United States: CFTC Proposal Reasserts Right To Private Litigation Against RTOs And ISOs

The CFTC proposed an amendment to a March 28,2013 Order that exempted specified electric energy transactions of six independent system operators ("ISOs") and regional transmission organizations ("RTOs") from virtually all provisions of the Commodity Exchange Act, except those prohibiting fraud and manipulation (the "RTO-ISO" Order). The proposed amendment clarifies that such entities are not exempt from the private right of action provision of Section 22 of the CEA.

The proposed amendment addresses the applicability of Section 22 that was raised in a federal court in February 2015. RTO-ISO Order of 2013 did not discuss the right of harmed parties to bring private actions under CEA Section 22 against RTOs and ISOs, and this silence was cited by the court for dismissing a private lawsuit. See Aspire Commodities, L.P. v. GDF Suez Energy N. Am., Inc., No. H-14-1111, 2015 WL 500482 (S.D. Tex. Feb. 3, 2015), affirmed No. 15-20125, 2016 WL 758689 (5th Cir. Feb. 25, 2016).

The CFTC asserted that the amendment will enhance the consistency of the treatment of a private rights of action across all RTOs and ISOs. The CFTC requested comment on whether the proposed amendments would result in: (i) frivolous litigation; (ii) regulatory uncertainty and/or inconsistent rulings; or (iii) detrimental effects on the RTO-ISO markets or market participants.

CFTC Chairman Timothy Massad stated that private rights of action "serve the public interest by allowing harmed parties to seek damages in instances where the Commission lacks the resources to do so on their behalf." CFTC Commissioner J. Christopher Giancarlo, however, expressed his "emphatic . . . dissent" by stating that the proposal "toss[es] legal certainty to the wind" and "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 damage." Commissioner Giancarlo also challenged the rationale for the amendment, arguing that the extensive regulation and monitoring of RTOs and ISOs by the Federal Energy Regulatory Commission "significantly obviates the policing role of private suits in these markets."

Comments on the proposed amendment are due no later than 30 days after publication in the Federal Register.

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