Recently in energy trading Category

U.S. Supreme Court Denies Review of California Low-Carbon Fuel Standard

June 30, 2014

The U.S. Supreme Court today denied several petitions seeking review of the Ninth Circuit's decision upholding California's Low-Carbon Fuel Standard ("LCFS") against claims that the LCFS violates the Commerce Clause of the U.S. Constitution. While today's decision makes the Ninth Circuit's decision final, the underlying issue -- how far individual states can go to regulate greenhouse gases and promote renewable energy without violating the Commerce Clause -- will remain the subject of intense litigation. For example, recent lower-court decisions from Colorado and Minnesota, reaching apparently opposite conclusions on the constitutionality of state renewable portfolio requirements, suggest that the Supreme Court may ultimately have to step into the fray.

As we've previously reported here and here, California's LCFS requires petroleum distributors in the state to reduce the carbon intensity of motor fuels they sell by blending them with biofuels or other lower-carbon alternatives. The LCFS contains a complex mechanism which uses a life-cycle analysis to assign carbon intensity scores to different biofuels production processes, providing a significant economic advantage to fuels with lower carbon intensity scores. This mechanism was challenged by a coalition of out-of-state alcohol fuels producers and trade groups, who argued that California's mechanism discriminates against them on its face by assigning higher carbon intensity scores to out-of-state producers than in-state producers. California rebutted these claims by asserting that its life-cycle analysis model is location-neutral and reflects the reality that production of alcohol fuels in some areas has a greater carbon footprint than fuels produced within California. Alcohol fuels produced in the Midwest, for example, generally have a higher carbon footprint than fuels produced within California because Midwest biofuels are produced using electricity from a grid that relies more heavily on coal-fired plants and because of the lengthy transportation routes required to deliver Midwest fuels into California add to the out-of-state fuel's carbon intensity.

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FERC Approves Energy Imbalance Market Tariffs, Paving Way for October Start-Up

June 20, 2014

At its monthly meeting yesterday, the Federal Energy Regulatory Commission ("FERC") approved tariffs that will allow the western Energy Imbalance Market ("EIM") to open as planned on October 1, 2014. The EIM is designed to allow economic dispatch at five-minute intervals of energy balancing resources in the footprint of participating utilities. The EIM is one of a number of initiatives undertaken by utilities in the West to address the problems created by the rapid expansion of non-dispatchable wind and solar resources. Because these resources produce output that can be both highly variable and unpredictable, they have created increasing demand for balancing resources that can respond rapidly to changes in generation output to maintain the balance between generation supply and electric demand necessary for reliable operation of the electric system.

Yesterday's FERC orders approve the EIM proposed jointly by PacifiCorp and the California Independent System Operator ("Cal-ISO"). The PacifiCorp-ISO EIM will employ the Cal-ISO's existing five-minute market mechanism to dispatch balancing resources in the EIM's footprint. Initially, the EIM will dispatch resources within California, as well as within the two balancing authorities operated by PacifiCorp, which are centered on its service territories in the Pacific Northwest and Utah. Participation in the EIM is voluntary and the system is designed to allow expansion through addition of new utility participants.

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Eric Christensen to Speak at 19th Annual Buying & Selling Electric Power Conference

January 7, 2014

Please join us on January 13 and 14, 2014, for the 19th Annual Conference on Buying and Selling Electric Power in the West. The conference brings together leading energy attorneys, expert consultants, industry executives, government officials, and many others to discuss cutting-edge issues affecting the electric industry in the West.

On January 14, Eric Christensen, Chairman of GTH's Energy, Telecommunications and Utilities practice group will present a lecture on Columbia River Treaty, the current status of the treaty, and how future changes are likely to affect electric power production and transmission in the Pacific Northwest.

We look forward to seeing you there.

FERC Files Suit Seeking Market Manipulation Penalties Against Barclays

October 10, 2013

Following last week's announcement that it has found evidence of manipulation in the Western markets by Constellation Energy Commodities Group, the Federal Energy Regulatory Commission ("FERC") yesterday took another major step in its battle to protect the electricity markets from manipulation by unscrupulous traders. Seeking to enforce nearly $500 million in penalties it assessed in July against Barclays Bank and four individual Barclays energy traders, FERC filed a lawsuit in the U.S. District Court for the Eastern District of California. (Case No. 2:13-at-01158, filed Oct. 9, 2013).

