Harcourt (Chairman & CEO);
• His direct reports on the MISO desk, including the fourteen traders, with particular focus on Mr. Renfro and Ms. Petrov;
• How trading strategies were formulated, approved, and communicated on the MISO desk — i.e., whether strategies originated with individual traders and were brought to Mr. Sung for approval, or whether Mr. Sung directed strategy from the top down;
• What specific approval authorities and limits Mr. Sung exercised over Day-Ahead offers and virtual transactions, including whether there were dollar thresholds or volume thresholds above which Mr. Sung's express approval was required;
• Whether Mr. Sung personally reviewed or approved Mr. Renfro's negative Day-Ahead offers at the Indiana Hub delivery point, and if so, on how many occasions and in what form (verbal, written, or implied by standing authorization);
• Whether Mr. Sung received regular P&L reports showing the profitability of FTR positions relative to physical generation positions, and whether those reports were disaggregated in a way that would have made the relationship between negative Day-Ahead offers and FTR profits visible to him.
Recommended approach: Mr. Sung should describe his supervisory role accurately and completely. He should not minimize his awareness of trading desk activities, as any attempt to distance himself from knowledge of the desk's operations would be inconsistent with both the documentary record and his senior position. At the same time, he should emphasize that the strategies employed on the MISO desk were developed within a legitimate portfolio optimization framework that was well-understood and approved at multiple levels within the organization. The key thematic point is that Mr. Sung's supervisory role was one of oversight within an established framework — he set parameters and reviewed results, but individual offer pricing decisions on a given day were made by the traders within the bounds of pre-approved strategies and risk limits.
B. Day-Ahead Bidding Strategy at Indiana Hub
This is the core area of the investigation and will likely consume the largest portion of the testimony. FERC Staff's central allegation is that DPT submitted Day-Ahead offers at prices significantly below marginal cost — as low as negative $15/MWh to negative $40/MWh — at the Indiana Hub for Dunmore's gas-fired generation units. FERC Staff contends that these offers were uneconomic, were submitted not for the purpose of obtaining dispatch on the merits but for the purpose of depressing Day-Ahead Locational Marginal Prices ("LMPs") at the Indiana Hub, thereby increasing the value of DPT's FTR positions that settled against congestion differentials involving the Indiana Hub.
Anticipated questions will include:
• What Mr. Sung knew about the negative pricing of Day-Ahead offers at the Indiana Hub, including when he first became aware of this practice;
• The business rationale: why would DPT offer generation at negative prices when this would result in the generating unit receiving less than its marginal cost for the energy produced;
• Whether Mr. Sung approved or directed the negative offer pricing, and if so, what analysis or justification supported that decision;
• Whether Mr. Sung understood that the negative offers would likely depress LMPs at the Indiana Hub;
• The volume and frequency of negative offers during the Relevant Period.
Key facts Mr. Sung should be prepared to address:
Over the Relevant Period, FERC Staff has identified approximately 2,840 GWh of allegedly uneconomic Day-Ahead offers submitted by DPT at the Indiana Hub. Mr. Sung should be able to contextualize this volume against DPT's total 2022 MISO trading volume of approximately 18.4 million MWh, demonstrating that the allegedly problematic transactions represented approximately 15.4% of DPT's total MISO volume during this period. While this is not an insignificant percentage, it is important context for the assertion that these were routine portfolio management transactions rather than the dominant focus of DPT's MISO operations.
Mr. Sung should also demonstrate familiarity with DPT's U.S. net generation capacity: 4,280 MW total, comprising 2,650 MW of natural gas-fired generation, 1,130 MW of wind generation, and 500 MW of solar generation. The negative offers at issue were submitted for gas-fired units that had specific operational and contractual characteristics making negative offers economically rational.
Portfolio optimization defense — key points for Sung's testimony:
(a) Take-or-pay contractual obligations: Several of Dunmore's gas-fired generation plants had take-or-pay natural gas supply agreements requiring minimum consumption levels. When a plant has already committed to purchasing a minimum volume of gas, the effective marginal cost of generation is not the full delivered cost of gas but rather the incremental cost above what the plant is already obligated to consume. In periods of low demand, offering at negative prices ensured dispatch and avoided the even greater economic loss of paying for gas that would not be consumed.
(b) Minimum generation constraints: Certain gas-fired units had minimum stable generation levels and startup/shutdown cost profiles that made it uneconomic to cycle units off and on for short periods. Offering at negative prices during overnight or low-demand hours avoided costly shutdown and restart cycles.
