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The Office of Gas and Electricity Markets of Great Britain Consults Further on its Electricity and Gas Retail Market Review

by | Oct 31, 2012 | , ,

by Caroline Lindsey

On October 26, 2012, the Office of the Gas and Electricity Markets (Ofgem) published updated proposals for changes to the regulation of the non-domestic electricity and gas retail markets in Great Britain.  The Retail Market Review Proposals (RMR Proposals) are part of Ofgem’s RMR program, which also includes proposals for the domestic markets.

The RMR Proposals follow Ofgem’s initial consultation on proposals for the non-domestic market in November 2011, and its Energy Supply Markets Probe in 2008.  Since the initial consultation, Ofgem has been conducting further research, gathering relevant information from suppliers and considering the responses to the initial consultation.

The principal RMR Proposals are:

  • Increased protection for small business consumers – condition 7A of the standard conditions of electricity and gas supply licences (SLC) currently provides protection for micro business consumers when dealing with suppliers.  Ofgem is proposing to expand the number of small business consumers who have the benefit of those protections, by introducing a new definition of small business consumer.  The new definition is intended to capture existing micro business consumers, as well as a wider category of consumers whose annual consumption of electricity and gas is equal to or less than the relevant threshold (100,000 kWh per annum for electricity and 293,000 kWh per annum for gas).  Ofgem also proposes to introduce additional protections, including an obligation to include contract end dates and related notice periods on customer bills.
  • Introduction of binding standards of conduct when dealing with small business consumers – suppliers will, by way of a new SLC 7B, be required to comply with standards of conduct when engaging in the designated activities of billing, contracting and customer transfers with small business consumers.  The overarching objective of the standards of conduct, which will be expressly stated in SLC 7B, is to ensure that each small business consumer is treated fairly.  The standards of conduct include an obligation on the licensee to carry out the designated activities “in a Fair, honest, transparent, appropriate and professional manner.”  Ofgem has indicated that it will give guidance on the meaning of at least some of those terms. 
  • Development of a common code of conduct for third party intermediaries (TPI) – Ofgem proposes to develop options for a common code of conduct for TPIs, who broker contracts between non-domestic consumers and suppliers.  It will also conduct a wider review of the regulatory framework applicable to TPIs, including considering whether more direct regulation by Ofgem (in addition to the code of conduct) is needed.
  • Continuing monitoring of suppliers’ compliance with the customer transfer process – Ofgem proposes to increase its level of monitoring of suppliers’ compliance with the customer transfer objection requirements set out in SLC 14.  No changes to the SLCs are proposed at this stage.

Ofgem intends to publish an issues paper on the TPI regulatory framework review in the first half of 2013. It proposes to introduce the new protections for small business consumers (the first two items in the [...]

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D.C. District Court Rejects CFTC’s Position Limits Rule

by | Oct 5, 2012 | , ,

by Ari Peskoe and William Friedman

The Commodity Futures Trading Commission (CFTC) has met resistance in its attempt to implement parts of the Dodd-Frank financial reform less than two weeks before they were scheduled to go into effect.  On September 28, U.S. District Judge Robert L. Wilkins issued an opinion vacating the CFTC’s position limits rule and remanding it to the Commission. Judge Wilkins’ problem with the rule was not its substance but rather that the CFTC did not make necessary factual findings mandated by the Dodd-Frank Act.   

The position limits rule was finalized in November and set spot-month position limits for both physical delivery and cash-settled contracts tied to 28 physical commodities, including natural gas and crude oil. The U.S. District Court for the District of Columbia vacated and remanded the rule because the CFTC made no findings about whether position limits were “necessary and appropriate” to “diminish, eliminate, or prevent excessive speculation” before imposing them, as the Dodd-Frank Act required.  The CFTC contended that the Dodd-Frank Act mandated that the agency set position limits and went so far as argue that the CFTC had no discretion not to impose the limits.

The court disagreed with the CFTC’s interpretation and instead determined that Congress “clearly and unambiguously” required the Commission to make a finding of necessity prior to imposing position limits. The court found that the Commission has a longstanding requirement to make a finding of necessity under the Commodity Exchange Act (CEA).  The CEA contains substantially similar language to Dodd-Frank, and the CFTC has made necessity findings before promulgating regulations for 45 years under the CEA.  Given this history and the similarity in Congress’s mandate between the two statutes, the court was not convinced there was any reason the Commission should deviate from its previous practices.  The court concluded that Dodd-Frank unambiguously requires that the Commission find that position limits are necessary prior to their imposition.

The court’s opinion leaves open the possibility of issuing a new rule about position limits after the CFTC makes a finding of necessity.  Gary Gensler, Chairman of the CFTC, says the agency is “considering ways to proceed.”  Gary Chilton, a Commission member, has called for a new proposal on position limits that satisfies the court’s objections.  In a statement, Mr. Chilton vowed to continue the push for a position limits rule. Michael V. Dunn, the commissioner who provided the third vote in favor of the rule, has since left the CFTC.

The court did not rule on whether the agency must conduct a full cost-benefit analysis, leaving the question open to a future challenge should the Commission pass a new rule on position limits.



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ACER Publishes Second Edition of Guidance on REMIT

by | Oct 4, 2012 | , ,

 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. 



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Reconsideration Motion Fails in Middlefield

by | Jul 25, 2012 | , ,

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.”



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McDermott Energy Partner Honored at Americas Women in Business Law Awards

by | Jun 19, 2012 |

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.



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

by | Mar 29, 2012 | , ,

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.



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

by | Feb 23, 2012 |

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.



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Texas Commission Requires Public Disclosure of Fracking Chemicals

by | Jan 23, 2012 | , ,

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).



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Welcome to McDermott’s Energy Business Law Blog

by | Jan 11, 2012 | , , , , , , , , , , ,

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



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

by | Jan 11, 2012 | , ,

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.



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