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Energy Regulators FERC, CFTC Finally Reach Proactive Understanding on Jurisdiction and Information Sharing

Primary regulators of energy transactions, the Federal Energy Regulatory and Commodity Futures Trading Commissions (FERC, CFTC or jointly Participating Agencies) began the new year by entering on January 2 two overdue Memoranda of Understanding (MOU), one on overlapping jurisdictions, the other on sharing of information generated in connection with market surveillance and investigations into suspected market manipulation, fraud or abuse.  Both MOUs became effective immediately. FERC, with jurisdiction over physical natural gas and power transactions, and the CFTC, with jurisdiction over financially settled products such as energy futures and swaps, had battled in recent years over the reach of each other’s jurisdiction, culminating in a March 2013 decision of the U.S. Court of Appeals for the D.C. Circuit finding that FERC improperly invaded CFTC’s jurisdiction when, under authority of the Energy Policy Act of 2005, it sought to fine Amaranth Advisors trader...

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FERC Imposes Whopping Penalty Against Bank and Traders for Allegedly Manipulating Western Power Prices

by Dan Watkiss In a July 16 order, the Federal Energy Regulatory Commission (FERC) assessed civil penalties of $453 million against a British banking conglomerate (BCL) and four of its power traders for manipulating western electricity markets from from November 2006 to December 2008 in violation of the Federal Power Act (FPA) and Commission regulation 1c.2.  The bank has 30 days to pay its $435 million penalty and disgorge $34.9 million in profits plus interest from its manipulative trades; likewise, the traders have 30 days to pay penalties ranging from $1 million to $15 million each.  The bank announced that it will not pay and instead will contest the finding of market manipulation in federal court.  The penalties are among the highest FERC has ever assessed under the authority Congress conferred on it in 2005 to police market manipulation. FERC’s Office of Enforcement launched its investigation of BCL in July 2007, culminating in an...

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NYISO the Next Battlefield for Behind-the-Meter Generation Demand Response

by William Friedman The Federal Energy Regulatory Commission’s (FERC) approval of the New York Independent System Operator’s (NYISO) demand response compensation program left out a mechanism for compensating demand response from behind-the-meter generation, which prompted the latest outcry from demand response providers.   The demand response providers filed a complaint with FERC claiming discrimination between methods of demand response and seeking to compel the NYISO to compensate behind-the-meter generation demand response.  On the other side of the controversy are power producers who fear that compensating behind-the-meter generation would take money from power generation on the other side of the meter. Demand response is a reduction in electricity consumption by customers from their expected consumption in response to an increase in the price of electricity or incentive payments designed to induce lower consumption.  In...

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Inter-regional Plans for the Nation’s High-Voltage Transmission Grid Land on FERC’s Doorstep

by Christopher S. Bloom Jurisdictional Public Utility Transmission Providers (TP) filed earlier this week with the Federal Energy Regulatory Commission (FERC) inter-regional plans for the efficient and economical coordination of the construction and financing of high-voltage electricity transmission lines pursuant to FERC Order 1000. The inter-regional plans are to address state and regional needs and policies, such as renewable portfolio standards, and are sure to determine how transmission is financed and how both transmission lines and new electric generation are sited.  Once approved by FERC the plans are to be incorporated in the open-access transmission tariffs (OATT) of the plan’s author —either the public utility or, in regions where they exist, the regional transmission organization or independent system operator.  TPs submitted regional plans to FERC last October.  In the new inter-regional plans, neighboring TPs in...

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Southwest Power Pool to Finalize New Integrated Marketplace

by Christopher S. Bloom The Southwest Power Pool’s (SPP) deadline for revising its tariff to add day-ahead and real-time energy to its Integrated Marketplace is this Friday, February 15.  Federal Energy Regulatory Commission (FERC) granted conditional acceptance of SPP’s revised tariff in October, contingent upon SPP submitting various complying revisions. The Integrated Marketplace is a change of course from the Energy Imbalance Service (EIS) market that SPP launched in 2007. The EIS market has served as a real-time platform for generators to sell excess energy and for load servers to purchase that energy. EIS reduced dependence on bilateral contracts, and enabled competition between generators to provide the lowest-priced energy, using locational imbalance pricing. The new Integrated Marketplace revamps the EIS by creating a day-ahead market along with a real-time energy and operating reserve market. To reduce energy and...