(c) Portfolio-level optimization: The negative offers reflected an assessment of the total portfolio value across physical generation, bilateral contracts, and financial positions. When evaluated on a portfolio basis rather than a unit-by-unit basis, the offers were economically rational and consistent with profit-maximizing behavior.
(d) Industry practice: Negative offers in Day-Ahead markets are not unusual and are a feature of organized wholesale electricity markets. MISO's own market rules permit negative offers, and many generators — particularly those with renewable assets receiving production tax credits or thermal assets with minimum generation constraints — routinely submit negative offers.
Recommended approach: Mr. Sung should emphasize that the offers were economically rational in the context of the full portfolio. He should avoid characterizing any individual offer in isolation as "below cost" without reference to the broader portfolio economics. If FERC Staff attempts to isolate a single day or a single transaction and ask whether it was economic "on its own," Mr. Sung should explain that assessing the economics of a single offer in isolation is misleading and inconsistent with how portfolio optimization actually works. At the same time, he should not be dismissive of the question — he should engage substantively and explain the economics clearly and calmly.
C. Financial Transmission Rights (FTR) Portfolio
FERC Staff alleges that DPT held FTR positions with a notional value of approximately $47.3 million that benefited from congestion patterns allegedly created or exacerbated by the uneconomic Day-Ahead bids at the Indiana Hub. This is the "benefit" leg of FERC Staff's manipulation theory: the allegedly uneconomic offers served no independent economic purpose but instead were designed to create congestion patterns that increased the value of DPT's FTR portfolio.
Anticipated questions will include:
• What Mr. Sung knew about DPT's FTR positions, including the specific paths, volumes, and acquisition dates of the FTRs at issue;
• Whether Mr. Sung approved the FTR acquisitions, and if so, what analysis supported the decision to acquire FTRs on paths that included the Indiana Hub;
• Whether Mr. Sung understood the relationship between Day-Ahead offer prices at the Indiana Hub and the valuation of FTRs that settled against congestion differentials involving the Indiana Hub;
• Whether there was any communication or coordination between the team responsible for FTR acquisitions and the Day-Ahead trading desk regarding the relationship between physical offers and FTR values;
• The total profit or loss on DPT's FTR portfolio during the Relevant Period, and whether FTR profits exceeded losses on physical generation.
Key defense point: DPT's FTR positions were acquired months before the commencement of the Relevant Period as part of a routine hedging strategy. The FTRs were bid in MISO's annual and monthly FTR auctions based on portfolio hedging needs — specifically, to hedge against congestion risk on paths where DPT had physical generation or load-serving obligations. The acquisition of FTRs was a standard risk management practice, not a speculative bet contingent on manipulative bidding in the Day-Ahead market.
Mr. Sung should be prepared to explain DPT's FTR acquisition process in detail:
• FTRs were bid in MISO's Annual FTR Auction (held in the spring for the following planning year) and in MISO's Monthly FTR Auctions;
• FTR bidding decisions were made by DPT's quantitative analytics group in consultation with Mr. Sung and the trading desk, based on historical congestion patterns, expected generation and load profiles, and portfolio hedging needs;
• FTR position limits were set as part of DPT's overall risk management framework, with maximum notional exposure limits approved by the risk management committee;
• The FTR portfolio was monitored on a daily basis, with mark-to-market valuations reported as part of the daily P&L.
Recommended approach: Mr. Sung should acknowledge that FTRs benefit from congestion differentials — this is their fundamental purpose and the reason any market participant acquires them. He should not attempt to deny or minimize the basic economic relationship between Day-Ahead prices and FTR values, as doing so would undermine his credibility. Instead, he should emphasize that FTR acquisition was a hedge against congestion risk, not a speculative bet dependent on manipulative bidding. The temporal sequence is critical: the FTRs were acquired before the bidding patterns at issue began, which undermines the theory that the bidding was designed to benefit the FTRs.
