CFTC proposes to allow market actors to sue grid operators
- The Commodity Futures Trading Commission (CFTC) this week issued a proposed amendment that would allow companies and individuals trading in wholesale energy markets to sue power grid operators under federal anti-manipulation laws, EnergyWire reports.
- In 2013, the agency issued a regulatory order under that exempted certain transactions of six Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) from some provisions of the Commodity Exchange Act (CEA) and CFTC regulations. The proposed amendment would make clear that those changes do not preclude the ability of individuals to sue grid operators.
- The amendment comes after the Southwest Power Pool, a central U.S. grid operator, requested to be included in the legal exemptions for the other RTOs and ISOs. A separate power manipulation case in Texas also pushed the CFTC to act, after a judge ruled that the RTO-ISO order had made the ability to sue "unavailable to [p]laintiffs."
Back in 2013, the CFTC issued exemptions to the Commodities Exchange Act that would exempt grid operators from oversight if the transaction in question fell under the definition of "‘financial transmission rights,' ‘energy transactions,’ ‘forward capacity transactions,’ or ‘reserve or regulation transactions,’" the agency wrote in the Federal Register last year.
That Federal Register filing pertained to SPP's request to be included in the RTO-ISO order, as it was the only grid operator kept out of the exemptions. In discussing the SPP proposal, the agency said it never intended the RTO-ISO Order to touch section 22 of the Commodities and Exchange Act, which governs the ability of private parties to sue under the law.
"It would be highly unusual for the Commission to reserve to itself the power to pursue claims for fraud and manipulation ... while at the same time denying private rights of action and damages remedies for the same violations," the agency wrote.
But if affecting the private right of action was not the intent of the RTO-ISO order, it seemed to be the outcome. In February, the 5th Circuit Court of Appeals upheld a lower court ruling that dismissed allegations of market manipulation on the grounds that the CFTC order invalidated them.
Aspire Commodities LP had alleged an ERCOT market participant withheld generation to influence prices in commodities derivatives markets. GDF Suez Energy North America, the defendant, sought dismissal, saying the CFTC order rendered the case moot.
The appellate decision in favor of GDF Suez precipitated the latest order from the CFTC, which said it wanted to make clear that market participants are still able to sue grid operators and each other.
"If adopted, the proposed amendment would make clear that this exemption does not prohibit private rights of action for violations of the very same anti-fraud and anti-manipulation provisions that are explicitly reserved in the order," CFTC Chair Timothy Massad said, according to EnergyWire.
Aspire welcomed the ruling, telling the publication that the clarification would help protect consumers in organized markets and preserve the integrity of CFTC rules.
Not all in the power sector were so pleased, however. A group of grid operators and the Edison Electric Institute testified to the CFTC in March, saying that allowing private actions could open grid operators up to a slew of lawsuits.
The proposed amendment was issued after a 2-1 vote at the CFTC. Commissioner J. Christopher Giancarlo dissented, saying the action would "toss legal certainty to the wind."
A public comment period will open for 30 days after the publication of the proposed amendment in the Federal Register.
Follow Gavin Bade on Twitter