The case will blaze new legal ground because it is the first time FERC has used its power under Section 823b(d) of the Federal Power Act to enforce civil penalties against a power trader accused of market manipulation. Under those procedures, the District Court will conduct a review de novo of the law and facts found by FERC in its July order. Section 823b(d)'s de novo review standard is considerably more stringent that the "arbitrary and capricious" standard ordinarily applied by the courts when reviewing FERC orders.

If you have any questions about the lawsuit against Barclays and its traders, FERC's market manipulation rules, or other matters involving the energy industry, please contact a member of GTH's Energy, Telecommunications, and Utilities practice group.

FERC Announces New Allegations of Western Electricity Market Manipulation

October 9, 2013

On October 4, the Federal Energy Regulatory Commission ("FERC") issued a terse announcement of its preliminary determination that Constellation Energy Commodities Group ("CECG") improperly manipulated the Western electricity markets. FERC issues such notices after its investigative staff has completed a non-public investigation of alleged misconduct, the subject of the investigation has had an opportunity to respond in writing, and FERC staff has considered that response. Hence, the notice is not a definitive statement that improper conduct has occurred, but it indicates that the staff is sufficiently confident in the evidence to announce its preliminary conclusions publicly.

The notice provides almost no details of the allegations against CECG. However, the nature of the violation specified in the notice, combined with a previous investigation resulting in a then-record fine against CECG, suggests that CECG may have been manipulating the California ISO's physical market prices to artificially benefit its financial positions in those markets.

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Federal Court Decision Illustrates Hazards of FERC-Jurisdictional Markets in the Pacific Northwest

October 7, 2013

The U.S. District Court for the District of Maryland last week issued an opinion striking down a "contract for differences" designed to ensure an adequate long-term power supply. The decision underscores some of the pitfalls that may be arise from creation of an "Energy Imbalance Market" ("EIM") or similar FERC-jurisdictional "centralized" markets here in the Pacific Northwest. PPL Energy Plus, LLC v. Nazarian, D. Md. No. MJG-12-1286 (issued Sept. 30, 2013).

The case arises from the struggles of the Maryland Public Service Commission ("MPSC") to address long-term power supplies in Maryland, particularly in constrained areas of the PJM market. The MPSC was concerned that in PJM -- the regional transmission organization ("RTO") that operates electric markets in the mid-Atlantic region, where prices are set based upon fluctuating Locational Marginal Price -- fails to provide adequate incentives for construction long-term power supplies. To address this problem, the MPSC approved a "contract for differences" between the local supplier and a generation developer. The contract creates a mechanism that effectively ensures a stable long-term price for generation by compensating the generation owner when short-term locational prices fall below the long-term guaranteed price.

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Will Protectionism Foil California's Increased RPS Mandate?

September 23, 2013

Under AB 327, passed this month by the California legislature, California has cleared the way to ratchet up its aggressive Renewable Portfolio Standard ("RPS") mandate beyond the 33% it already requires. But the legislature did nothing to address the most troubling aspect of California's RPS program, the "Portfolio Content Categories" -- commonly referred to as "buckets" -- which systematically favor in-state renewable resources over out-of-state resources. A recent report from the National Renewable Energy Laboratory ("NREL") shows, however, that California is rapidly running out of easily-developed in-state resources. It is therefore becoming increasingly clear that, unless California lowers the wall it has erected around its renewable energy market, it will either be unable to meet its ambitious renewable energy goals or else meeting those goals will come at an exorbitant cost to the state's consumers.

On the other hand, if California lowers or eliminates barriers to outside resources, access to huge and highly desirable resources in other parts of the West will allow California to achieve its ambitious climate and renewable energy goals in the most economically efficient manner. Even if California's legislature is unwilling to lower these barriers voluntarily, recent decisions from the federal courts demonstrate that its protectionist policies can be overcome through a legal challenge under the Commerce Clause of the U.S. Constitution.

