United States: FERC Revises Market Surveillance Data Collection Proposal And MBR Filing Proposal

Key Points

  • FERC modified a controversial September 2015 proposal to collect "connected entity" data (i.e., various information concerning corporate affiliates and other business relationships) from wholesale electric market participants in connection with its market surveillance and enforcement functions.
  • The revised proposal would require all MBR sellers and entities that trade virtual products or FTRs to provide connected entity data.
  • FERC also proposed certain reforms to the substance and format of information submitted by MBR sellers in connection with the Commission's MBR program.

On July 21, 2016, the Federal Energy Regulatory Commission (FERC or "Commission") issued a Notice of Proposed Rulemaking (NOPR) proposing to (1) collect a wide range of "connected entity" data for market surveillance and enforcement purposes from market-based rate (MBR) sellers and entities trading virtual products or financial transmission rights (FTRs), and (2) revise the substance and format of information submitted by MBR sellers in connection with the Commission's MBR program. The July 21 NOPR modifies and consolidates connected entity and MBR NOPRs issued in Docket Nos. RM15-23 and RM16-3 last year.1

The connected entity component of the NOPR reflects a modified version of a September 2015 NOPR to collect connected entity data from market participants. In the September 2015 NOPR, the Commission explained that, while it had greatly enhanced its surveillance capabilities in recent years through the use of automated screens of market activities and analytical procedures, connected entity data was necessary to understand market participant relationships and determine whether seemingly anomalous conduct has a legitimate explanation or, alternatively, whether it may reflect market manipulation, fraud or abuse. The modified connected entity proposal is substantially similar to the Commission's prior proposal in many respects, and it reflects a continuing commitment by the Commission to further develop its internal market surveillance and analytics tools. If adopted, the connected entity proposal would have substantial impacts on market participants—increasing overall enforcement scrutiny of market conduct, creating new and revised reporting obligations, and introducing new sources of compliance risk.

The proposed MBR reforms are also important, since they introduce changes to the format and substance of information that MBR sellers are required to submit.

FERC's Proposal

In the NOPR, FERC proposes to require MBR sellers (i.e., entities holding MBR authority) and entities that trade virtual products or FTRs in FERC-jurisdictional organized wholesale electric markets (i.e., the ISOs and RTOs) to provide connected entity data and, if applicable, MBR data, in a streamlined manner through a relational database. Market participants will be required to submit information for the database using an "extensible markup language" (XML) schema, which will permit automated organization of the data. FERC states that use of a relational database will eliminate duplication of information collected for market surveillance (i.e., connected entity data) and MBR purposes, and render the data more usable and accessible to the Commission and its staff.

Below we summarize the substantive components of FERC's proposal:

Connected Entity Data

In the September 2015 NOPR, the Commission proposed to collect a wide range of data on market participants' connected entities, including information on ownership, employment, debt and contractual relationships. The September 2015 NOPR met substantial resistance from market participants, who criticized it as being, among other things, overly broad and incongruent with MBR reporting obligations. In the revised proposal, FERC has clarified and, in certain instances, narrowed the scope of connected entity data to be collected from market participants. FERC has also revised the proposal so that connected entity data would be provided by market participants directly to FERC alongside MBR data, rather than to the ISOs and RTOs. As explained below, the Commission also expanded the scope of entities that would be required to report connected entity data to now include market participants that do not participate in the ISO and RTO markets.

The parameters of the revised connected entity proposal are summarized below:

