ISO/RTO Gaming: “Ketchup Daddy” Gets Caught

“[Philip] Mango told FERC staff he planned to ‘[d]o this for just a couple of years, make a bunch of money to put kids through school and do all those things, and no one’s hurt’ …. Ketchup Caddy [was] a corporate entity that Mango had created to sell an in-car ketchup holder he invented….” (Utility Drive, below)

Why do the worst often get on top where political entrepreneurship replaces market entrepreneurship? Why does regulation invite gaming, where, at best, entrepreneurship is superfluous?

Consider the 1970s oil trading boom, where price-controlled oil was bid up to market levels without any value-added. Robert Sutton, a former trunk salesman, became a regulatory millionaire on that one.

Remember Enron’s gaming of the California hyper-regulated electricity market in 2000/2001? Three authors wrote in Business History Review:

Enron’s traders used their knowledge of the newly designed markets to artificially increase or decrease wholesale prices in their favor, which often involved submitting false supply-and-demand information, withholding available electricity, or scheduling energy they did not have. They also made use of flaws in the market’s new computerized scheduling system, for instance, deliberately overloading parts of the grid to then receive payments for relieving it.

Additionally, the FERC found that Enron had entered into undisclosed partnerships with numerous market participants, which allowed it to control energy scheduling and physical infrastructure. Not only did these actions exacerbate the state’s high energy prices and supply issues, but they directly violated Enron’s market-based rate authority and also contravened numerous rules set out in the protocols designed to govern the new system

——————————-

Here is the latest as reported by Ethan Howland in Utility Drive “FERC Enforcement Office Seeks $27M from Ketchup Caddy for MISO Demand Response Fraud” (February 22, 2024).

Ketchup Caddy and its owner should pay about $27 million for manipulating the Midcontinent Independent System Operator’s demand response resource programs and offering uncontracted capacity into MISO’s capacity auctions, according to Federal Energy Regulatory Commission enforcement office staff.

“Ketchup Caddy operated as a fraudulent enterprise with no legitimate market activity, registering and clearing demand resources without their knowledge or consent and collected capacity payments in turn, without making payments to the registered resources,” FERC enforcement office staff said in a report on its investigation released Wednesday as part of a “show cause” order.

Ethan Howland continued:

Philip Mango, Ketchup Caddy’s CEO and co-owner, admitted that he didn’t try to contract with, or contact, potential customers, and that the fake customers Ketchup Caddy registered with MISO would not have responded if dispatched, enforcement office staff said.

Ketchup Caddy, Mango and Todd Meinershagen, a company co-founder, received about $1 million in capacity payments from three MISO capacity auctions starting with its 2019/20 auction, according to FERC staff. The company’s fraudulent offers reduced revenue to other market participants by $17.6 million, staff estimated….

How did he do it?

According to enforcement office staff, Meinershagen “scraped” an Ameren website to collect customer data. He used an automated tool to flood the website with millions of random account numbers until it found a valid customer account, and then downloaded the account data to a spreadsheet, FERC staff said. Ketchup Caddy used that information as the basis for its participation in MISO’s capacity auctions, according to staff.

Ketchup Caddy cleared 211.1 MW of capacity to begin performing on June 1, 2019, according to FERC staff. In the following two auctions, it cleared 303.2 MW and 372.3 MW. MISO did not call a curtailment event during those planning years and required only mock tests to verify performance, so Ketchup Caddy’s false registrations and offers went undetected until staff’s investigation, according to the report. 

Curiouser and curiouser:

Mango told FERC staff he planned to “[d]o this for just a couple of years, make a bunch of money to put kids through school and do all those things, and no one’s hurt,” according to the report. “Upon further reflection, I realize the egregiousness and the error of my ways.”

Ketchup Caddy — a corporate entity that Mango had created to sell an in-car ketchup holder he invented — is based in Frisco, Texas, according to its market participant agreement with MISO. The grid operator removed Ketchup Caddy from its capacity market in October 2021 after it learned about Ketchup Caddy’s fraudulent registrations, FERC staff said….

Philip Mando and Ketchup Daddy got caught–barely. But how many subtle manipulations have gone or are going undetected in the regulatory complexity where large rulebooks substitute for the free market’s ‘simple rules for a complex world‘?

The post ISO/RTO Gaming: “Ketchup Daddy” Gets Caught appeared first on Master Resource.