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FERC Lifts Curtain on Market Manipulation Investigation, Settles Charges Against JP Morgan for $410 Million

July 30, 2013

Confirming rumors that have swirled for several weeks, the Federal Energy Regulatory Commission ("FERC") today today approved a settlement between JP Morgan Ventures Energy Corporation, the energy trading arm of financial giant JP Morgan, and FERC's Office of Enforcement. The settlement is eye-opening both for its $410 million price-tag and because it reveals for the first time details of the market manipulation schemes carried out by JP Morgan.

The market manipulation schemes -- identified as "Strategy A" through "Strategy H" in the settlement agreement -- arose from JP Morgan's attempts to extract value from under-performing assets it purchased from Bear Stearns as Bear Stearns spiraled into bankruptcy in 2008. These assets included a number of older gas-fired generators in Southern California, with a total of 4,000 MW of capacity, and an additional gas-fired generator in Michigan. The plants were built in the 1950s and '60s, and, because they used older technology, were relatively inefficient. Because they are inefficient, the plants were rarely dispatched in the "organized markets" operated by the California ISO and Midwest ISO, and therefore consistently lost money.

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Defense Logistics Agency Seeks Renewable Energy Credits

July 26, 2013

The Defense Logistics Agency recently issued a Request for Proposals ("RFP") for Renewable Energy Credits ("RECs"). The agency is seeking RECs equivalent to slightly less than 900,000,000 kWh, which will ultimately be delivered to the U.S. Air Force and other agencies, including the Pacific Northwest National Lab here in Washington. Responses to the RFP are due on August 19. Additional information is available here.

"EIM, RTOs, and FERC Jurisdiction: Does Participation in a Regional Energy Imbalance Market Subject Public Power to FERC Jurisdiction?": Eric Christensen Publishes Article in May NWPPA Bulletin

May 15, 2013

We're proud to announce that GTH partner Eric Christensen penned the cover story in the May 2013 issue of the Northwest Public Power Association Bulletin. Here is the text of the article:


Does Participation in a Regional Energy Imbalance Market
Subject Public Power to FERC Jurisdiction?

By Eric Christensen, Partner Gordon Thomas Honeywell

The rapid rise of variable renewable resources, especially wind power, has put increasing pressure on the West's electric system to balance the rapidly fluctuating output often produced by these resources. In response, a regional Energy Imbalance Market ("EIM") is now under active consideration. The EIM would allow Balancing Area Authorities ("BAAs") to obtain balancing reserves from across a broad region, in theory allowing more economic and reliable operation of the region's balancing capacity. Public power has greeted EIM with considerable skepticism, observing that Regional Transmission Organizations ("RTOs") and other "organized markets" have often failed to produce expected benefits.

Public power is equally concerned that an EIM could subject public power systems to Federal Energy Regulatory Commission ("FERC") jurisdiction. Centralized control by FERC is, of course, the antithesis of local control, one of public power's keystone values. FERC's recent tendency to pursue its jurisdiction aggressively on behalf of renewable producers heightens this concern. For example, FERC in 2011 for the first time asserted its "FERC-lite" jurisdiction, invalidating the Bonneville Power Administration's approach to managing periods of excess wind generation.
As this article explains, public power is right to be concerned that an EIM could result in both expanded FERC jurisdiction and a broader push toward a West-wide RTO. Both risks, however, can be mitigated by insisting on specific structures and conditions for EIM participation.

Relevant Precedents: FERC Jurisdiction Over Consumer-Owned Utilities Operating in Organized Markets

In the industry's first few decades, federal jurisdiction was of little concern to public power. Public power operated in its own sphere, governed by elected representatives of the citizens it serves, generally free from either state or federal rate regulation. With increasing integration of the industry and regulatory restructuring, these jurisdictional lines have blurred. In some cases, Congress added new statutory authority giving FERC jurisdiction over specific aspects of consumer-owned systems. In other cases, FERC leveraged its existing statutory authority. For example, to enforce its "open access" transmission regime, FERC required consumer-owned transmission systems to adopt "Safe Harbor" open access tariffs so that they could obtain "reciprocal" access to IOU-owned transmission facilities.

