In May 2016, the Commodity Futures Trading Commission (CFTC)
proposed an amendment to a 2013 order concerning regional
transmission organization (RTO) and independent system operator
(ISO) organized electric markets that would allow private
plaintiffs to bring lawsuits for fraud and market manipulation
under the Commodity Exchange Act (CEA). As we previously
explained,1 the proposal would have had profound
implications for all RTO and ISO market participants. Most directly
and immediately, the proposal would have significantly increased
litigation risk for market participants by allowing private
plaintiffs to bring fraud and market manipulation claims with
respect to conduct occurring in FERC-regulated2
organized electric markets—seemingly inconsistent with
Congress' intent in prohibiting such private claims from being
brought under the FERC-administered Federal Power Act (which
contains similar fraud and market manipulation prohibitions). But
the proposal had many other potential consequences, including
regulatory uncertainty that could be caused by CEA claims based on
conduct that complied with applicable FERC regulations and market
rules. As explained below, it now appears that the CFTC is not
likely to adopt the proposal.
While the CFTC likely expected the proposal to garner opposition
from some segments of industry, the agency probably did not
anticipate how widespread and forceful the opposition would
be—especially from Congress. The comments received in response to the proposal
reflect significant opposition from a wide range of stakeholders,
including traditional utilities, merchant generators and traders,
the public power sector, the ISOs and RTOs, and consumer
representatives. In addition, FERC staff and the Public Utility
Commission of Texas (PUCT) both opposed the proposal. The proposal
also raised concerns in both houses of Congress. On June 24, 2016,
the Chairman and Ranking Member of the House Committee on Energy
and Commerce sent a letter to CFTC Chairman Massad expressing
concerns about the proposal and requesting a briefing on it. On
September 1, 2016, the Chairmen and Ranking Members of both the
Senate Committee on Energy and Natural Resources and the Senate
Committee on Agriculture, Nutrition and Forestry wrote to CFTC Chairman Massad expressing
similar concerns. In April, prior to the CFTC issuing the proposal,
but while it was considering the same issue in connection with one
particular RTO market, Sen. Boozman (who serves as Chairman of the
Senate Appropriations Committee's Subcommittee on Financial
Services and General Government and also on the Committee on
Agriculture) included a bipartisan amendment in the Committee on
Agriculture's markup of the CFTC reauthorization bill that
would require ISO and RTO exemptions to include exemptions from
private rights of action.3
On September 13, 2016, Chairman Massad responded to these
congressional concerns in the form of a letter to Sen. Boozman, noting that,
"after careful review of the issue and comments
submitted," he "plan[ned] to recommend to the Commission
that the final order exempt RTOs and ISOs from all private rights
of action" under the CEA. Chairman Massad further noted that
he found concerns raised by commenters with respect to the
potential consequences that private actions could create within
FERC and PUCT-regulated markets to be "valid concerns."
Chairman Massad reiterated that the CFTC will retain its own
authority to pursue fraud and manipulation within ISO and RTO
The CFTC's apparent change of course is a welcome
development for ISO and RTO market participants and other
stakeholders—avoiding additional regulation and regulatory
uncertainty in the already heavily regulated organized electric
1. Our prior article discusses the relevant background,
including the CFTC's post-Dodd Frank jurisdiction over certain
ISO and RTO transactions, and how the CFTC has exempted ISO and RTO
transactions from many of the requirements of the CEA.
2. One organized electric market covered by the proposal,
ERCOT, is subject to regulation by the PUCT rather than
3. Although the CFTC, at the time, had not yet issued the
proposed amendment to the 2013 ISO/RTO exemption order, as
discussed in our prior
article, it was considering the same issue in connection with
an exemption requested by Southwest Power Pool—an RTO that
was not subject to the 2013 exemption order.
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