D. Virtual Trading at Minnesota Hub
FERC Staff's third line of attack involves DPT's virtual trading activity at the Minnesota Hub. FERC Staff alleges that DPT took Real-Time virtual positions — specifically, Increment Offers ("INCs") and Decrement Bids ("DECs") — at the Minnesota Hub totaling approximately 1,620 GWh during the Relevant Period. According to FERC Staff's theory, these virtual positions were designed to amplify the congestion differential between the Indiana Hub and the Minnesota Hub, further increasing the value of DPT's FTR positions. This is the "cross-product manipulation" theory: FERC Staff contends that DPT used three distinct market products — physical generation offers at the Indiana Hub, virtual positions at the Minnesota Hub, and FTRs on paths between the two hubs — as part of a coordinated scheme to manipulate market prices.
Ms. Petrov was the trader who executed the virtual positions at the Minnesota Hub, and she testified regarding these activities on September 12, 2023. Mr. Sung will be asked about his oversight of virtual trading strategy as Ms. Petrov's direct supervisor.
Anticipated questions will include:
• How virtual trading at the Minnesota Hub fit within DPT's overall portfolio strategy;
• Whether Mr. Sung directed or approved Ms. Petrov's virtual positions at the Minnesota Hub, and if so, in what form and with what frequency;
• Whether Mr. Renfro and Ms. Petrov coordinated their respective Day-Ahead and Real-Time strategies — i.e., whether the Indiana Hub Day-Ahead offers and the Minnesota Hub virtual positions were part of a unified strategy — and if so, whether Mr. Sung was aware of and approved such coordination;
• Whether there were communications between Mr. Renfro and Ms. Petrov, or between either of them and Mr. Sung, discussing the combined effect of the Day-Ahead offers and virtual positions on congestion patterns.
FERC Staff will likely attempt to establish a link between the Indiana Hub Day-Ahead offers and the Minnesota Hub virtual positions by pointing to contemporaneous communications and the temporal correlation between the two sets of transactions. This is the "cross-product manipulation" theory that represents the most aggressive element of FERC Staff's case.
Recommended approach: Mr. Sung should explain that Day-Ahead and Real-Time positions are managed as part of a single portfolio, and that portfolio management inherently involves consideration of positions across multiple products and delivery points. However, he should emphasize that each position had independent economic justification. Virtual trading is a legitimate market function recognized by MISO's tariff and encouraged by FERC as a means of promoting price convergence between Day-Ahead and Real-Time markets. Ms. Petrov's virtual positions at the Minnesota Hub were placed based on her assessment of Day-Ahead and Real-Time price spreads at that location, not as a mechanism to amplify congestion for the benefit of DPT's FTR portfolio. Mr. Sung should describe the independent economic rationale for the virtual positions and resist FERC Staff's attempts to characterize routine portfolio management as evidence of manipulation.
E. Physical-Financial Coordination with Dunmore Midstream Partners LP
FERC Staff has broadened the scope of the investigation beyond DPT's trading activities to encompass the relationship between DPT and Dunmore Midstream Partners LP ("DMP"), a separate entity within the Dunmore corporate family. FERC Staff alleges that DPT coordinated the timing and volume of gas nominations through DMP to support the uneconomic generation offers, effectively masking the true marginal cost of generation units by manipulating the gas supply arrangements.
DMP operates natural gas gathering systems, processing facilities, and pipeline infrastructure that supplies several of Dunmore's gas-fired generation plants in the MISO footprint. Because DMP and DPT are affiliates under common ownership by DEH, FERC Staff may argue that the coordination between gas supply and power generation was used to create artificial cost structures that made negative Day-Ahead offers appear more economically justified than they were.
Anticipated questions will include:
• Mr. Sung's communications with DMP personnel regarding gas nominations and scheduling, including the identity of his primary contacts at DMP and the frequency and mode of their communications;
• Whether gas nomination volumes were adjusted to align with Day-Ahead offer strategy — i.e., whether DPT's decisions about offer pricing influenced the gas nomination volumes submitted by DMP, or vice versa;
• Whether the gas costs used in generation offer calculations reflected actual market-based gas costs or internally negotiated transfer prices between DMP and DPT;
• Whether the take-or-pay contractual obligations cited as justification for negative offers were arm's-length commercial contracts or affiliate arrangements that could have been modified.
Key documents at issue: Gas nomination schedules produced in the second document production, communications between Mr. Sung and DMP operations personnel (particularly emails and phone logs), and the gas supply agreements between DMP entities and DPT's gas-fired generation plants.
