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FERC Endorses Private Right to Prosecute Market Manipulation Complaints Under Federal Power Act

Energy Law Update

October 27, 2009

The Federal Energy Regulatory Commission on October 23 affirmed the use of a procedural vehicle that allows third parties to bring market manipulation claims under the Federal Power Act (FPA). In an apparent departure from FERC’s enforcement cases to date, which are rooted in investigations involving only FERC Enforcement Staff and a respondent, the October order in Richard Blumenthal, Attorney General for The State of Connecticut v. ISO New England Inc., makes clear that FERC will allow market manipulation claims to be initiated by third parties' complaints. 

The October order allows the Connecticut Attorney General and the Connecticut Department of Public Utility Control to prosecute their allegations of  "electric energy market manipulation" in wholesale electric energy markets administered by the New York Independent System Operator, Inc. (NYISO) and ISO New England Inc. (ISO-NE). The core claims underlying the complaints allege that various named and unnamed sellers of capacity from NYISO into ISO-NE used "high bidding strategies" that allegedly violate applicable tariffs. 

Addressing this issue for the first time in August, FERC found that although the complaints were poorly supported, the matter should be set for evidentiary hearing due to the case’s "unique history." Further, FERC found that, while third parties cannot bring market manipulation complaints under FPA §222 (Anti-Energy Market Manipulation) or §206 (Complaints–Rates, Terms & Conditions), third parties can bring such actions under §306 (Complaints) and §307 (Investigations). 

Responding to an argument on rehearing that §222 specifically bars a private right of action, FERC found that no litigant has brought a "private action," nor has the Commission permitted a third party to prosecute such a "private action." The agency went on to hold: 

Section 222(b) of the FPA, while barring "private rights of action," does not operate as a bar to a complainant alleging market manipulation in a complaint filed with the Commission and thereby bringing alleged market manipulation to the Commission’s attention. We read this section as affirming that there is no private right to bring a claim of manipulation directly to a court as a prosecuting litigant seeking a remedy. Had Congress also intended to bar complaints at the Commission under section 222, it would have amended sections 306 and 307 to exclude potential violations of section 222 from the matters that the Commission may address pursuant to those sections.  [Footnotes omitted].

FERC's Blumenthal holding begs a number of questions:

1. What are the threshold pleading requirements needed to initiate a third party market manipulation matter under §§306 and 307?
2. Can a Section §§306/307 complaint proceeding and a §222 FERC Enforcement Staff investigation be undertaken simultaneously?

3. Does a FERC-approved settlement of energy market manipulation under §222 preclude a subsequent §§306/307 proceeding?

4. If FERC Enforcement Staff has "closed" an investigation, can a third party prosecute the same facts pursuant to a complaint under §§306/307? 

As FERC's construction of the FPA in Blumenthal appears to mean that allegations of market manipulation may now be brought by different entities (FERC Enforcement Staff or aggrieved third parties) under different authorities (§§222 and 306/307), strategies for defending against these allegations must, in turn, anticipate these multi-pronged processes. The upshot of the Blumenthal order could mean that market participants in the electric sector may be confronted with much more complex litigation scenarios, and perhaps greater regulatory exposure going forward.