An examination of recent precedents from Western RTOs and cooperative transmission ventures demonstrates that there is some basis for concern that participation in an EIM could subject a consumer-owned utility to new FERC jurisdiction. Perhaps most notoriously, after the meltdown of Western power markets in 2000-01, FERC attempted to force public power entities that had participated in the California ISO and PX markets to disgorge refunds. Ultimately, the Ninth Circuit rejected those attempts, concluding that the Federal Power Act plainly prohibits FERC from exercising its refund authority over public power entities. The Court, however, left the door open for California to pursue refunds in court. This opening has proved costly for public power. For example, in April, the U.S. Court of Claims allowed California's contract-based lawsuit against the Bonneville Power Administration ("BPA") to move forward. This is a particularly bitter pill for Northwest public power ratepayers, many of whom suffered greatly from California's missteps during the 2000-01 market meltdown and were generally denied relief by FERC. They now face the prospect of paying again for California's mistakes, this time through inflated BPA rates.

The Courts have also concluded that consumer-owned utilities participating in the California Independent System Operator ("ISO") may be subject to just-and-reasonable rate regulation where the rates charged by the consumer-owned utility affect the FERC-jurisdictional rates charged by the ISO. When the City of Vernon, California's municipal utility joined the ISO, the rates charged by Vernon for ISO-administered access to Vernon's transmission system became an element of the transmission rates charged by the ISO. FERC concluded that, because Vernon's transmission rates were an element of the ISO's transmission rates, Vernon's rates must be subject to FERC oversight to ensure that the resulting transmission rates charged by the ISO are just and reasonable. After extended litigation, the Ninth Circuit ultimately upheld this result.
FERC has asserted a similar form of jurisdiction over public power entities in other regions, as well. For example, where Basin Electric Cooperative entered into a joint-use transmission arrangement with a FERC-jurisdictional IOU, FERC asserted jurisdiction to review Basin's transmission rates because Basin's rates are a component of the rates charged by the joint-use system.

On the other hand, the courts have flatly rejected FERC attempts to force changes in the management structure of the RTOs and ISOs. Following the 2000-01 crisis, FERC concluded that the ISO's management structure was partly to blame for market dysfunctions, and attempted to force a change in the composition of the ISO Board. The U.S. Court of Appeals for the D.C. Circuit rejected FERC's assertion of authority. Of particular interest, the Court of Appeals rejected FERC's claim that its authority to regulate the "practices" of jurisdictional utilities allows FERC to order specific changes in the management of those utilities. FERC's reading of the statute, the Court concluded, ignores the surrounding statutory language, which is aimed at providing FERC with authority to regulate rates, not every aspect of utility operations. Thus, the Court reasoned, FERC can regulate utility "practices" only if they are directly connected with the utility's rates. Because there was no clear connection between the structure of the ISO's board and the rates it charged, the Court concluded, FERC's attempt to dictate the structure of the ISO's governing board exceeded its statutory authority.
In summary, the participation of consumer-owned utilities in "organized markets" such as the California ISO is a mixed bag. FERC has on a number of occasions asserted jurisdiction over consumer-owned utilities participating in ISOs or RTOs. And, while the Courts have rejected some of these assertions, they have upheld others. Consumer-owned utilities contemplating participation in the EIM are therefore well-advised to exercise caution if they wish to avoid becoming subject to increased FERC jurisdiction.

Limiting FERC Jurisdiction in an EIM
While exposure to FERC jurisdiction is a valid concern, expanding FERC jurisdiction need not follow inevitably from a decision to participate in the EIM. For example, a number of consumer-owned utilities participate along with FERC-jurisdictional IOUs in regional transmission bodies such as ColumbiaGrid and WestConnect. FERC precedent regarding these and similar regional ventures demonstrate that, with appropriate safeguards, FERC's assertion of jurisdiction over consumer-owned participants can be limited.