Recommended approach: Mr. Sung should explain that gas nominations necessarily coordinate with generation scheduling — this is a normal and unavoidable operational function, not evidence of manipulation. Gas-fired generators must nominate gas in advance to run; the volume and timing of gas nominations follow from dispatch decisions, not the reverse. The gas supply arrangements between DMP and DPT were conducted pursuant to written agreements at market-based rates or at rates consistent with FERC's affiliate transaction requirements. Mr. Sung should be prepared to explain the operational workflow: dispatch decisions drive gas nominations, and gas nominations are submitted to pipelines in accordance with standard nomination cycles. There is nothing unusual or improper about a power generator coordinating with its gas supplier to ensure fuel delivery aligns with expected generation.
F. Risk Management Framework
FERC Staff will probe DPT's internal controls and risk management framework to assess whether adequate safeguards were in place to detect and prevent potentially manipulative trading patterns. This line of questioning serves two purposes from FERC Staff's perspective: (1) if controls were robust, it supports the inference that senior management knew about and approved the trading strategies at issue; (2) if controls were inadequate, it supports a narrative of institutional failure that may warrant enhanced remedies or compliance obligations.
Anticipated topics include:
• Position limits for Day-Ahead, Real-Time, and FTR trading during the Relevant Period, including whether the limits were expressed in MWh, dollars, or both, and whether the limits were ever exceeded;
• Profit and loss reporting frequency, format, and escalation thresholds — i.e., at what level of profit or loss was a report escalated to senior management, and were there any such escalations during the Relevant Period;
• Internal audit and compliance review of trading strategies, including whether any internal audit was conducted of the Day-Ahead bidding strategies or the FTR portfolio during the Relevant Period;
• Whether the compliance function — before the appointment of Jennifer Caulfield as Chief Compliance Officer on February 6, 2023 — had meaningful oversight of trading desk activities, and what the compliance function looked like prior to Ms. Caulfield's appointment;
• What changes were implemented after Ms. Caulfield's appointment, including any new policies, procedures, or reporting requirements.
Recommended approach: Mr. Sung should acknowledge that DPT had a compliance program in place during the Relevant Period, though he should also acknowledge, if asked, that the program has been enhanced since Ms. Caulfield's appointment. The consent agreement being discussed in parallel with this investigation contemplates compliance enhancements, and it would be counterproductive for Mr. Sung to overstate the adequacy of the pre-Caulfield compliance regime. At the same time, he should describe the risk management controls that were in place honestly, including position limits, P&L reporting, and management oversight. If Mr. Sung identified any gaps in the risk management framework during the Relevant Period, he should describe those gaps truthfully — credibility before FERC Staff is paramount, and any attempt to paint an unrealistically positive picture of the compliance environment will be transparent and damaging.
G. Communications with Senior Management
FERC Staff will probe the extent to which senior management — specifically, Elena Mirova (President & COO), Martin Llewellyn (General Counsel), and Gavin Harcourt (Chairman & CEO) — were aware of the bidding strategies at issue. This line of questioning is aimed at establishing whether the allegedly manipulative conduct was authorized or condoned at the highest levels of the organization, which would increase the potential penalties and the likelihood that FERC Staff would seek to name individual respondents.
Anticipated questions will include:
• The frequency and format of Mr. Sung's reports to Ms. Mirova on trading desk performance, including whether he provided regular written reports, participated in periodic meetings, or communicated on an ad hoc basis;
• Whether specific bidding strategies — including the use of negative offers at the Indiana Hub — were discussed with Ms. Mirova or Mr. Harcourt, and if so, in what context and at what level of detail;
• Whether Mr. Sung sought or received guidance from Mr. Llewellyn (General Counsel) on regulatory compliance aspects of the trading strategies, including whether Mr. Sung had any concern that the strategies might raise regulatory issues and whether he sought legal advice on that topic;
• Whether Ms. Mirova or Mr. Harcourt ever expressed concern about or questioned the negative offer strategy.
Recommended approach: Mr. Sung should testify truthfully about the reporting chain and the substance of his communications with senior management. He should neither overstate nor understate the degree of senior management involvement. If Ms. Mirova received regular reports that included information about Day-Ahead offer pricing and FTR portfolio performance, Mr. Sung should say so. If Mr. Harcourt was briefed only at a high level on overall trading desk performance without specific discussion of negative offer strategies, Mr. Sung should describe that accurately. Any attempt to shield senior management by downplaying their awareness would be risky given the documentary record, and any attempt to attribute more knowledge to senior management than is warranted could expand the scope of the investigation unnecessarily.
