|
|
|
|
|
Throw It Out: Power Traders' Lawsuit Against GDF Suez Amounts to Forum Shopping, Collateral Attack on Texas Law
Two power traders have filed a lawsuit against GDF SUEZ Energy North America, Inc. in federal court alleging market manipulation, in what amounts to a collateral attack on Texas' energy-only market and small-fish-swim-free rule.
ADVERTISEMENT Aspire Commodities L.P. and Raiden Commodities L.P., who recently petitioned the Public Utility Commission of Texas to terminate the small-fish-swim-free exemption, have filed a suit in federal court alleging that GDF SUEZ's bidding behavior in ERCOT violates the federal Commodities Exchange Act.
The initial petition from the traders spends 16 pages (of 23 total) describing GDF SUEZ's bidding which is unquestionably legal under Texas law.
Finally, we get to the alleged violations of the CEA. The power traders cite the CEA as providing:
"It shall be unlawful for any person, directly or indirectly, to use or employ, or attempt to use or employ, in connection with any swap, or a contract of sale of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity, any manipulative or deceptive device or contrivance, in contravention of such rules and regulations as the Commission shall promulgate by not later than 1 year after July 21, 2010."
and
"In addition to the prohibition in paragraph (1), it shall be unlawful for any person, directly or indirectly, to manipulate or attempt to manipulate the price of any swap, or of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity."
The power traders argue that, "Through its withholding schemes ... GDF Suez intentionally, knowingly, and recklessly has manipulated, and continues to manipulate, the price of electricity in the ERCOT market and has caused the prices in ERCOT's Real Time market to increase artificially (i.e. not in accord with legitimate forces of supply and demand)."
Here's the fatal flaw in this suit: as recognized by the power traders themselves, GDF Suez's ERCOT bidding behavior is wholly legal under Texas law, and de jure is not manipulation.
While the power traders emphasize the impact of GDF Suez's ERCOT bidding behavior on financial markets, through its impact on the LMP, to implicate the CEA, it strains credulity to call legal (and rational, which we will get to in a minute) bidding behavior manipulation.
"GDF Suez's [sic] knows and intends that its creation of artificially high prices in the ERCOT Real Time market for electricity has created and will create artificially high prices for electricity contracts in commodities markets, such as ICE and will directly manipulate the values in virtual trades," the power marketers allege.
The power traders use of the term "artificial" here is unsubstantiated, and again proves fatal to their claims.
Notably, power traders allege that in determining economic prices, "One such assumption is that generators will produce energy when the LMP exceeds their marginal costs of such production."
The problem is that such "assumption" is nowhere reflected in Texas law or rules, and is, in fact, wholly repudiated not only by the small-fish-swim-free rule, but by legal precedent. Nowhere does Texas law define short-run marginal cost bidding as the "rational" behavior from generators.
Indeed, in a brief before a Texas court, the PUCT said that of its wholesale market power rule that, "The Rule does not impose a marginal-cost pricing requirement ... As the Court of Appeals' opinion notes, and as the Commission explained in its briefing below, the Rule does not impose a requirement that market participants price at marginal cost." (TXU Generation Company LP, et al., No. 05-0480).
As further explained by then-PUCT Chairman Barry Smitherman in a memo in an enforcement proceeding against Luminant, "In any competitive market, one or more participants may have the ability to raise prices above 'competitive levels' for a limited period of time. However, in a market, the response to high prices from one producer is that other competitors, both existing and new, will eventually begin to offer prices below your prices and soon take away your market share and your profits."
Aspire Commodities and Raiden Commodities are essentially seeking, through application of federal law and this suit, to impose a de facto unit-specific offer cap on ERCOT generators, equal to what they define as "competitive" levels (whether this be short-run marginal cost or some other administratively determined level). If Aspire Commodities and Raiden Commodities are dissatisfied with LMP pricing in ERCOT, the market response is for them to either build new generation, or aggregate load response, to negate GDF's ability to drive LMPs higher, not seek government price control of offers.
ADVERTISEMENT Search for more retail energy careers: Copyright 2010-
April 25, 2014
Email This Story
Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
Comment on this story at RetailEnergyX.com
NEW Jobs on RetailEnergyJobs.com:
• NEW! -- Strategic Energy Advisor
• NEW! -- Sales Development Representative
• NEW! -- Marketing Manager-Lead Generation -- Retail Provider -- Houston
• NEW! -- Business Developement Manager -- New York
• NEW! -- Channel Marketing Manager -- Retail Supplier -- Houston
• NEW! -- Regional Sales Manager, TX/PA/Various -- Retail Supplier -- Houston
• NEW! -- Manager, Pricing -- Retail Supplier -- Houston
• NEW! -- Energy Analyst -- Retail Supplier
• NEW! -- Senior Billing & Transactions Analyst -- Retail Supplier -- Houston
• NEW! -- Analyst, Trading and Supply Operations -- Retail Supplier -- Houston
RetailEnergyJobs.com
|
|
|
|