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ACER Publishes Second Edition of Guidance on REMIT

 by Prajakt Samant, Thomas Morgan and Simone Goligorsky

On September 28, 2012, the Agency for the Cooperation of Energy Regulators (ACER) issued the second of two pieces of non-binding guidance on the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT).  REMIT imposes requirements aimed at preventing and detecting market abuse, and more specifically, market manipulation and insider trading in the wholesale energy market.

The guidance considers, inter alia,:

  • The scope of REMIT;
  • The application of the definitions of wholesale energy products, wholesale energy market and market participants; inside information;and market manipulation; and
  • The application of the obligation to publish inside information; the prohibitions of market abuse and on possible signals of suspected insider dealing and market manipulation; and the implementation of prohibitions of market abuse.

Considering the scope of REMIT, it should be noted that the guidance stipulates that intra-group transactions, i.e. over-the-counter contracts entered into by counterparties which are part of the same group of companies, would come within the scope of REMIT, given that the definition of wholesale energy products specifies that REMIT will apply to contracts irrespective of how and where they are traded. 

Regarding penalties that will be imposed in the event that a market participant is found to be in breach of REMIT, the guidance states that the national regulatory authorities (NRAs), i.e. the bodies from each member state working with ACER to monitor market participants, should penalize not only breaches of the market abuse prohibition, but also:

  • Any breaches of the obligation to notify ACER of any delayed disclosure of inside information;
  • Any breach of the obligation to provide ACER with a record of wholesale energy market transactions; and
  • A breach of the obligation to register with the competent NRA. 

The first piece of guidance on REMIT was published by ACER in December 2011, a few days before REMIT entered into force.  The guidance focused particularly on the definition of inside information, and what activities ACER would consider to be market manipulation, or attempted market manipulation.  The guidance also gave examples of the types of activities that may indicate insider dealing and suspicious transactions.

It is expected that REMIT will be fully implemented by summer 2013.  In the interim, member states will be required to enable NRAs with the means and powers necessary to investigate suspicious cases, and the prosecute confirmed cases of insider trading and market manipulation.  By summer 2013, it is expected that both ACER and the NRAs (Ofgem in the UK) will start collecting data, and monitoring market participants that come within the scope of REMIT. 

Reconsideration Motion Fails in Middlefield

by James A. Pardo and Brandon H. Barnes

Cooperstown Holstein’s attempt to reverse the trial court’s decision upholding the Town of Middlefield’s zoning ban on hydraulic fracturing has failed.  The Cooperstown Holstein case is now heading for appeal to New York’s Appellate Division, Third Department, where it likely will be consolidated with the Town of Dryden action that was appealed earlier this year.  For more information about these cases, please see our earlier article, “Recent Court Decisions May Affect Hydraulic Fracturing in New York and Ohio.”

McDermott Energy Partner Honored at Americas Women in Business Law Awards

McDermott Will & Emery partner Karol Lyn Newman was named the “Best in Energy, Natural Resources and Mining" at Euromoney Legal Media Group’s inaugural Americas Women in Business Law Awards 2012.  These awards honor women leading the field in the legal sector across the Americas.  The awards ceremony took place on May 24, 2012, in New York City.  Please join us in congratuling Karol Lyn on receiving this important award.  McDermott’s co-chairs Jeffrey E. Stone and Peter J. Sacripanti state “Karol Lyn is a seasoned, highly respected lawyer with a long history of delivering outstanding results to clients. We’re delighted to see her many accomplishments recognized in this way."

“This recognition publicly acknowledges what those of us who work closely with her already know:  that Karol Lyn is among the nation’s top women lawyers and one of the very best in the field of energy regulatory law.  She is playing a key role in helping the Firm grow our highly ranked Energy practice, both in Washington and in the major U.S. energy markets,” states Blake H. Winburne, partner and head of McDermott’s Energy Advisory Practice Group.

Karol Lyn advises clients on regulatory issues affecting coal gasification, liquefied natural gas (LNG), natural gas storage, and natural gas transportation projects. Further, she provides regulatory advice and counsel on pipeline rate and tariff issues and represents clients before the Federal Energy Regulatory Commission (FERC) and in the United States Courts of Appeals.  She also assists clients on energy-related matters before the Department of the Interior, the Department of Energy, the Environmental Protection Agency and the U.S. Congress.

Recent Court Decisions May Affect Hydraulic Fracturing in New York and Ohio

by James A. Pardo and Brandon H. Barnes

Three recent court decisions could affect parties with an interest in hydraulic fracturing, particularly in New York and Ohio.  Two New York courts held that New York’s Oil & Gas Law does not preempt local zoning ordinances that completely ban hydraulic fracturing, and an Ohio court issued a ruling that could impair stakeholders’ ability to conduct hydraulic fracturing operations in that state.

To read the full article, click here.

DOJ Finds Antitrust Violation in Joint Bid for Oil & Gas Leases

by Jon B. Dubrow and Shauna A. Barnes

The U.S. Department of Justice’s recent action challenging a joint bidding arrangement for natural gas leases highlights the antitrust risks of joint bids.  This newsletter describes considerations parties considering joint bids can take to evaluate and potentially manage their antitrust risks.

To read the full article, click here.

