“Such a fact pattern does not a $5 million penalty make.”

By Doron Ezickson, Thomas Millar and Katherine Vorhis

Or so says one dissenting FERC Commissioner in the recent Maxim Power enforcement proceeding. On May 1, 2015, FERC issued an order assessing civil penalties (the “Order”) of $5 million against Maxim Power Corporation and its named subsidiaries (“Maxim”), as well as $50,000 against Maxim Energy Marketing Analyst, Kyle Mitton (together, the “Respondents”), for violating the Commission’s Anti-Manipulation and Market Behavior rules.  The Commission did not order disgorgement of profits because the overpayments at issue in the matter were returned through ISO-NE tariff processes.  Nor did the Commission impose compliance obligations or other penalties.  read more

Posted in FERC, Oil & Gas, Power, Regulation

What Did April Bring?: FERC Extends Out-of-Market Reliability Measures but Wants Market-Based Solutions

By Gregory Lawrence, Thomas Millar and Mary Treanor

The Federal Energy Regulatory Commission (“FERC”) recently published two orders that approved capacity and reliability measures for the Independent System Operator New England Inc. (“ISO-NE”) and the New York Independent System Operator (“NYISO”).  In contrast to its approval of NYISO’s measures as promoting transparent pricing and appropriate market signals for reserves, FERC approved ISO-NE’s out-of-market winter measures but urged that they be modified further to more closely resemble the market and market-based results.  read more

Posted in Enforcement and Investigations, FERC, Oil & Gas, Power, Regulation

Supreme Court’s Holding in Oneok v. Learjet Could Lead to New Risks for Market Participants

By Joseph Bial, Gregory Lawrence, Gregory Mocek, Paul Pantano, Charles F. (Rick) Rule, Daniel Howley, Thomas Millar, and Natalie Mitchell

On April 21, 2015, the Supreme Court decided Oneok v. Learjet, holding that “Respondents’ state-law antitrust claims are not within the field of matters pre-empted by the Natural Gas Act” even though the claimed violations “affected . . . federally regulated wholesale natural gas prices.” This is an important decision for market participants for several reasons:

First, the decision could expose entities accused of market manipulation under the Natural Gas Act (“NGA”) to the risk of possible follow on litigation by private plaintiffs who are trying to stretch the bounds of Oneok’s applicability, based on antitrust claims.  However, the majority appears to foresee additional argument regarding conflict preemption on remand the outcome of which could foreclose this possibility.  Class action litigation alleging violations of either the NGA or the Federal Power Act (“FPA”) have not been successful in the past because (1) the statutes do not provide for private rights of action; and (2) the NGA (and the FPA) was understood to preempt state law claims.  Antitrust compliance programs may be tested in the wake of this ruling where plaintiff law firms attempt to examine the energy space more closely and mine state antitrust laws for potential suits.

Second, despite the Court’s effort to narrow the scope of its decision, some litigants may seek to extend the precedent to circumstances involving follow-on civil antitrust litigation tied to other FERC jurisdictional products, including electricity products and markets governed by the FPA.

Third, Oneok is likely to be featured in future demand response litigation, whether it is before the Court on a grant of certiorari or in other forums.  read more

Posted in Antitrust/Competition, Cases, Commodity Trading, Enforcement and Investigations, Oil & Gas, Power, Regulation, Supreme Court

A Signal of Things to Come? New CME Rule 512 Reflects Modified Stance for Violations of Futures and Options Reporting Requirements

By Athena Eastwood, Gregory Mocek, Jonathan Flynn, Neal Kumar and Mary Treanor.

On March 24, 2015, the CME Group, Inc. (“CME”) announced a proposed amendment to Rule 512 indicating that it will impose a minimum fine of $1,000 for repeat violations of its exchanges’ reporting rules for futures and options. The amendment, which became effective on April 7, 2015 and applies to all CME Group exchanges, reflects an increasingly strict approach taken by the Commodity Futures Trading Commission (“CFTC”) and CFTC-regulated exchanges for technical violations of futures and options reporting.  read more

Posted in CFTC, CME, Commodity Trading, Enforcement and Investigations, Mining/Metals, Oil & Gas, Power, Regulation

Truthful . . . but Not Forthcoming? FERC Staff Takes Aggressive View of Material Omissions as Basis for Intent in Maxim Power

By Gregory Lawrence, Thomas Millar and Mary Treanor

Recent positions taken by FERC’s Enforcement Staff in the Maxim Power show cause proceeding add to the uncertainty regarding what information market participants must volunteer when communicating with the Commission, ISOs/RTOs, market monitors and others. We have recently written about Maxim Power. As a refresher, Staff alleged in its Order to Show Cause that Maxim Power Corporation and its named subsidiaries (“Maxim”), as well as its executive, Kyle Mitton (together, the “Respondents”) engaged in a supposed “offer oil, burn gas” scheme “for the purpose of obtaining inflated make-whole payments at high fuel oil prices when Maxim[’s Pittsfield] plant was dispatched for reliability, even though the plant was actually burning much less expensive natural gas.” Importantly, Respondents purportedly engaged in “misleading” communications with ISO-NE and the market monitor in an effort to retain the make-whole payments in violation of the Market Behavior and Anti-Manipulation rules (discussed below). For these alleged violations, Staff seeks civil penalties of $5 million against Maxim and $50,000 against Mitton, but not disgorgement of profits because the overpayments were returned through ISO-NE tariff processes.  read more

Posted in Enforcement and Investigations, FERC, Oil & Gas, Power, Regulation

Court Finds CFTC RTO/ISO Exemptive Order Bars CEA § 22 Private Right of Action, but More to Come from the CFTC

By Gregory Lawrence, Christopher Polito, and Lamiya Rahma

Can private litigants bring claims under the Commodity Exchange Act alleging manipulation in ERCOT’s energy markets?  On February 3, the U.S. District Court for the Southern District of Texas answered “no,” granting defendants’ motion to dismiss in Aspire Commodities v. GDF Suez Energy North America.

