Media Statements & Speeches
Dissent Regarding Public Citizen, Inc. v. Midcontinent Independent System Operator, Inc.
I dissent from today’s order because it fails to adequately address the key question posed by the complaints: Whether the results of the Midcontinent Independent System Operator, Inc.’s (MISO) 2015/2016 capacity auction (2015 auction) were just and reasonable. Instead, it makes a series of statements, none of which adequately support the Commission’s finding that those results were just and reasonable. First, the order states that the relevant tariff language was followed. Second, it explains that Commission staff conducted a non-public investigation. However, the enforcement proceeding was subsequently terminated by the Chairman without a vote by the full Commission. Finally, the order makes an unsupported statement that the conduct examined in that truncated enforcement process did not violate the Commission’s regulations regarding market manipulation. Because serious allegations of market manipulation deserve more than a conclusory assurance that there is nothing to see here, I have no choice but to dissent.
As an initial matter, the fact that MISO and the individual market participants appear to have followed the relevant tariff language does not respond to allegations that the resulting rates are unjust and unreasonable as a result of market manipulation. I am not aware of any authority to support the proposition that a market participant can commit market manipulation with impunity so long as it does not violate any tariff provision. To the contrary, in cases involving section 10(b) of the Securities Act of 19341 —the template for the prohibition on market manipulation in section 222 of the Federal Power Act (FPA)2 — courts have repeatedly recognized that a facially legal action can constitute manipulation when it is taken for an improper purpose.3 The courts have similarly instructed the Commission to “not take a cramped view of the types of deception that can give rise to fraud”4 and that “the same conduct may or may not be deceptive depending on an actor’s purpose.”5 And the Commission itself has recognized that conduct consistent with the relevant tariff can nevertheless be manipulative if motivated by an illicit or improper aim.6
I do not interpret today’s order to indicate that the Commission has had a change of heart and now believes that simply following the relevant tariff creates a safe harbor for market manipulation. Such an about face would be an unreasoned departure from settled policy7 and would seem to directly contravene the case law cited in the previous paragraph. This means, however, that the absence of a tariff violation cannot be a complete answer to an allegation that market manipulation rendered the 2015 auction results unjust and unreasonable.
Instead, we must also believe that the 2015 auction results were not the product of market manipulation. I see no basis for that belief in today’s order, which notes that a non-public investigation into alleged manipulation was commenced by the Commission and has since been closed.8 Although the Commission directed that investigation,9 the decision to close it was made by the Chairman without consulting the other commissioners.10 Had I been consulted, I would have argued against terminating the enforcement process.11 Because the details of the investigation were, and remain non-public at the choice of the Commission, I cannot explain why I disagree with the Chairman’s decision to close the investigation.12 Suffice it to say that I believe that the evidence uncovered to date was more-than-sufficient to justify continuing the enforcement process.
But even putting aside my disagreement with the fate of that investigation, today’s order provides a wholly unsatisfactory response to the allegations of market manipulation raised in the complaints. Although the Commission can choose to publicly disclose aspects of a non-public investigation,13 the Commission has not done so here. Today’s order does not provide even the scantest reasoning to support its finding that the nearly 1,000 percent year-over-year increase in the MISO Zone 4 capacity price had nothing to do with market manipulation.14 Instead, all we have is the Commission’s unsubstantiated assurance that no one violated the Commission’s regulations regarding market manipulation.15
The premature end to the enforcement process coupled with the conclusory assertion that there was no market manipulation leave important questions unanswered. Given those unanswered questions, I do not believe we can say with any confidence that the 2015 auction was not subject to market manipulation. Accordingly, because I cannot make that judgment, I cannot join the Commission’s conclusion that the 2015 auction results were just and reasonable.
Guarding against market manipulation remains one of the Commission’s most important obligations. Competitive wholesale electricity markets have yielded tremendous economic and other benefits for customers. But continuing to realize those benefits requires that market outcomes be the product of genuine competition, not market manipulation. I hope that identifying, eliminating, and punishing manipulative acts will remain one of our chief priorities, which is what Congress intended when it vested the Commission with that responsibility in the 2005 amendments to the FPA.16 Today’s decision, however, does little to inspire confidence in that regard.