Texas Commission Requires Public Disclosure of Fracking Chemicals

by Bethany K. Hatef

The Railroad Commission of Texas now requires the disclosure of chemicals used for hydraulic fracturing (fracking) of oil and natural gas deposits.  The disclosure rule, adopted on December 13, 2011, and codified at Rule 3.29 of Title 16 of the Texas Administrative Code, implements fracking disclosure legislation that the state enacted earlier in 2011.  Arkansas, Colorado, Louisiana, Montana, Michigan, Pennsylvania and Wyoming likewise regulate fracking through legislation or regulation.  Given the increasing use of fracking techniques worldwide and heightened public scrutiny of industry practices, an increasing number of states are expected to adopt comparable laws and regulations.

The rule applies to fracking treatments of wells in Texas for which the Railroad Commission has issued an initial drilling permit on or after February 1, 2012.  The rule defines “fracking treatment” as the stimulation of a well by applying fracking fluid under pressure to create fractures in a target geologic formation in order to enhance oil and natural gas migration and production.  The rule requires the supplier (the entity who provides additives for use in fracking treatments) or the service company (the entity that performs fracking treatments) to provide the well operator (the person responsible for the physical operation and control of a well) with the identity of each chemical ingredient intentionally added to the fracking fluid within 15 days of completing fracking treatments.

The rule also imposes new requirements on well operators.  On or before the date a well completion report is submitted to the Railroad Commission, the operator must complete a Chemical Disclosure Registry form and upload it on the Chemical Disclosure Registry, known as FracFocus, a publicly accessible national fracking chemical registry website.  This form includes information about the chemicals and volume of water used in a fracking treatment, as well as other well-related information.  Not required to be disclosed are chemicals: (1) not disclosed to the supplier, service company or operator; (2) not intentionally added to the fracking treatment; (3) that occur incidentally or are otherwise unintentionally present; and (4) eligible for trade secret protection.

A supplier, service company or operator is generally not required to publicly disclose trade secrets unless the Texas Attorney General or a court determines that the information is not entitled to such protection.  If an entity withholds information about a chemical ingredient, it must still disclose specific information to the Commission.  Only certain individuals may challenge a claim of trade secret protection, and if any health professional or emergency responder is given trade secret information, that person must keep it confidential, with limited exceptions for diagnostic or treatment purposes. 

Violations of the rule may subject a person to monetary penalty and/or other penalties or other sanctions and/or lead to revocation of a well’s certificate of compliance (a certificate from the Railroad Commission stating that the well operator has complied with applicable rules).

Welcome to McDermott’s Energy Business Law Blog

Welcome to McDermott’s Energy Business Law Blog.  Our objective in this forum is to provide our readers with insights into the evolving regulatory, business, tax and legal issues affecting the U.S. and international energy and commodities markets.  Contributions to this blog will be a collective effort of lawyers and professional staff that are part of McDermott’s broad-based energy practice, with ten U.S. and seven European offices, and a strategic alliance in China.  We will bring to bear our experience across the global energy sector, which spans exploration and production, oil, gas and refined products pipelines, storage and processing facilities, liquefied natural gas, refining and petrochemicals, electric power generation and transmission, renewable and alternative energy (including wind, solar, biofuels and others), trading and regulatory, carbon and emissions, metals and agriculture. 

We hope you find our energy blog to be an informative resource.  Please feel free to provide us any feedback on how we might improve our offerings.

Blake H. Winburne
Global Head, Energy Advisory Practice

EC to Regulate Market Abuse in Wholesale Power and Natural Gas Transactions

by Thomas Morgan

European Union (EU) Regulation 1227/2011 on wholesale energy market integrity and transparency (REMIT), which came into force on December 28, regulates at an EU-level, the wholesale energy markets.  REMIT seeks to detect and prevent market abuse (or more specifically, market manipulation and insider trading) in the wholesale energy sector.  This is in contrast to the existing European market abuse legislation which applied, almost exclusively, to financial instruments admitted to trade on regulated markets.

REMIT applies to wholesale energy products (WEPs):

  • contracts for the supply of electricity or natural gas delivered in the EU;
  • contracts relating to the transport of electricity or natural gas within the EU; and
  • derivatives of those contracts;

irrespective of where or how they are traded, but does not apply if the consumption capacity of the gas or electricity is less than 600 GWh per year.

REMIT prohibits the manipulation of WEP transactions, and requires energy market participants to publish inside information relating to WEPs and submit details of energy transactions to the European energy regulatory authority, the Agency for the Cooperation of Energy Regulators (ACER).  REMIT also requires ACER, working with National Regulatory Authorities (NRA), to monitor wholesale energy markets and requires energy market participants to register with the NRAs.  Member States, in turn, are charged with ensuring that NRAs have the necessary investigatory powers, which shall be exercised in a proportionate manner.

REMIT extends securities market concepts to the energy sector by prohibiting manipulative transactions and the dissemination of misleading information, and preventing insiders from benefiting from access to information relating to power, natural gas and commodity derivatives markets.  Compliance with REMIT will require market participants to introduce or review information barriers between operational and trading activities and ensure timely public disclosure of relevant information.

Rules are to be promulgated requiring energy traders to report transactions to ACER.  ACER, in turn, will be responsible for monitoring and analysing all trades to verify that the rules are followed, and will instruct NRAs to investigate any incidents of market abuse.

Each NRA must establish a register of market participants.  This,is central to the goal of increased market transparency.  Participants will be required to register with one authority only: in the Member State in which it was established or is resident (if neither applies to the participant, then it must register in a Member State where it is active).  The European Commission will adopt implementing acts defining the scope of trade reporting and registration obligations.  Member States must establish registries of electricity and natural gas traders three months after the adoption of the implementing acts, with transaction reporting requirements coming into force three months later.