By Tom Kleckner
PJM, ERCOT and CAISO have asked the Commodities Futures Trading Commission to remove language from a draft order that they say could undermine the broad exemptions the commission granted RTOs and ISOs in 2013.
The three grid operators filed joint comments last week concerning CFTC’s May 2015 draft order on a request from SPP seeking the same exemptions from the Commodity Exchange Act that the commission granted the six other RTOs and ISOs in 2013.
CFTC’s 2013 order exempted electricity transactions subject to tariffs approved by the Federal Energy Regulatory Commission from most provisions of the CEA while retaining its general anti-fraud and anti-manipulation authority over such transactions. SPP was the only grid operator not party to the 2013 order because its day-ahead market, the Integrated Marketplace, was not fully implemented until March 2014. (See CFTC Approves Dodd-Frank Exemption for RTOs.)
Private Rights of Action
The three grid operators said they are concerned that the CFTC draft order to SPP included, for the first time, a statement of its intent “to preserve private rights of action” under Section 22 of the CEA.
“Although the proposed exemption involves another RTO, the commission’s insertion … can be construed as a retroactive attempt to modify the ISO-RTO final order and, therefore, raises fundamental fairness and regulatory policy issues that potentially impact the ISO-RTO final order,” they said.
Although the text of the proposed SPP order does not preserve a private right of action, the preamble states that “[i]t 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. …Thus, the commission did not intend to create such a limitation and believes the [2013 order and the proposed SPP order do not] prevent private claims for fraud or manipulation under the act.”
“In the draft order, the CFTC generally addressed whether private parties could bring actions against RTO/ISO market participants they allege to have manipulated energy products and markets, which had otherwise been exempted from CFTC regulation,” PJM said in a press release. “However, rather than clarifying the CFTC’s intent on private rights of action, the draft order is confusing and could increase legal exposure to RTO/ISO market participants.”
PJM said its concerns were heightened by a recent civil case in Texas arising out of market conduct in ERCOT, which it said “raised questions as to whether the CFTC intended to also preserve the ability for a private party to sue a market participant for alleged market manipulation.”
Regulatory Certainty
Exempting ISO and RTO transactions from private rights of action under the CEA is essential to avoiding conflicting or duplicative regulation and providing market participants with certainty about the regulatory treatment of the transactions, the grid operators said.
The three requested that CFTC “remove its proposed statement about private claims in the preamble language or conform it to the text of the proposed SPP order. Alternatively, the commission should defer any action on its statement of intent until after it has conferred with its fellow regulatory and enforcement agencies.”
SPP’s application to CFTC asked for an exemption from provisions of the CEA and CFTC regulations for transmission congestion rights, energy transactions and operating reserve transactions. CFTC issued its draft order May 18.
PJM, ERCOT and CAISO filed their comments June 22 after consulting with other ISOs and RTOs, FERC and industry trade groups.
