The Commodity Futures Trading Commission (CFTC) is engaged in its first court battle interpreting its new anti-manipulation authority under the Commodity Exchange Act (CEA) as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank): CFTC v. Kraft Foods Group, Inc. and Mondelēz Global LLC. The case involves allegations that Kraft Foods manipulated the wheat futures and cash markets in 2011. While the case is still in its infancy, and additional facts may come to light that clarify the CFTC’s position, the Complaint can be read to suggest that conduct intended to (or maybe even just anticipated to) influence market prices is per se manipulation if the actor benefits from the impact on prices. As discussed below, this leaves participants in physical commodity markets with important questions to consider. (more…)
WE KNOW ENERGY®
Michael Brooks, Robert E. Pease and David Perlman
Heather Palmer and Michael Weller
Over the past few years, California has taken strides to update the state’s oil and gas regulatory program to keep pace with new technological advances in resource extraction, such as hydraulic fracturing. One significant milestone was the passage of SB 4 in September 2013, a bill that demonstrated how California would be taking a different approach to hydraulic fracturing and unconventional shale gas development as compared to the approach taken by the State of New York.
While New York has opted for an outright ban on hydraulic fracturing in the state, California’s SB 4 established interim regulations and laid out plans for a thorough scientific and environmental review of hydraulic fracturing, leading up to the promulgation of permanent regulations, which went into effect on July 1, 2015. (more…)
David Perlman, Michael Brooks, Robert E. Pease and Jennifer Lias
This report summarizes material notices from CME Group and ICE Futures, with a particular focus on energy. It is not intended to be a comprehensive review of each and every notice issued by these Exchanges.
CME Group has released a Webinar on Block Trades summarizing the regulatory requirements in relation to block trades in eligible CME, CBOT, NYMEX, and COMEX products, including minimum block thresholds, pricing, reporting, and important requirements around the use of non-public information.
Block trades – large, privately negotiated trades that meet minimum quantity requirements – can be traded by ECPs. Pricing must be fair and reasonable, as governed by four factors: the size of the trade; the prices and sizes of other transactions at the time; prices and sizes of other transactions in other markets; and the circumstances of the markets or parties. The trade price must be consistent with the minimum tick price for the market, and each leg/transaction must be executed at a single price. (more…)
Robert E. Pease, David Perlman and Michael Brooks
After almost eight years since the Federal Energy Regulatory Commission (FERC) commenced its investigation against Barclays Bank PLC (Barclays) and four of its traders, Scott Connelly, Daniel Brin, Karen Levine and Ryan Smith, for allegedly manipulating the California electricity markets, Barclays filed its answer in federal district court. As expected, Barclays denied all of FERC’s substantive allegations and asserted that the District Court should give no merit to FERC’s findings of fact or legal conclusions. FERC, according to Barclays and the individual traders, must prove its case before an independent arbiter and cannot rely on anything that happened at the agency level. FERC is seeking a $435 million civil penalty against Barclays; $15 million against Connelly; and $1 million each from Brin and Levine. (more…)
Mark Lewis and Robert E. Pease
On June 17, 2015, the Federal Energy Regulatory Commission’s (FERC) Division of Audits and Accounting, Office of Enforcement (DAA), issued two audit reports involving oil pipelines, the Colonial Pipeline Company Docket No. FA14-4 and Enterprise Products Partners, L.P., Docket No. FA14-1. The Enterprise audit focused on Mid-American Pipeline Company, LLC (MAPL), a subsidiary of Enterprise. These reports are significant because they demonstrate that FERC audit staff is taking a comprehensive look at oil pipeline accounting and rate issues along with enhanced scrutiny of affiliate issues. DAA found five minor areas of noncompliance in the Colonial audit and ten findings of noncompliance with respect to Enterprise. The Enterprise findings were more significant because they involved under recovery of revenues as a result of dealings with an affiliate and failure to follow proper accounting for depreciation and prepaid leases, among other findings. In addition to Colonial and Enterprise, FERC has also announced two other oil pipeline company audits involving Enbridge Energy Partners LP, Docket No. FA15-4, and Plantation Pipe Line Company, Docket FA15-12. Prior to these audits, FERC had not audited an oil pipeline in many years. (more…)
David Perlman, Stephen Hug and Caitlin Tweed
On June 9, 2015, FERC issued an order accepting PJM’s proposal to modify its forward capacity market, the Reliability Pricing Model (“RPM”), to establish a new capacity product, the Capacity Performance Resource. PJM’s proposal is designed to tighten the performance standards applicable to resources that receive a capacity obligation through the RPM and is intended to address poor resource performance that has been experienced since implementation of the RPM, especially during the 2014 polar vortex.
Once implemented, PJM’s proposal will impose more stringent performance standards on resources that receive a capacity obligation through the RPM, including imposing non-performance charges when resources fail to perform and bonus payments for over-performance. All capacity resources will be eligible to offer as Capacity Performance Resources, and demand resources, energy efficiency resources, capacity storage resources, and intermittent resources will be allowed to aggregate their capabilities in order to reliably perform during emergency conditions. A Non-Performance Charge will be assessed on resources who fail to perform during system emergencies. (more…)