Such safeguards include:

Defining off-ramps for consumer-owned utilities. Perhaps the best safeguard for consumer-owned utilities is a clear "off-ramp," allowing them to terminate their participation in EIM if FERC attempts to extend its jurisdiction over them. For example, WestConnect proposed a transmission pilot project aimed at reducing the "pancaking" of transmission rates across the systems of its members, which included both jurisdictional IOUs and non-jurisdictional co-ops and consumer-owned utilities. FERC approved an agreement allowing participants to withdraw at any time prior to the start-up of the pilot, at any time after start-up as a result of adverse regulatory action, and after ninety days' notice for any other reason occurring after start-up. Similarly, the Nebraska Public Power District ("NPPD") and Omaha Public Power District ("OPPD") in the Southwest Power Pool are authorized to withdraw from the Southwest Power Pool if FERC does not accept their rates or transmission revenue requirements. The ability to withdraw from the organization administering EIM in response to an unjustified claim of FERC jurisdiction gives consumer-owned participants powerful leverage to prevent FERC from overstepping its bounds.

De-coupling jurisdictional and non-jurisdictional rates. It may be possible to structure an EIM so that the rates paid to non-jurisdictional utilities remain separate and distinct from the rates paid to FERC-jurisdictional IOUs. For example, before the WestConnect transmission pilot discussed above went into effect, FERC declared that the rates charged by non-jurisdictional utilities were not subject to FERC review because they did not affect rates charged by jurisdictional IOUs and additional safeguards, such as rate caps, were in place to ensure that jurisdictional rates remain just and reasonable. Similarly, FERC has approved participation of NPPD and OPPD in the Southwest Power Pool subject to agreements that explicitly limit FERC's authority to review the NPPD's and OPPD's rates or revenue requirements. As these examples demonstrate, it may be possible to limit FERC jurisdiction by separating EIM rates paid to non-jurisdictional utilities from rates paid to jurisdictional utilities, or by insisting upon specific contractual limits on FERC jurisdiction over public power.

De-coupling the EIM market from transmission rates. The EIM should be limited to the specific function of allowing regional exchange of regulating reserves and other sub-hourly products. It should not operate a centrally-administered transmission market. Limiting the EIM's functions in this manner will prevent FERC from attempting to leverage its jurisdiction over interstate transmission.

Recognizing public power authorities. The authority of public power governing bodies to set their own rates and policies is, of course, a cornerstone of the public power movement. Similarly, consumer-owned utilities operate under unique limitations arising from, for example, state law and from federal rules governing municipal bonds. Consumer-owned utilities participating in the EIM should insist on language in governing agreements that will prevent the actions of the EIM from violating state law, putting tax-exempt financing at risk, or displacing the basic functions of publicly-elected governing bodies. Such mechanisms not only assure consumer-owned utilities that they are operating within the boundaries of existing law, but also serve to limit FERC jurisdiction by requiring FERC to abide by the legal limits faced by consumer-owned utilities.

It is important to recognize that, in the Energy Policy Act of 2005, Congress granted FERC new refund authority over consumer-owned utilities. This new authority allows FERC to order refunds from consumer-owned utilities for short-term sales (sales for periods of less than one month) if the sales are "through an organized market in which the rates for sale are established by [FERC]-approved tariff (rather than by contract)" and the sale violates that tariff. FERC has yet to provide any clear guidance as to the meaning of this new authority. Hence, consumer-owned entities contemplating participation in an EIM must recognize the existence of the new authority, devise strategies for limiting the authority, and consider the possibility that their short-term sales on the EIM could be subject to FERC-ordered refunds.

Limiting EIM Expansion
As with FERC jurisdiction, public power is rightly concerned that, even if an EIM is wise, it could pave the way for a full-fledged RTO, with its attendant costs, complications, and market manipulation risks. In the same way that public power participants in an EIM should insist on limits to FERC jurisdiction, they should also insist on limits that prevent EIM from becoming a "slippery slope" to a West-wide RTO.