In Aspire v. GDF Suez, plaintiffs accused GDF Suez of violating the CEA’s anti-manipulation provisions, and six other electricity generators of aiding and abetting GDF Suez. Specifically, plaintiffs alleged that GDF Suez intentionally withheld electricity generation during times of tight supply to drive up Real-Time prices in the ERCOT market.  While not challenging the ERCOT LMP prices themselves as being “unlawful, wrong or too high,” plaintiffs claimed that, by manipulating the ERCOT LMP, GDF Suez consequently created “artificial and unpredictable” prices in derivatives markets, such as ICE. read more

Posted in Cases, ERCOT, Oil & Gas, Power, Regulation

Unregistered CTA Summit Energy Services: Choose Your Words Wisely

By Athena Eastwood, Gregory Lawrence, Andrew Greenberg, and Neal Kumar

A recent case highlights the importance of periodically reviewing an energy company’s marketing materials and related activities (including statements made on websites) to ensure that the company is not holding itself out — without CFTC registration — as a CTA (commodity trading advisor).  A number of exclusions and exemptions may apply to such activity, including exemptions for providing advice to fewer than 15 persons and for advice that is solely incidental to a cash market business.  However, these exemptions are narrowly construed and governed by older no-action relief rather than the rule itself.

Market participants need to be mindful of the possibility of triggering CTA status and need to monitor whether employees are providing advice regarding CFTC-jurisdictional products, even in connection with the sale of physical energy or commodities to customers.  read more

Posted in Cases, CFTC, Commodity Trading, Mining/Metals, Oil & Gas, Power, Regulation

New Exchange Rules on Disruptive Trading Practices Summary Chart

By Athena Eastwood, Anthony Mansfield, Gregory Mocek, Paul Pantano, Sohair Aguirre, Isabelle Corbett, Jonathan Flynn, Neal Kumar

On January 14, 2015, the Intercontinental Exchange (“ICE”) rule prohibiting disruptive trading practices (ICE Rule 4.02) became effective.  The ICE Rule is substantively the same as Rule 575 passed by the Chicago Mercantile Exchange Inc., the Board of Trade of the City of Chicago, the New York Mercantile Exchange, Inc., and the Commodity Exchange, Inc. (collectively, the “CME”), which became effective September 15, 2014.  The CME issued Market Regulation Advisory Notice RA1405-5 (“CME MRAN”) which, with new Rule 575, provided regulatory guidance on various types of prohibited disruptive order entry and trading practices.  On September 11, 2014, the Futures Industry Association (“FIA”) hosted a webinar with staff from the CME to discuss new Rule 575 and the CME MRAN.  read more

Posted in CME, Commodity Trading, ICE, Mining/Metals, Oil & Gas, Power, Regulation

FERC Issues Order to Show Cause to Maxim Power

By Gregory Lawrence, Terence Healey, Thomas Millar, Natalie Mitchell, and Christopher Polito

On February 2, 2015, FERC issued an Order to Show Cause and Notice of Proposed Penalty to Maxim Power Corporation and its named subsidiaries (“Maxim”),1 jointly and severally, as well as executive, Kyle Mitton (the “Order”).2 The Commission ordered Maxim and Mitton (together, the “Respondents”) to show cause why they should not be assessed civil penalties of $5 million3 and $50,000, respectively. Respondents must answer the Order by Wednesday, March 4, 2015 and may elect in their answer to: (1) proceed via a hearing before an Administrative Law Judge; or (2) receive an immediate penalty assessment if FERC finds that a violation occurred, the payment of which the Commission may pursue in federal district court via a trial de novo if such penalty is not paid within 60 days. The Commission does not seek disgorgement because ISO-New England already recovered the alleged overpayments.  read more

Posted in FERC, Power, Regulation

The Fate of Demand Response Hangs in the Balance

By Gregory Lawrence, Sohair Aguirre, Natalie Mitchell and Lamiya Rahman

The Justices of the United States Supreme Court are not strangers to the retail versus wholesale distinction that often plagues FERC’s regulations.  Indeed, on January 12, 2015 they heard arguments in Oneok v. Learjet regarding this very question.  Three days later, on January 15, 2015, the Solicitor General, on behalf of FERC, filed a petition for a writ of certiorari in FERC v. EPSA regarding FERC’s jurisdiction to regulate ISO/RTO demand response programs.  Will the Justices take FERC up on its request to argue the wholesale versus retail distinction in the context of demand response?  As the Magic 8 Ball® counsels “reply hazy, try again.”  read more

Posted in Cases, Commodity Trading, FERC, Oil & Gas, Power, Regulation, Supreme Court