FERC Filings
Motion for Clarification and/or Rehearing of EPSA re: Investigation of Terms and Conditions of Public Utility Market-Based Rate Authorizations
Comments
A. The Forseeability Test in Rule #2 Should Be Assessed Based on a Reasonable Person Standard
Rule #2 is the general prohibition of activities that attempt to manipulate market forces. Rules #2(a) through 2(d) then detail and define particular prohibited activities. In Rule #2, the Commission prohibited, “Actions or transactions that are without a legitimate business purpose and that are intended or foreseeably could manipulate market prices.…” While the Commission’s goal in this proceeding is to provide certainty to market participants, the forseeability test may create uncertainty since it depends on the ability of market participants to divine in advance that particular behaviors, acceptable under current rules of the market, will result in manipulative outcomes. For this reason, Rule #2 should be clarified to impose the phrase, “foreseeably could manipulate market prices,” an intent requirement and a reasonable person standard. Specifically, the Commission should clarify that forseeability will be assessed in the same manner as complaints concerning violations of the market behavior rules are assessed – whether a reasonable person would have foreseen that the behavior in question would result in market manipulation. The inclusion of this standard would be consistent with the November 17 order and the standard set for the complaint process.
B. Description of Wash Trades in Rule #2(a) Should Conform to Proposed Federal Legislative Language
As discussed previously, it is appropriate to include a prohibition against specific transactions known as wash trades. However, in order to insure clarity and a common prohibition against that behavior, EPSA again recommends that the Commission conform its language to the legislative language in the pending National Energy legislation. While the energy bill is now on hold, that language reflects Congressional efforts to define and bar wash trading. If the language of the November 17 order is preserved, when the energy bill is passed, market participants will be faced with having to comply with two different and potentially inconsistent sets of requirements with respect to wash trading. To avoid the uncertainty this would create, or the need for the Commission to modify its rules when the energy legislation passes, EPSA urges the Commission to conform its rule to the legislative mandate:
SEC. 220. PROHIBITION ON ROUND TRIP TRADING…
(b) DEFINITION OF ROUND-TRIP TRADE.-For the purposes of this section, the term ‘round-trip trade’ means a transaction, or combination of transactions, in which a person or other entity-
(1) enters into a contract or other arrangement to purchase from, or sell to, any other person or other entity electric energy at wholesale;
(2) simultaneously with entering into the contract described in paragraph (1), arranges a financially offsetting trade with such other person or entity for the same quantity of electric energy so that, collectively, the purchase and sale transactions in themselves result in no financial gain or loss; and
(3) has the specific intent to distort reporting revenues, trading volumes, or prices.
C. Reference to Jurisdictional Transmission Providers in Rule #3 Should Include Language on FERC-Approved Tariff
The text explaining Market Behavior Rule #3 states,
In addition, we clarify that this rule will not be a basis for a jurisdictional entity requesting or receiving information covered by this rule to compel the provision of such information or to fail to provide requested confidential treatment. The ability to compel the provision of information requested and determinations with respect to requests for confidential treatment will depend on the Commission-approved rules and regulations of the institution requesting or receiving the information.
EPSA requests that the Commission clarify the language of Market Behavior Rule #3 to conform to that explanation, ensuring that the rule does not appear to impute to jurisdictional entities an open-ended ability to require new information not currently required under its Commission-approved tariff. Hence, the language of Rule #3 should be changed to read:
Provide accurate and factual information and not submit false or misleading information, or omit material information in any communication with the Commission, Commission-approved market monitors, Commission-approved regional transmission organizations, Commission-approved independent system operators or jurisdictional transmission providers pursuant to their Commission-approved tariff, unless Seller exercised due diligence to prevent such occurrences.
D. Rule #5 Should Conform to Order’s Explanation of Information to be Retained
Similar to the clarification requested for Rule #3, EPSA urges the Commission to alter the language of Rule #5 to more properly reflect the explanatory language in the order. In this case, paragraph 124 of the order clarifies that the Commission is not seeking retention of “cost-of-service” or analytical data in order to reconstruct all sales. The order states, “Rather, we are requiring that sellers retain the complete set of contractual and related documentation upon which they billed their customers for their sales.” Nevertheless, the retention of the phrase in the Market Behavior Rule “all data and information upon which it billed the prices” might be construed as requiring the retention of cost-of-service or analytical data related to all sales. EPSA suggests the following revision to the Market Behavior Rule, consistent with the discussion in paragraph 124 of the order:
Retain, for a period of three years, the complete set of contractual and related documentation upon which it billed its customers for the electric energy or electric energy products it sold pursuant to this tariff or the prices it reported for use in price indices.
E. FERC Staff Must Be Vigilant in Monitoring Complaint Procedures
EPSA applauds the Commission’s approach to establishing complaint procedures and limitations designed to offer market participants transactional finality. The limitation on instigating complaints by both market participants and the Commission is essential to provide certainty in competitive energy markets. The Commission’s own 90-day time limitation on the initiation of an investigation is well-reasoned and further ensures market certainty. EPSA remains concerned, however, about the use of the FERC Hotline and informal communications with enforcement personnel by market participants to report alleged market behavior violations beyond the 90-day time limitation.
While the Hotline and access to enforcement personnel are important avenues for oversight and redress of certain egregious market issues, Commission staff must be vigilant that market participants do not utilize these avenues as an opportunity to extend the 90-day time limitation for reporting alleged market behavior violations that would otherwise apply. Should the Commission act in response to a Hotline complaint made by a market participant no longer eligible to file a complaint itself, transactional finality and market certainty are decimated. For this reason, staff must remain cognizant of the possible methods market participants might use to circumvent this limitation. The Commission should direct that Commission staff ensure that any allegations of market behavior violations made through the Hotline or informal communications are subject to a due diligence process to determine that the complaint was made in a timely and acceptable manner.