With respect to communications with Mr. Llewellyn, counsel should be prepared to assert attorney-client privilege where appropriate. To the extent Mr. Sung sought legal advice from Mr. Llewellyn regarding the regulatory implications of the bidding strategies, those communications are privileged. Mr. Sung should be instructed to pause before answering any question that touches on conversations with Mr. Llewellyn to allow counsel to evaluate whether a privilege assertion is warranted.
H. Trader Compensation and Incentives
FERC Staff's second data request, served on August 7, 2023, specifically inquired about trader incentive compensation structures at DPT. This line of questioning is aimed at establishing a motive for manipulative trading: if traders were compensated based on the profitability of specific strategies — particularly FTR profits — FERC Staff will argue that the compensation structure created incentives to engage in manipulative bidding to inflate FTR returns.
Anticipated questions will include:
• How Mr. Renfro and Ms. Petrov (and other traders on the MISO desk) were compensated, including base salary, bonus structure, and any other forms of incentive compensation;
• What performance metrics were used to determine bonuses — specifically, whether bonuses were tied to the P&L of specific trading strategies (such as FTR profits or Day-Ahead generation margins) or to the overall performance of the MISO desk or DPT as a whole;
• Whether Mr. Sung had input into or authority over the compensation decisions for traders on his desk;
• Whether compensation incentives could have motivated traders to prioritize FTR profits over economically rational physical generation bidding.
Recommended approach: Mr. Sung should describe the compensation structure accurately and in full. If bonuses were tied to overall desk performance rather than the profitability of specific strategies or specific product lines, this is an important distinction that should be emphasized. A compensation structure that rewards overall desk performance does not create the same incentive to engage in cross-product manipulation as a structure that rewards specific strategy-level P&L. If, however, there were elements of the compensation structure that tied individual trader bonuses to specific sub-portfolio performance (e.g., Renfro's bonus was partially a function of Day-Ahead trading P&L), Mr. Sung should describe this accurately and should not attempt to minimize or obscure the connection.
I. Knowledge of MISO Independent Market Monitor Concerns
The investigation originated from a referral by the MISO Independent Market Monitor ("IMM"), Velthorn Market Analytics, Inc., led by Dr. Patricia Engel. Velthorn submitted a referral letter to FERC OE on April 3, 2023, identifying DPT's bidding patterns at the Indiana Hub as potentially manipulative. FERC Staff may inquire about whether Mr. Sung was aware of any concerns raised by Velthorn or MISO regarding the bidding patterns before the formal FERC investigation commenced.
Anticipated questions will include:
• Whether MISO or Velthorn contacted DPT about the bidding patterns during or before the Relevant Period;
• Whether Mr. Sung received any inquiries, data requests, or informal communications from the IMM regarding Day-Ahead offer pricing at the Indiana Hub;
• Whether Mr. Sung was aware of the IMM's referral to FERC prior to DPT being notified of the FERC investigation;
• Whether any internal discussions occurred at DPT regarding potential IMM or FERC scrutiny of the bidding strategies.
Recommended approach: If Mr. Sung had no direct contact with Velthorn or the IMM, he should say so clearly and without equivocation. If there were any communications — whether formal data requests from MISO, informal telephone calls from IMM analysts, or internal discussions prompted by awareness of IMM scrutiny — these should be identified and discussed thoroughly with counsel before the testimony. Any suggestion that DPT was on notice of potential regulatory concerns before the investigation began, and continued the bidding practices notwithstanding, would be damaging to the defense and must be addressed proactively in preparation.
IV. Key Documents for Witness Review
The following categories of documents from the production should be assembled and reviewed by Mr. Sung prior to testimony. The documents should be organized in a preparation binder by category and, within each category, in chronological order:
1. Trading Desk Policies and Procedures Manuals: Current and historical versions of DPT's MISO trading desk operating procedures, including any policies governing Day-Ahead offer pricing, virtual trading, and FTR portfolio management in effect during the Relevant Period.
2. Sung-Renfro Communications: Mr. Sung's emails, instant messages (including Vireo Software messages and internal DPT chat logs), and memoranda with Mr. Renfro regarding Day-Ahead strategies, including any communications discussing negative offer pricing at the Indiana Hub.
3. Sung-Petrov Communications: Mr. Sung's emails, instant messages, and memoranda with Ms. Petrov regarding Real-Time and virtual trading strategies, including any communications discussing virtual positions at the Minnesota Hub.