Two considerations are key. First, there is no reason that the EIM itself should be considered an RTO. On the contrary, if the functions of the EIM are strictly limited to its core mission, it would not be an RTO because it would not operate all the functions of an RTO. Rather, it would be more like ColumbiaGrid or WestConnect, organizations which perform limited transmission functions but are neither registered as an RTO nor considered to be an RTO by FERC.

Second, the governing documents of EIM should either prohibit expansion of the organization or else require a supermajority to move forward with any new functions. For example, ColumbiaGrid's governing documents allow it to take on new functions only with a super-majority vote of its members. Such a supermajority requirement can prevent movement toward in RTO unless a strong regional consensus, which necessarily must include public power, develops in favor of RTOs.

Public power has good cause to be concerned that participation in an EIM could result in expanded FERC jurisdiction over consumer-owned utilities and could be a step toward a West-wide RTO. These are not inevitable consequences of an EIM, however, and a number of proven safeguards are available to prevent these outcomes if consumer-owned utilities elect to participate in the EIM.

(Note: While the article is officially the "Cover Story" of the May NWPPA Bulletin, the photo on the cover is in fact a vendor from NWPPA's recent Engineering and Operations Conference. This is because, despite a valiant effort, NWPPA's editors could not find a compelling graphic concerning the EIM or FERC jurisdiction.)

Market Manipulation, Preemption, and FERC Jurisdiction: Antitrust Claim from 2000-01 Crisis Revived By Ninth Circuit

April 10, 2013

The U.S. Court of Appeals for the Ninth Circuit today revived a class-action antitrust case against a large assemblage of natural gas sellers and marketers who were allegedly involved in manipulating Western natural gas prices during 2000-01. Manipulation of gas prices was one factor contributing to the meltdown of Western electricity markets during the same period. The court's decision, entitled In re: Western States Wholesale Natural Gas Antitrust Litigation, limits the extent to which the Federal Energy Regulatory Commission's exclusive jurisdiction under the Natural Gas Act ("NGA") preempts private antitrust claims under both state and federal law.

While the immediate effect of the court's decision is to allow plaintiffs harmed by the alleged gas market manipulation to seek potentially substantial antitrust remedies, the decision is likely to have long-term import well beyond the specifics of the particular facts addressed by the court. This is so because the NGA is one of a family of similar New Deal-era statues which also includes statutes like the Federal Power Act and the Federal Communications Act, and the court's decision turns on language that is common to this family of statutes. Further, the court opens the way for antitrust damage claims that allow injured private parties to seek damages, including treble damages, against market manipulators. These private actions will serve to bolster FERC's recently-intensified battle against energy market manipulation, which extends to the power markets as well as the natural gas markets.

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CFTC Issues Two Final Rules Exempting Certain Public Power and RTO Transactions From Most Dodd-Frank Requirements

March 29, 2013

Yesterday, the Commodities Futures Trading Commission ("CFTC") issued two final rules that clarify the regulatory landscape for public power and other utilities attempting to comply with the Dodd-Frank Act. The first rule exempts energy-related transactions between public power and cooperative utilities from most Dodd-Frank requirements. The second exempts most transactions entered into in centralized RTO or ISO markets governed by FERC-approved tariffs. Together, the orders offer welcome guidance to electric utilities struggling to comply with Dodd-Frank requirements that have often raised more questions than answers.

The first rule concerns transactions between public power entities, including municipal and government-owned utilities and cooperatives. The rule provides that transactions between "Exempt Entities" involving "Exempt Non-Financial Energy Transactions" will be exempt from most requirements of the Dodd-Frank Act. "Exempt Entities" include municipal utilities, government-owned utilities, tribal utilities, and cooperatives that are tax-exempt under Section 501(c)(12) of the Internal Revenue Code. "Exempt Non-Financial Energy Transactions" include transactions involving delivery of electric energy, generation capacity, transmission services, fuel deliveries, and environmental attributes (such as "Renewable Energy Credits") if entered into for purposes of managing supply or price risks associated with the utility's obligation to deliver electric energy to its customers. Hence, if a transaction is between two publicly-owned utilities or cooperatives and involves delivery of commodities or services required to serve end-use customers, the transactions will be exempt from the most burdensome requirements of the Dodd-Frank Act, such as exchange-trading and collateralization obligations. Notably, both parties must be publicly-owned or cooperative utilities for the exempt to apply, and the exemption does not apply to interest rate, credit, or other kinds of non-energy transactions.

