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GDF Suez: 'Speculators' Attempting to Have Court Reject ERCOT Market Design, Impose Novel Obligations on Participants

June 24, 2014

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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The allegations from two "speculators" in a lawsuit against GDF SUEZ Energy North America, "are an attempt to have this Court reject the design of the ERCOT wholesale power market in Texas and impose an obligation on ERCOT participants under the CEA [Commodity Exchange Act] that has never before been required by any court interpreting the reach of the CEA," GDF SUEZ said in a motion to dismiss the suit.

The suit was filed by Aspire Commodities L.P. and Raiden Commodities L.P. (click here for background)

"Specifically, Plaintiffs would have this Court impose on every merchant generator operating in the ERCOT market an obligation to limit all offers of electricity to prices no greater than their marginal costs even though ERCOT Rules expressly provide for offers to be well above their marginal costs," GDF Suez said. "Such an obligation would be directly contrary to the market design in ERCOT ... Plaintiffs' allegations of physical withholding are bald assertions that lack any factual support and are insufficient as a matter of law."

"The conduct Plaintiffs challenge in their Complaint, namely the price at which GDF SUEZ offered certain generation capacity into the ERCOT real-time market, falls squarely within the confines of the exemption set forth in the [CFTC] Final Order [which specifically exempts the ERCOT markets, except from certain general anti-manipulation authority]. Plaintiffs cannot circumvent this exemption by complaining that commodity prices arrived at lawfully in ERCOT become unlawful and manipulative when they seek to speculate on the same underlying commodities in futures markets such as ICE. This Court must therefore dismiss Plaintiffs' CEA claims because GDF SUEZ's conduct is exempt from these claims pursuant to the CFTC's Final Order," GDF Suez said

"Plaintiffs' vague claim that Defendants' actions in ERCOT manipulated prices on ERCOT-related products in futures commodities markets such as ICE is misguided. The prices of ERCOT-related products in the futures markets are derived from the prices for electricity established in ERCOT. Plaintiffs do not allege any conduct on ICE, or in any other commodity markets outside ERCOT, that would cause ICE to have an artificial price. Moreover, Plaintiffs admit that Defendants' activities and the resulting prices in ERCOT were sanctioned and approved by the authorities who regulate ERCOT. Plaintiffs therefore cannot complain that lawfully obtained prices of the underlying commodity somehow become unlawful when Plaintiffs attempt to speculate on those same commodities in a futures market such as ICE," GDF Suez said

Additionally, the plaintiffs' suggestion that GDF SUEZ may have improperly benefitted from nonpublic information about its own activities, "is without merit because the Commodity Exchange Act ('CEA') permits trading on lawfully obtained nonpublic information," GDF Suez said

Furthermore, "[t]he Complaint fails as a matter of law with regard to the existence of an artificial price," GDF Suez said. "Plaintiffs allege that GDF SUEZ caused an artificial price by seeking a price above its marginal cost. However, a supplier of a commodity cannot create an artificial price simply by demanding a price that is higher than its marginal costs. Absent a corner, squeeze, or fictitious trade (none of which have been alleged by Plaintiffs), a supplier seeking the highest price possible cannot, as a matter of law, create artificial prices except where economic withholding violates the market rules in which the supplier is participating. Radley, 659 F. Supp. 2d at 816. According to the court in U.S. v. Radley, a withholding claim can only arise out of applicable market rules or other obligation to sell. Id. ('Absent a contract obligation or statutorily imposed position restriction, neither of which was present in this case, a party is never required to sell or purchase anything. To refuse to do so is not misleading or fraudulent, regardless of the motivation.')."

Case No. 4:14-cv-01111

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