4. DMP Communications: Mr. Sung's communications with DMP personnel regarding gas nominations, scheduling, and fuel supply coordination for gas-fired generation plants.
5. FTR Strategy Documents: FTR auction bid submissions, strategy memoranda prepared by the quantitative analytics group, FTR portfolio position reports, and any communications regarding FTR acquisition decisions during or prior to the Relevant Period.
6. Risk Management Reports and P&L Summaries: Daily and weekly P&L reports for the MISO desk during the Relevant Period, position limit reports, and any risk management escalation reports.
7. Sung-Mirova Communications: Mr. Sung's communications with Ms. Mirova regarding trading desk performance, strategy, and any specific discussions of the Day-Ahead bidding strategies or FTR portfolio.
8. Trader Compensation Documentation: Compensation plans, bonus calculations, performance metrics documentation, and any communications regarding trader compensation for Mr. Renfro, Ms. Petrov, and other MISO desk traders.
9. Pre-Existing Compliance Policies: DPT's compliance manual, code of conduct, and any policies governing market conduct or regulatory compliance in effect during the Relevant Period prior to Ms. Caulfield's appointment.
10. Caulfield Appointment Materials: Communications relating to the appointment of Jennifer Caulfield as Chief Compliance Officer on February 6, 2023, including any memoranda or directives issued by Ms. Caulfield regarding changes to compliance oversight of the trading desk.
Logistics: Documents should be reviewed at Calderwood & Harkness's Houston office, located at 1001 Fannin Street, Suite 4200, Houston, TX 77002, under attorney supervision. Preparation sessions should be scheduled for September 15–17, 2023, as set forth in the recommended preparation schedule in Section VII below. Patrick Gallagher will be responsible for assembling the preparation binder and will be present during the September 15 document review session to assist Mr. Sung in locating and reviewing key documents.
V. Coordination with Prior Testimony
A. Consistency with Renfro Testimony (September 5, 2023)
Mr. Renfro testified on September 5, 2023, in a session that lasted approximately six hours (with breaks). He was identified by FERC Staff as the primary trader responsible for executing the allegedly manipulative Day-Ahead bidding strategies at the Indiana Hub. FERC Staff's questioning of Mr. Renfro focused heavily on the mechanics of Day-Ahead offer pricing, the business rationale for negative offers, the FTR acquisition timeline, and Mr. Renfro's authority to set offer prices.
The following areas require alignment between Mr. Renfro's testimony and Mr. Sung's testimony:
(a) Business rationale for negative offers: Mr. Renfro testified that negative offers were economically justified based on take-or-pay obligations and minimum generation constraints. Mr. Sung should describe the same rationale from a supervisory perspective, explaining that these were established strategies that he reviewed and approved as part of the desk's portfolio optimization approach.
(b) FTR acquisition timeline: Mr. Renfro testified that FTR acquisitions preceded the negative offer strategy and were made for hedging purposes. Mr. Sung should confirm this timeline and provide additional context regarding the FTR acquisition process, including his role in approving FTR bids.
(c) Renfro's authority versus Sung's approval authority: Mr. Renfro testified that he had discretion to set Day-Ahead offer prices within pre-approved parameters and risk limits, and that he did not seek specific approval from Mr. Sung for individual offer prices on a daily basis. Mr. Sung should be consistent with this characterization, explaining the delegation of authority framework while also describing his oversight role — i.e., that he set the parameters within which Mr. Renfro operated and reviewed performance on a regular basis.
(d) Any areas where Renfro's testimony created potential issues: In our post-testimony review, we identified [to be confirmed in preparation session] instances where Mr. Renfro's responses may have been imprecise or potentially inconsistent with the documentary record. These areas should be flagged for Mr. Sung's review, and Mr. Sung should be prepared to provide clarifying supervisory context where appropriate, without contradicting Mr. Renfro's testimony or suggesting that Mr. Renfro was inaccurate.
B. Consistency with Petrov Testimony (September 12, 2023)
Ms. Petrov testified on September 12, 2023, in a session that lasted approximately four and a half hours. Her testimony focused primarily on virtual trading at the Minnesota Hub, the degree of coordination between her Real-Time positions and Mr. Renfro's Day-Ahead offers, and her communications with Mr. Sung regarding virtual trading strategy.
