Comment Text:
The ISO/RTOs represent the core physical marketplaces within which Exelon Generation conducts wholesale transactions. The Commission should defer to the Federal Energy Regulatory Commission (“FERC”) and the Public Utility Commission of Texas (“PUCT”) with respect to matters involving these markets.
RTO/ISO markets are carefully structured and operate under FERC-approved tariffs, but allowing private parties to sue could undermine those structures. Notably, the Federal Power Act that governs FERC-jurisdictional markets specifically does not allow private rights of action for ISO/RTO activity. Therefore, the transactions under FERC-approved tariffs that Congress directed the Commission to exempt under CEA §4(c)(6) are in part premised upon Congress’ express prohibition of private rights of action for fraudulent or manipulative actions related to FERC-jurisdictional energy transactions. The CFTC proposal, however, would open the door for a collateral attack on a FERC tariff where neither FERC nor the ISO / RTO is party to a case.
While the proposal makes the blanket claim that “the existence of a private right of action also is not inconsistent with or detrimental to cooperation between the CFTC and FERC,” there is no analysis or other discussion to support this blanket claim. To the contrary, the two agencies have developed a coordinated way to ensure that transactions in electricity markets are overseen and manipulation is prevented. Exelon Generation and all of its customers rely on that oversight to ensure that markets are operated fairly. This proposal, however, will upset that coordination by inserting private parties and myriad litigation venues into the discussions about how the two agencies should oversee these markets. For example, if a federal court in a private lawsuit determines that a particular RTO/ISO transaction is a swap, that could preclude the CFTC’s ability to rely on FERC oversight because the defendant could argue that FERC has no jurisdiction to bring the enforcement action. This perverse outcome would undermine certainty and the ability of market participants to rely on the integrity of the markets. This would also exacerbate the regulatory confusion over competing jurisdictional claims by FERC and the CFTC, undermine efforts by the various regulators to provide an orderly market, and ultimately harm consumers.
The Proposal, if implemented, will put an unnecessary strain on resources that must be used by regulators to preserve jurisdictional certainty. The Commission suggests in the Proposal that in order to protect its interests it will continue to intervene in what will likely be numerous private lawsuits. Regardless of whether the Commission has sufficient resources to do this, the Commission also must consider the impact to FERC and its resources, as FERC also will need to intervene in lawsuits throughout the country to protect its jurisdiction.
According to FERC’s prior comments in the SPP matter, RTO/ISOs are “regulated to a greater extent than other commodity markets” and indeed “are regulated by FERC more extensively than other public utilities.” ERCOT is similarly subject to extensive regulation by the PUCT. Further, RTO/ISOs are subject to oversight by independent market monitors and to the CFTC’s authority over interstate commerce. Allowing private suits would add an unnecessary and costly additional layer of conflicting regulatory oversight, with no corresponding public benefit. There are undeniable and identifiable risks associated with inserting a private right of action into FERC jurisdictional markets that have been operating successfully for years without a private right of action. These risks significantly outweigh any stated benefit of the Commission proposal.
If the CFTC amends the RTO/ISO order to allow private rights of action—from potentially thousands of allegedly aggrieved parties—that would add tremendous uncertainty, which will increase the costs of operating, and operating in, the markets. These costs will be both direct and indirect. Direct costs include the increased costs that will result from entities having to manage the significant exposure to private-party litigation. Indirect costs will result from the increased risk and decreased liquidity in RTO/ISO products used to hedge and manage risk as market participants limit or forgo activity. Ultimately these costs will be passed on to end use customers resulting in unnecessarily higher energy costs for consumers. There is no benefit from the Commission Proposal that will be derived by these consumers that justifies these costs.