  • Scope of Filers: The proposal requires all MBR sellers and virtual/FTR traders to report connected entity data. The proposed scope of filers is different than what FERC proposed in September 2015, which included all organized electric market participants. On the one hand, the revised scope is broader in that it covers all MBR sellers—including those that do not participate in organized electric markets. This expansion is significant in that it affects a wide range of MBR sellers that do not participate in organized markets, including smaller entities, such as qualifying facilities greater than 20 MWs who may sell to a single utility under a single power purchase agreement.2 On the other hand, the revised scope excludes certain market participants potentially covered by the September 2015 NOPR—namely, FPA Section 201(f) entities (principally municipalities and cooperatives), as well as entities such as demand response providers who participate in organized markets, but are not required to hold MBR authority.
  • Legal Entity Identifier: The proposal requires MBR sellers and virtual/FTR traders to each acquire a Legal Entity Identifier (LEI) and include their LEI when reporting connected entity data. An LEI is a unique, 20-digit alphanumeric code that is currently required by certain financial regulators, such as the Commodity Futures Trading Commission and the Securities and Exchange Commission.
  • Ownership and Control: The proposal tracks FERC's "affiliate" definition from the MBR regulations and would limit upstream, downstream and common ownership/control relationship reporting to affiliates that are (1) ultimate affiliate owners of the entity, as defined in FERC's regulations; (2) participants in FERC-jurisdictional organized wholesale electric markets; or (3) entities that purchase or sell financial natural gas or electric energy derivative products (e.g., swaps or futures) that settle off of the price of physical electric or natural gas energy products. The proposed ownership and control reporting requirements no longer include passive owners, holders of nonvoting stock or limited partners, as proposed in the September 2015 NOPR. The revised NOPR also no longer requires covered entities to report information regarding debt interests and structured transactions.
  • Employees: The proposal limits reportable employees or contactors to include only "traders," defined to include a person "who makes, or participates in, decisions and/or devises strategies for buying or selling physical or financial commission-jurisdictional electric products or physical natural gas." Reportable employees no longer include chief executive officers, chief financial officers or chief compliance offers, as proposed in the September 2015 NOPR.
  • Contracts: The proposal requires covered entities to report any agreement that "confers control over an electric generation asset that is used in, or offered into, wholesale electric markets." Agreements that confer control are those that grant one of the parties the right to make trading decisions for an electric generation asset of another party or to offer an electric generation asset into the wholesale electric markets. The September 2015 NOPR defined reportable contracts more broadly, covering any contract relating to the management of resources that participate in FERC-jurisdictional markets or that otherwise relate to operational or financial control of such resources.

MBR Data

The Commission proposes a number of changes to the information requirements for its MBR program as well. First, the Commission proposes changes to the ownership information that MBR sellers must provide. Pursuant to Order No. 697-A, MBR sellers currently have to identify all upstream owners and identify the business activities of such owners. Under the new rule, MBR sellers would be required to provide information on only certain "affiliate owners," which the Commission proposes to define as owners that meet the definition of affiliate as provided in 18 C.F.R. § 35.36(a)(9). MBR sellers would need to identify only those affiliate owners that (1)are an "ultimate affiliate owner," meaning the furthest upstream affiliate owner in the ownership chain; (2) have a franchised service area; (3) have MBR authority; or (4) directly own or control generation, transmission or intrastate natural gas transportation; storage or distribution facilities; or physical coal supply sources or ownership of, or control over, who may access transportation of coal supplies. The Commission also proposes to require MBR sellers to identify any foreign government that directly or indirectly owns or controls the MBR seller (including political subdivisions of foreign governments or any corporation that is owned in whole or in part by a foreign government or subdivision).

The relational database will create a unique identifier for an entity that is identified as an "affiliate owner" by an MBR seller. The Commission will publish on its website a list of all of these entities and their unique identifiers, and all MBR sellers will use this unique identifier to identify their affiliate owners in future filings. The database will be able to use this information to generate a corporate organizational chart, and, accordingly, the Commission proposes to eliminate the requirement, adopted in Order No. 816, that MBR sellers submit corporate organizational charts.

The NOPR also contemplates changes to the "asset appendix" information that MBR sellers submit. Currently, the Commission requires MBR sellers to submit an asset appendix containing information about long-term firm purchases and assets that they and their affiliates own or control. The Commission proposes to no longer require MBR sellers to report assets owned by affiliates with MBR authority. Instead, the Commission will rely on "baseline submissions" from all MBR sellers (discussed below) that will identify each individual MBR seller's asset information. These baseline submissions will create the relational database and will allow the Commission to view affiliate relationships. MBR sellers will have to identify assets that are owned or controlled by an affiliate that does not have MBR authority, however, since these entities will not necessarily be required to make a baseline submission. The Commission proposes a number of other minor changes to the asset appendix information as well, including a requirement that MBR sellers identify generators on a unit-by-unit (rather than facilitywide) basis.