The following areas require alignment between Ms. Petrov's testimony and Mr. Sung's testimony:
(a) Degree of coordination between Petrov and Renfro: Ms. Petrov testified that she and Mr. Renfro sat on the same trading desk and communicated regularly about market conditions, but that her virtual trading decisions were based on her independent assessment of Day-Ahead and Real-Time price spreads at the Minnesota Hub. Mr. Sung should be consistent with this characterization, describing the desk environment as one where traders shared market intelligence but made independent trading decisions within their respective areas of responsibility.
(b) Sung's role in directing or approving virtual trading: Ms. Petrov testified that Mr. Sung approved the overall virtual trading strategy and set position limits for virtual trading, but did not direct individual virtual trades on a daily basis. Mr. Sung should confirm this delegation of authority structure.
(c) Any areas where Petrov's testimony created potential issues for the supervisory narrative: In particular, FERC Staff questioned Ms. Petrov about specific internal chat messages between her and Mr. Renfro that appeared to discuss the combined effect of Day-Ahead offers and virtual positions on congestion patterns. Ms. Petrov's responses to these questions should be reviewed carefully with Mr. Sung, and he should be prepared to address FERC Staff's likely follow-up from a supervisory perspective — i.e., whether he was aware of these communications and whether they reflect a coordinated strategy or routine market discussion.
VI. Potential Areas of Concern
Based on our assessment of the investigation record and the prior testimony sessions, the following areas present the greatest risk for Mr. Sung's testimony:
1. Imputation of knowledge and intent: Mr. Sung's supervisory position means that FERC Staff may attempt to impute knowledge and intent upward from the traders to Mr. Sung and then from Mr. Sung to senior management. Under FERC's enforcement precedents, a supervisor who knew or should have known about manipulative trading activity and failed to prevent it may be held individually liable. Mr. Sung's testimony must carefully navigate the line between acknowledging his supervisory awareness (which is documented and undeniable) and avoiding statements that could be construed as admissions of knowledge that the strategies were manipulative.
2. Internal documents showing temporal proximity: If internal documents show Mr. Sung approving or encouraging negative offer strategies in close temporal proximity to FTR acquisitions or FTR portfolio adjustments, FERC Staff may use these documents to establish scienter — the inference being that Mr. Sung understood the relationship between the two and was pursuing a coordinated strategy. These documents should be identified and reviewed carefully during the preparation sessions, and Mr. Sung should be prepared to provide context and explanation for each.
3. Communications suggesting awareness of unusual patterns: Any communications in which Mr. Sung acknowledged that the bidding patterns were unusual, aggressive, or potentially problematic — even in casual language — could be seized upon by FERC Staff as evidence of consciousness of wrongdoing. These communications should be identified and addressed in preparation.
4. Communications with Rhonda Vasquez: Ms. Vasquez serves as Vice President, Regulatory Affairs at DPT. Any communications between Mr. Sung and Ms. Vasquez that discuss the compliance implications of the trading strategies, or that suggest Mr. Sung sought her input on whether the strategies might attract regulatory scrutiny, are potentially significant. If such communications exist, they should be reviewed and Mr. Sung should be prepared to explain the context.
5. Inconsistency risk: There is a risk that FERC Staff will contrast Mr. Sung's testimony with any inconsistent statements by Mr. Renfro or Ms. Petrov. Even minor discrepancies — in timelines, in the description of approval processes, or in the characterization of the business rationale — could be exploited by FERC Staff to undermine the credibility of all three witnesses. The comparison matrix described in Section IX below is intended to identify and mitigate this risk.
VII. Recommended Preparation Schedule
The following preparation schedule is recommended for Mr. Sung prior to his testimony on September 19, 2023:
The September 16 mock examination should cover each of the anticipated areas of questioning described in Section III above, with Catherine Bloom taking the lead in conducting the mock examination and Hannah Brinkley taking notes and flagging areas requiring further preparation. The September 17 session should focus specifically on the areas identified as most problematic during the September 16 session, with particular attention to document-specific questioning (i.e., placing specific documents in front of Mr. Sung and asking him to explain them, as FERC Staff will do during the testimony itself).
VIII. General Testimony Guidelines
Mr. Sung should be reminded of the following standard instructions for testimony pursuant to 18 C.F.R. § 1b.12:
1. Listen carefully to each question. Wait until the question is fully asked before beginning to answer. Do not anticipate where the questioner is going or begin formulating a response before the question is complete.