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Very Strict Liability for False or Materially Incomplete Representations: Forfeiture of FERC Market Pricing Authority

by Dan Watkiss and William Friedman “No showing of the respondent’s intent or mindset is necessary to show a violation of [18 CFR § 35.41(b)] has occurred,” explained a divided (4-1) Federal Energy Regulatory Commission (FERC) last week in an order suspending for six-months the authority of J.P. Morgan Ventures Energy (JPM) to sell power at market-based rates (MBR).  FERC did so based on its findings that JPM had submitted inaccurate information and omitted material information in three filings with the Commission. Ironically, the section 35.41(b) violation that cost JPM its MBR authority arose in connection with JPM’s alleged resistance to discovery, and not in connection with the underlying California ISO referral to FERC enforcement staff of suspicions that JPM may have manipulated the California power markets. This decision should serve as a cautionary tale: Liability for misrepresentations to FERC or its...

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FERC Declares That Proposed Wind Curtailment Violates PURPA

by Melissa Dorn The Federal Energy Regulatory Commission (FERC) ruled in September that Idaho Power Company’s (Idaho Power) proposed curtailment policy for purchases from qualifying facilities (QF) violates the Public Utility Regulatory Policies Act of 1978 (PURPA) because it allows the utility to curtail its wind power purchases under previously negotiated power purchase agreements when demand is low. The Idaho Public Utilities Commission (PUC) had directed Idaho Power to lodge with the PUC a new curtailment policy allowing Idaho Power to halt purchases from QFs that it was otherwise contractually obligated to make when demand for power was low, such as during off-peak periods.  The state proceeding is ongoing.  In response to the filed proposal, Idaho Wind Partners 1, LLC (Idaho Wind) petitioned FERC for an order declaring the new policy to violate section 210 of PURPA.  Certain FERC regulations that implement PURPA require electric...

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FERC General Counsel Argues Applying Dodd-Frank Regulations to RTO/ISO Products is Potentially Harmful

by Elizabeth P. Philpott The Federal Energy Regulatory Commission (FERC) General Counsel recently argued to the Commodity Futures Trading Commission (CFTC) that “[a]pplying Dodd-Frank swap regulations to [regional transmission organization] RTO and [independent system operator] ISO products and services is not only unnecessary but also potentially harmful.” Transactions entered under RTO and ISO tariffs, according to the FERC General Counsel, should be exempt from the definition of “swap.” The FERC General Counsel made these arguments in August 21 comments, partially supporting the petition of the nation’s six RTO/ISOs asking the CFTC to exempt them from swaps regulation under the Commodity Exchange Act in connection with four types of electricity purchases and sales they offer pursuant to FERC- or Public Utility Commission of Texas-approved tariffs. The FERC General Counsel had to resort to comment in order to make the...

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Alleged Agreement to Suppress Prices for Mineral Rights Highlights the Antitrust Risk Facing Energy Companies

by Jon B. Dubrow and Shauna A. Barnes Recently published reports of land acquisition activities between Chesapeake Energy and EnCana senior executives will likely expose those companies to a Department of Justice (DOJ) antitrust investigation and challenge, as well as, if accurate, civil antitrust claims.  This matter highlights the risks that energy companies face when discussing lease arrangements with their competitors.  In February 2012, DOJ settled its first challenge to a bidding agreement for mineral rights, alleging that agreements between Gunneson Energy Corporation and SGI Interests to bid jointly for government mineral leases were anticompetitive.  In a previous post, we explained the potential issues and pitfalls related to joint bidding for oil and gas properties.  We suggested various factors that companies can use to assess, or manage, their antitrust exposure.  On June 25, 2012, Reuters published a special report...

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FERC Asserts Jurisdiction Over Bundled Renewable Energy Credits

by Bradford K. Gathright On April 20, 2012, the Federal Energy Regulatory Commission (FERC) issued an order confirming that it has no jurisdiction under the Federal Power Act (FPA) with respect to sales of state-issued renewable energy credits (RECs) that are not bundled with sales of wholesale energy, but asserted that it does have jurisdiction over sales of RECs that are bundled with wholesale energy. The ruling was in response to a request by the Western Systems Power Pool (WSPP) for FERC to clarify the scope of its jurisdiction. WSPP administers a standardized contract, called the WSPP Agreement, for the sale of wholesale electric power and physical options between its members. The WSPP Agreement allows a seller to charge market prices in energy transactions if the seller has received market based rate authority from FERC or if the seller is not regulated by FERC. Otherwise, the price is subject to rate caps set forth in the applicable...

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