Implementation

The NOPR contemplates that each virtual/FTR participant and MBR seller will make a baseline informational filing soon after the issuance of the final rule, which will be used to create the relational database. The baseline submission would set forth the entity's connected entity information and, where applicable, MBR information. Both MBR sellers and virtual/FTR participants would incur an ongoing obligation to update connected entity information within 30days of a change. MBR sellers will also have to update the relational database on a quarterly basis to reflect any changes in MBR data that did not trigger a "change in status" filing.

Implications

While the MBR-related implications are principally administrative in nature, the Commission's connected entity proposal will likely have three key implications for market participants: (1)increased and more sophisticated enforcement scrutiny of market participant conduct; (2)increased compliance burdens; and (3)increased compliance risks, particularly for FTR and virtual traders.

Increased and More Sophisticated Enforcement Scrutiny

The proposal to collect connected entity information from market participants would provide the Commission's Office of Enforcement (OE) with a substantial amount of new data regarding market participants and their relationships to use in carrying out OE's market analytics and surveillance program. Ever since the Commission established the Division of Analytics and Surveillance (DAS) within OE in 2012, the Commission has sought to further develop its internal capabilities to surveil jurisdictional markets and identify potentially manipulative or otherwise improper market conduct. Having access to connected entity data will allow DAS to scrutinize market participant conduct in new and more sophisticated ways. This could lead to a greater number of OE investigations and inquiries into market participant conduct, and potentially new and more creative theories of wrongdoing.

Increased Compliance Burdens

The proposal would also increase the compliance burdens faced by MBR sellers and FTR and virtual traders. In addition to the required baseline submissions, covered entities will be required to track changes in their connected entity data and report changes in connections to the Commission in a timely manner. The burdens of complying with connected entity reporting requirements will likely be substantial and involve more than simply administrative recordkeeping. Certain categories of connected entity data are likely to require detailed analysis to determine what is and is not reportable. For example, with respect to reportable employees, there is likely to be inherent subjectivity in determining the range of employees that "make[], or participate[] in, decisions and/or devise[] strategies for buying or selling physical or financial commission-jurisdictional electric products or physical natural gas." Likewise, at times, there could be ambiguity as to whether a contract "confers control over an electric generation asset that is used in or offered into wholesale electric markets" and is therefore reportable.

Increased Compliance Risk

The proposal also creates a new source of compliance risk for MBR sellers and FTR and virtual traders subject to the new reporting obligations. While FERC explained in the NOPR that it would not seek to penalize inadvertent errors in data reporting, FERC made clear that the intentional or reckless submission of inaccurate or misleading information could lead to the imposition of civil penalties or other sanctions.

FTR and virtual traders face a particularly significant increase in compliance risk as a result of the NOPR. In the NOPR, FERC proposes to make FTR and virtual traders subject to the same duty of candor requirements to which MBR sellers are currently subject under Section 35.41(b) of the Commission's regulations—that is, the obligation to provide accurate information, and not submit false or misleading information, or omit material information, in any communication with the Commission, Commission-approved market monitors, Commission-approved organized electric markets or jurisdictional transmission providers, unless the entity exercises due diligence to prevent such occurrences. Notably, this duty of candor extends to communications that go well beyond the submission of connected entity data that is at issue in the NOPR, and it introduces a new source of compliance risk for FTR and virtual traders in all communications with the Commission, as well as market monitors, organized markets and transmission providers. FERC has aggressively enforced Section 35.41(b) in recent years against several MBR sellers accused of providing the Commission or market operators with inaccurate or misleading information. Therefore, the expansion of Section 35.41(b) requirements to virtual and FTR traders is significant.

Next Steps

Comments on the NOPR are due 45 days after publication in the Federal Register.

In addition to seeking comments, the Commission intends to conduct substantial outreach with the industry, including meetings and technical workshops. The first workshop will take place at FERC headquarters on August 11, 2016.

Footnotes

1 In concurrent issuances, the Commission withdrew the proposed rules announced in these dockets.

2 Qualifying facilities 20 MW or smaller are not required to obtain MBR authority and thus likely would not be subject to connected entity reporting requirements under the proposal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions