Statement of Dissent by CFTC Commissioner J. Christopher Giancarlo on the Proposed Amendment to the RTO-ISO Order
May 10, 2016
I dissent from the proposed amendment to the final RTO-ISO Order issued by the Commission in 2013.
For over three years, U.S. power market participants have been operating in reliance on the RTO-ISO Order. They have trusted in the reasonable, unambiguous understanding that transactions covered by the Order are exempt from all provisions of the Commodity Exchange Act (“CEA or Act”) except for those specifically enumerated as reserved (the “Reserved Provisions”). They have relied on the plain language of the RTO-ISO Order that “[e]xempts … the execution of [specified] electric energy-related agreements, contracts and transactions … and any person or class of persons offering, entering into, rendering advice or rendering other services with respect thereto, from all provisions of the CEA except, in each case, the Commission’s general anti-fraud and anti-manipulation authority, and scienter-based prohibitions ....”1 Too bad for them.
Today’s proposal manages to simultaneously toss legal certainty to the wind and threaten the household budgets of low and middle-income ratepayers by permitting private lawsuits in heavily regulated markets that are at the heart of the U.S. economy.
By this action, the Commission contends that its silence with respect to section 22 of the CEA should be interpreted as evincing its intention all along to retain a private right of action for violations of the Reserved Provisions and that the proposed addition of section 22 to that list is nothing more than a technical clarification.
With all due respect, the Commission’s position is disingenuous. It flies in the face of well-accepted legal precedent established by the U.S. Supreme Court,2 and was soundly rejected recently by the courts in the Aspire litigation.3
Of course, the Commission is free to change its mind and amend final orders through the notice and comment process, as it proposes to do now. Still, by taking this action the Commission is introducing a disturbing precedent regarding the legal certainty of its orders.4 In particular, the Commission’s proposal to change the scope of the RTO-ISO Order, based not on any change in facts or circumstances but on a legal fiction that it intended to reserve section 22 all along, calls into question the legal certainty of all other section 4(c) orders in which the Commission failed to discuss or reserve the applicability of section 22 for violations of the Act or regulations reserved for itself.5 Commission orders should not be amended, expanded or withdrawn absent a change in facts or circumstances or the law.
It can be argued that private claims may serve the public interest by empowering injured parties to seek compensation for damages where the Commission lacks the resources to do so on their behalf. Yet, the extensive regulation and monitoring of RTOs and ISOs significantly obviates the policing role of private suits in these markets. The six entities covered by the RTO-ISO Order are subject to extensive and effective regulation by the RTO-ISO’s primary regulator (the Federal Energy Regulatory Commission, “FERC” or the Public Utility Commission of Texas, “PUCT”), and overseen by an independent market monitor responsible to the RTO-ISO’s primary regulator. As the FERC has explained, RTOs and ISOs operate not only transmission facilities, but also markets for trading electric energy among utilities, and the “RTO and ISO markets and transmission services are tightly integrated and are regulated to a greater extent than other commodity markets.”6 The FERC has explained that these entities are “critical components in carrying out the FERC’s statutory responsibilities,”7 and the FERC therefore regulates them “more extensively than other public utilities.”8
I believe that with the protection provided by such extensive regulatory oversight the Commission should not permit private litigation. Doing so would result in too many cooks in the proverbial oversight kitchen. It will lead to conflicting outcomes depriving market participants of the regulatory certainty and coherence Congress intended when it directed the CFTC and the FERC to apply “their respective authorities in a manner so as to ensure effective and efficient regulation in the public interest,” to resolve conflicts concerning their overlapping jurisdiction and to avoid, “to the extent possible, conflicting or duplicative regulation.”9 Moreover, exempting the transactions from section 22 would promote the congressionally-directed harmony between the CEA and the Federal Power Act (“FPA”), which expressly disclaims any private right of action for manipulative or deceptive trade practices.10
Disallowing private suits under the CEA does not leave persons alleging harm from fraudulent or manipulative practices without recourse. The CFTC may seek restitution on their behalf.11 In addition, section 306 of the FPA permits the filing of private complaints with the FERC for any violation of the FPA.12
Aside from the injustice of changing the scope of the RTO-ISO Order three years after it was issued, subjecting the transactions covered by the Order to private suits under the CEA undermines carefully considered policy designed to promote affordable and reliable electricity for millions of American consumers. The defendants’ conduct in the Aspire litigation was explicitly permitted under Texas law and related PUCT regulations.13 Indeed, the plaintiffs in Aspire brought suit only after they tried and failed to convince the PUCT to change its rules permitting the conduct at issue.14
In my view, the Aspire case is a telling example of the problems with subjecting RTO-ISO transactions to private section 22 litigation. Even if a firm is only involved in the generation or transmission of electric power (and not in the derivatives markets), it may nonetheless be subject to extensive litigation—lasting years, exacting significant sums in defense costs, subjecting ratepayers to potential damages and distracting the firm from its core business—all for merely complying with standards crafted and enforced by its primary regulator.15 Moreover, subjecting electricity providers to private litigation will deprive them of the certainty that the RTO-ISO Order was supposed to provide; if private section 22 claims are allowed, it will be impossible for market participants to be certain which FERC or state rules governing power markets can be adhered to without incurring liability. I fail to see how permitting these kinds of suits would “promote responsible economic or financial innovation and fair competition” that the Commission’s exemptive authority is supposed to provide.16
Indeed, permitting these suits is in tension with long-standing jurisprudence disallowing private litigants from collaterally attacking a rate, tariff, protocol and/or rule approved or permitted to take effect by the PUCT and/or the FERC. Courts have regularly relied on the so-called “filed rate doctrine,” which deprives them of jurisdiction to hear otherwise valid private rights of action where such action seeks to undermine or attack “any ‘filed rate’—that is, one approved by the governing regulatory agency—[because such a rate] is per se reasonable and unassailable in judicial proceedings brought by ratepayers.”17
Here, the Commission dismisses concerns that preserving the section 22 private right of action may cause regulatory uncertainty or inconsistent or duplicative regulation by arguing that the same result could occur if the CFTC were to bring enforcement actions for violations of the Reserved Provisions. This is a concern, to be sure. But the CFTC may bring suit only after an affirmative vote of a majority of Commissioners and in accordance with its Memorandum of Understanding with the FERC under which staff of the CFTC and the FERC have agreed to consult each other on matters of mutual interest and overlapping jurisdiction.18 The CFTC would therefore be far likelier than a private plaintiff to consider the impact an action for violating the CEA could have on the regulatory policy of co-equal regulators operating in their primary field. Furthermore, unlike private plaintiffs, the CFTC would have a thorough appreciation of a potential defendant’s positions in derivatives markets and access to a potential defendant’s positions in the cash markets, ensuring that only cases of true merit would be brought. One would expect the CFTC to conduct an extensive investigation and carefully consider any impact an action for CEA violations would have on electricity regulation before bringing suit. I certainly will. As commenters have pointed out, private parties—who may be interested primarily in winning a cash award and/or securing attorneys’ fees—will not consider the matter so broadly.
In conclusion, adding section 22 to the list of Reserved Provisions is a serious misstep. At a time of stagnant wage growth, today’s proposal may needlessly subject millions of American ratepayers to higher utility bills as a result of the almost certain increase in litigation, court costs and settlement damages. Permitting private rights of action in the heavily regulated RTO-ISO markets is in great tension with the congressional command that the CFTC, the FERC and where applicable, state regulators, work to ensure effective, efficient regulation that provides the RTO-ISO market participants with legal certainty.
As such, I emphatically dissent from the proposal.
1 RTO-ISO Order, 78 FR 19880, 19912 (Apr. 2, 2013) (emphasis added) (referring to CEA sections 2(a)(1)(B), 4(d), 4b, 4c(b), 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6(c), 6(d), 6(e), 6c, 6d, 8, 9, and 13).
2 Under well-accepted canons of construction, when a general rule is stated, “[but] there are enumerated exceptions[,] ‘additional exceptions are not to be implied ….’” In re Condor Ins. Ltd., 601 F3d 319, 324 (5th Cir. 2010) (quoting Andrus v. Glover Constr. Co., 446 U.S. 608, 616-17 (1980)). This is a well-settled application of the canon expressio unius est exclusio alterius, which provides that when some provisions are listed, but other related provisions are omitted, courts infer “that items not mentioned were excluded by deliberate choice, not inadvertence.” Barnhart v. Peabody Coal Co., 537 U.S. 149, 168 (2003). Moreover, the Supreme Court has explained that ordinarily, silence does not convey any meaning, much less the potential for sweeping liability. See Cmty. For Creative Non-Violence v. Reid, 490 U.S. 730, 749 (1989) (“Ordinarily, Congress’ silence is just that—silence.”).