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D.C. Circuit Rejects FERC Jurisdictional Claims Over Natural Gas Commodity Market Manipulation

March 18, 2013

On Friday, the U.S. Court of Appeals for the D.C. Circuit concluded that the Federal Energy Regulatory Commission ("FERC") lacks jurisdiction to enforce a $30 million fine against accused natural gas market manipulator Brian Hunter. The D.C. Circuit's opinion provides some needed clarity to the lines of regulatory jurisdiction where manipulation involves both physical natural gas and electricity markets and forward commodity futures markets. In such cases, the D.C. Circuit's opinion makes clear that FERC's jurisdiction is limited to the physical markets, while the Commodity Futures Trading Commission's ("CFTC") exclusive jurisdiction extends to the energy commodity futures markets.

As reported in more detail previously, the case arose from alleged manipulation of the NYMEX futures market for natural gas by Brian Hunter, then a trader for the Amaranth hedge fund. According to FERC's investigation, Hunter "shorted" his position in the natural gas market, then sold very large volumes of gas futures contracts during the February, March and April 2006 NYMEX settlement periods. The sales of commodity futures were intended to artificially depress natural gas prices, thus artificially benefitting Hunter's short position in the physical markets. In 2007, both FERC and the CFTC launched investigations of Hunter's activities, resulting in competing jurisdictional claims.

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Rushing the Spring? PacifiCorp, California ISO Announce Energy Imbalance Market

February 13, 2013

At this time of year here in the Pacific Northwest, months of damp and dreary weather leave even the hardiest natives yearning for the brighter days of spring and summer. In February, Northwest gardeners can often be found digging, planting, composting, and weeding in the hope that this will somehow hasten the coming of more pleasant weather. Of course, spring cannot be rushed, but comes only in its own time. Yesterday, PacifiCorp and the California ISO ("CAISO") announced a Memorandum of Understanding ("MOU") committing the two entities to implementing a real-time Energy Imbalance Market ("EIM") by October of 2014. Like Northwest gardeners attempting to rush the spring, the MOU appears to be an attempt to jumpstart an EIM in the West. Because PacifiCorp and the CAISO are two of the largest transmission operators in the West, the effort must be taken seriously.

The EIM is one proposed solution to the problems of integrating increasing volumes of variable generation from renewable resources such as wind power. The core aim of EIM is to establish a market for regulating and balancing reserves that would allow system operators to draw on a wide range and diversity of resources to maintain electric system balance as renewable generation rises and falls, which theoretically will improve the efficiency of balancing operations. The EIM idea has been under consideration in the Northwest for the last couple of years, and has advanced to the point that detailed studies are being performed.

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CFTC and FERC Battle It Out in Court, Continuing Jurisdictional Uncertainty Over Energy Commodity Trading

February 8, 2013

In an unusual, and rather unseemly, display, the Federal Energy Regulatory Commission ("FERC") and the Commodity Futures Trading Commission ("CFTC") have brought their long-standing battle concerning which agency has jurisdiction over energy commodity markets to the U.S. Court of Appeals for the D.C. Circuit, which yesterday heard oral arguments on the subject. While a final decision is not expected for several months, early reports suggest that the Court was skeptical of FERC's jurisdictional claims.

The jurisdictional squabble arises from accusations of market manipulation lodged against former natural gas trader Brian Hunter. In 2006, Hunter, then working for the Amaranth hedge fund, took very large positions attempting to capitalize on anticipated steep increases in gas prices during the winter of 2006-07, but those bets went spectacularly wrong. Amaranth lost roughly $6 billion and collapsed. Following the collapse, both FERC and CFTC accused Hunter of manipulating natural gas prices on the New York Mercantile Exchange ("NYMEX"), dumping large volumes on that exchange in order to drive down prices with the aim of benefiting Amaranth's position in related swap markets.

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