2. Answer only the question asked. Provide a responsive, accurate answer to the specific question posed. Do not volunteer additional information, provide unsolicited context, or steer the conversation to topics that were not asked about, however favorable those topics might be.
3. Do not speculate. If Mr. Sung does not know the answer to a question, he should say "I don't know" or "I don't recall." He should not guess, estimate, or hypothesize unless specifically asked to do so. If he can provide an approximate answer (e.g., "I don't recall the exact date, but it was sometime in early 2022"), he may do so, but should make clear that the answer is approximate.
4. Counsel will be present. Catherine Bloom and Hannah Brinkley will be present throughout the testimony. Counsel may instruct the witness not to answer a question on privilege grounds where appropriate, including questions that call for information protected by the attorney-client privilege or the work product doctrine.
5. Pause before answering privilege-sensitive questions. If a question calls for information that may be protected by the attorney-client privilege or the work product doctrine — including, but not limited to, communications with Martin Llewellyn (General Counsel) or with Calderwood & Harkness — Mr. Sung should pause and allow counsel to assess whether a privilege assertion is warranted before responding.
6. Testimony is under oath. Mr. Sung will be placed under oath at the beginning of the testimony session. All answers must be truthful and complete. A false statement under oath may constitute a violation of 18 U.S.C. § 1001 (false statements to a federal agency) and could expose Mr. Sung to criminal liability independent of any outcome in the FERC enforcement proceeding.
7. Transcript review. A transcript of the testimony will be prepared by a court reporter. Mr. Sung will have the opportunity to review the transcript and submit corrections pursuant to 18 C.F.R. § 1b.12. Corrections should be limited to transcription errors and should not be used to substantively change testimony.
8. Confidentiality of the investigation. The investigation is non-public pursuant to 18 C.F.R. Part 1b. Mr. Sung should not discuss the substance of his testimony with anyone other than counsel — including other DPT employees, other witnesses, family members, or the media. This obligation applies before, during, and after the testimony.
9. Document handling. FERC Staff may present documents during the testimony and ask Mr. Sung to identify or comment on them. Mr. Sung should take his time reviewing any document presented to him before answering questions about it. He should read the entire document (or the relevant portion identified by FERC Staff) before responding and should not answer based on a partial or incomplete review.
10. Demeanor. Mr. Sung should remain calm, professional, and cooperative throughout the testimony. He should not argue with FERC Staff, display frustration or hostility, or make editorial comments about the investigation. He should treat the session as a professional exchange of information.
IX. Open Items and Follow-Up
The following action items should be completed before the preparation sessions begin on September 15, 2023:
1. Patrick Gallagher to pull all Sung custodian documents from the production set referencing gas nominations, FTR strategy, and negative Day-Ahead offers, and organize them chronologically for inclusion in the preparation binder. Target completion: COB September 14, 2023.
2. Hannah Brinkley to prepare a comparison matrix cross-referencing the key topics covered in the Renfro and Petrov testimony sessions against the anticipated areas of questioning for Mr. Sung, highlighting areas where consistency is critical and areas where discrepancies may exist. Target completion: COB September 14, 2023.
3. Catherine Bloom to confirm logistics with FERC OE (Lead Investigator Thomas Adebayo) regarding the testimony date, location, expected duration, number of FERC Staff participants, and any documents FERC Staff intends to use as exhibits. Target completion: September 14, 2023.
4. Catherine Bloom / Hannah Brinkley to determine whether FERC Staff has issued any additional document requests, interrogatories, or follow-up inquiries arising from the Renfro or Petrov testimony sessions that could signal new lines of inquiry for Mr. Sung's testimony. If any such requests have been received, they should be analyzed immediately and factored into the preparation outline.
5. Patrick Gallagher to confirm availability of the C&H Houston conference room for the September 15–17 preparation sessions and to arrange for secure document storage and handling during the sessions.
6. Hannah Brinkley to coordinate travel arrangements for Mr. Sung, Ms. Bloom, and Ms. Brinkley to Washington, D.C. on September 18, 2023, and to arrange for a private meeting room at the hotel or at C&H's Washington, D.C. office for the evening review session.
This memorandum is protected by the attorney-client privilege and the work product doctrine. It was prepared by counsel in anticipation of litigation and reflects the mental impressions, conclusions, opinions, and legal theories of counsel. It is not to be disclosed to any person or entity outside of Calderwood & Harkness LLP and authorized representatives of Dunmore Power Trading LLC without the express written consent of counsel.