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CFTC Chair Says He Will Withdraw Move To Allow Private Lawsuits Concerning ERCOT, RTO Market Outcomes

Proposal Had Threatened ERCOT Energy-Only Market

CFTC's Prior Effort To Allow Private Rights of Action Had Been Blasted As Allowing "Collateral Attack" on PUCT Authorized Market Rules


September 15, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

U.S. Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad has written in a letter to U.S. Senator John Boozman that Massad plans to recommend to his colleagues that the CFTC, "exempt RTOs and ISOs from all private rights of action under Section 22 of the Commodity Exchange Act ('CEA")," and that the CFTC reflect such exemption in a final order.

CFTC Commissioner J. Christopher Giancarlo previously dissented from the CFTC's proposed order to allow private rights of action against RTO market transactions and outcomes, including those explicitly authorized and deemed lawful by electricity regulators. As there are only three sitting commissioners currently on the CFTC, the opposition of Massad and Giancarlo would kill the proposal.

Massad, who has originally supported the proposal to subject RTO markets to private rights of action, cited the concerns from electricity regulators and consumer advocates for his change in position.

Massad wrote Boozman that, "Regional grid operators are regulated by the Federal Energy Regulatory Commission ('FERC') and state regulators to ensure that energy rates remain just and reasonable and those transmission systems in their regions function efficiently and reliably. Many commenters noted that FERC and state regulators work to balance the interests of market participants with the protection of consumers of electricity. They also feared that private actions could create costs within the markets in ways that regulators did not anticipate. These appear to be to me valid concerns."

"[S]everal state consumer advocate offices charged with protecting consumers submitted comments noting that private rights of action could inadvertently introduce regulatory uncertainty and increase costs for consumers," Massad wrote

"While private rights of action will remain critical overall in our markets, I am persuaded that, in this instance, their preservation could result in greater costs and uncertainties without necessarily enhancing supervision of markets or consumer protection," Massad wrote

"In making this determination, it is important to me that the CFTC will continue to retain the authority to pursue fraud and manipulation within those markets. In addition to the ability of aggrieved market participants and consumers to file complaints with the CFTC, the CFTC's Whistleblower program also is available to those who are aggrieved, providing another path for redress," Massad wrote

Boozman had led efforts to prevent CFTC from adopting its proposal. In April, Boozman included a bipartisan amendment in the Senate Committee on Agriculture, Nutrition and Forestry markup on CFTC reauthorization that would ensure the current regulatory framework remains in place and prevent inconsistent regulations between the Federal Energy Regulatory Commission (FERC) and CFTC.

In a presentation earlier this year on the CFTC's proposal to allow private rights of action under the RTO order, Texas Public Utility Commissioner Kenneth Anderson had warned that, "private causes of action will allow collateral attacks on FERC and PUCT authorized valid market rules, undermining the efficient operation and regulation of electricity markets."

Anderson had noted that allowing private causes of action under Section 22 of the CEA as it relates to RTOs means that, "transactions that are lawful under FERC or PUCT approved ISO-RTO rules can be challenged under the CEA by third parties without the participation of the regulator in the proceedings."

"Federal courts will be interpreting PUCT and FERC regulations and RTO-ISO market rules, instead of the regulatory authority," Anderson had noted

As previously noted by EnergyChoiceMatters.com, such private rights of action could be used to challenge long-standing market rules and designs of the Texas electric market, such as the small fish swim free rule that is integral to an energy-only market which is dependent on the presence of scarcity pricing when conditions warrant to drive investment. Notably, a suit filed by Aspire Commodities L.P. and Raiden Commodities L.P. in federal court -- after failing in a bid to change the small fish swim free rule at the Texas PUC -- was dismissed in part because private rights of action were not allowed under the CFTC's prior RTO exemption order (click here for details)

See more background on the CFTC's original proposal here

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