3 Aspire Commodities, L.P. v. GDF Suez Energy N. Am., Inc., No. H-14-1111, 2015 WL 500482 (S.D. Tex. Feb. 3, 2015), aff’d, No. 15-20125, 2016 WL 758689 (5th Cir. Feb. 25, 2016).
4 The Supreme Court has cautioned that when an administrative agency changes its mind, which the Commission has clearly done here—its claim of clarification notwithstanding—it must be mindful of reliance interests that regulated persons have formed in the interim. FCC v. Fox Television Stations, Inc., 556 U.S. 502, 514-16 (2009) (citing Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 742 (1996)).
5 It is not unusual for the Commission to reserve its anti-fraud or anti-manipulation authority without also reserving section 22; the Commission has done so in the past. See, e.g., A New Regulatory Framework for Clearing Organizations, 65 FR 78020, 78025, 78027 (Dec. 13, 2000) (specifically enumerating section 22 as reserved for reserved provisions of the Act and regulations); A New Regulatory Framework for Multilateral Transaction Execution Facilities, Intermediaries and Clearing Organizations, 65 FR 77962, 77976, 77986 (Dec. 13, 2000) (specifically enumerating section 22 as reserved for reserved violations of the Act and regulations in connection with transactions executed of Derivatives Transaction Execution Facilities and as not reserved for certain purposes); Effective Date for Swap Regulation, 76 FR 42508, 42517 (Jul. 19, 2011) (discussing exemption from section 22); see also RTO-ISO Comment Letter at 6-7, n.11 (Jun. 22, 2015). To remove all doubt, treating the failure to reserve section 22 as intentional is consistent with Commission practice. As the 4(c) orders cited above demonstrate, when the Commission intends to reserve section 22, it has had little trouble either specifically enumerating section 22 as reserved, or including a discussion of its applicability or inapplicability.
6 FERC Comment Letter on Proposed Order and Request for Comment on Petition of ISOs and RTOs for Exemption of Specified Transactions from Certain Provisions of the CEA, at 2 (Sept. 27, 2012).
7 Id. at 1.
8 Id. at 2.
9 15 U.S.C. § 8308(a)(1).
10 16 U.S.C. § 824v (2012).
11 7 U.S.C. § 13a-1(d)(3) (2012).
12 See Joint Trade Associations, Comment Letter on Proposed Order and Request for Comment on an Application for an Exemptive Order From Southwest Power Pool, Inc. From Certain Provisions of the Commodity Exchange Act Pursuant to the Authority Provided in Section 4(c)(6) of the Act, at 7 n.17 (Jun. 22, 2015) (citations omitted); see also PUCT Comment Letter at 6-7 (Jun. 22, 2015) (explaining that market participants regulated by the Electric Reliability Council of Texas (“ERCOT”) aggrieved by the activities of other market participants may bring complaints for adjudication by ERCOT, whose decisions are subject to review by PUCT and the Texas state courts).
13 Aspire, 2015 WL 500482, at *1; see also 16 Tex. Admin. Code § 25.504(c) (2006). I take no position on the specific PUCT Rule at issue, other to note that it appears to be backed by a broad consensus of Texas electricity stakeholders and vigorously defended by the PUCT. See Aspire, 2016 WL 758689, Brief for PUCT as Amicus Curiae, at 27-29.
14 Aspire, 2015 WL 500482, at *1.
15 See PUCT Comment Letter on Proposed Order and Request for Comment on an Application for an Exemptive Order From Southwest Power Pool, Inc. From Certain Provisions of the Commodity Exchange Act Pursuant to the Authority Provided in Section 4(c)(6) of the Act, at 7-10 (Jun. 22, 2014) (describing the Aspire litigation and its potential deleterious effects on the RTO-ISO markets).
16 7 U.S.C. § 6(c); see also Feb. 25, 2016 Energy and Environmental Markets Advisory Committee Meeting, transcript at 21-70 (discussing the consequences for consumers and rate payers that would flow from permitting private rights of action against RTO-ISO participants).
17 Tex. Commercial Energy v. TXU Energy, 413 F.3d 503, 508 (5th Cir. 2005 (quoting Wegoland, Ltd. v. NYNEX Corp., 27 F.3d 17, 18 (2d Cir. 1994) (barring otherwise valid antitrust law claim on the basis of the filed-rate doctrine based on PUCT oversight over the relevant electricity market).
18 Memorandum of Understanding between the FERC and the CFTC (Jan. 2, 2014), http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/cftcfercjmou2014.pdf.
Last Updated: May 10, 2016