For these reasons, I respectfully dissent.
15 U.S.C. § 78j (2012).
16 U.S.C. § 824v; see id. § 824v(a) (prohibiting the use of a “manipulative or deceptive device or contrivance (as those terms are used in section 78j(b) of title 15)”).
See Koch v. SEC, 793 F.3d 147, 152 (D.C. Cir. 2015) (finding that trades made for the purpose of “marking the close” constituted manipulation based in part on the individual’s “ intent to deceive or manipulate the market”); ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 100 (2d Cir. 2007) (explaining that, under section 10(b) of the Securities Act, “deception arises from the fact that investors are misled to believe ‘that prices at which they purchase and sell securities are determined by the natural interplay of supply and demand, not rigged by manipulators.’” (quoting Gurary v. Winehouse, 190 F.3d 37, 45 (2d Cir. 1999)); Markowski v. SEC, 274 F.3d 525, 529 (D.C. Cir. 2001); see also FERC v. Coaltrain Energy, L.P., No. 2:16-CV-732, 2018 WL 7892222, at *11 (S.D. Ohio Mar. 30, 2018) (“The Supreme Court has directed courts to ‘interpret Section 10(b) and Rule 10b-5 flexibly and broadly, rather than technically or restrictively.’” (quoting VanCook v. SEC, 653 F.3d 130, 138 (2011)).
FERC v. City Power Mktg., LLC, 199 F. Supp. 3d 218, 234 (D.D.C. 2016) (citing Superintendent of Ins. v. Bankers Life & Cas. Co., 404 U.S. 6, 12 (1971)).
Id. at 235 (citing Markowski, 274 F.3d at 529).
See In Re Make-Whole Payments & Related Bidding Strategies, 144 FERC ¶ 61,068, at P 83 (2013) (“Market manipulation under the Commission’s Rule 1c is not limited to tariff violations.”); id. n.8 (collecting proceedings in which the Commission has taken that position). Multiple courts have agreed with that basic premise. See, e.g., Coaltrain Energy, 2018 WL 7892222, at *12 (holding that the Commission adequately pleaded a claim of manipulation were it alleged that traders “engaged in otherwise benign virtual trading for a deceptive purpose”); City Power, 199 F. Supp. 3d at 235-36 (similar); FERC v. Silkman, 177 F. Supp. 3d 683, 703-04 (D. Mass. 2016).
See, e.g., ABM Onsite Servs.-W., Inc. v. Nat’l Labor Relations Bd., 849 F.3d 1137, 1142 (D.C. Cir. 2017) (“[A]n agency’s unexplained departure from precedent is arbitrary and capricious.”); ANR Pipeline Co. v. FERC, 71 F.3d 897, 901 (D.C. Cir. 1995) (“[W]here an agency departs from established precedent without a reasoned explanation, its decision will be vacated as arbitrary and capricious.”).
Public Citizen, Inc. v. Midcontinent Indep. Sys. Operator, Inc., 168 FERC ¶ 61,042, at P 12 (2019) (Order).
Investigation into MISO Zone 4 Planning Resource Auction Market Participant Offers, 153 FERC ¶ 61,005 (2015) (Investigation Order). As this order recognized, the Commission had already begun investigating the results of the 2015 auction. See id. at P 1.
The exclusion of the other commissioners from the decision to terminate this type of investigation runs counter to the spirit of section 222 of the FPA, which gives the Commission as a whole the authority to prevent and penalize market manipulation. See 16 U.S.C. § 824v(a).). It is profoundly unwise for the Chairman to unilaterally close an investigation directed by the Commission. See generally Investigation Order, 153 FERC ¶ 61,005 at P 1 (stating that the “Commission will determine what further action, if any, may be appropriate . . . after it considers the results of the staff investigation”). Doing so effectively ignores the views of the remaining commissioners who were also confirmed by the Senate to enforce the Commission’s statutory requirements.
The majority responds to my statement by reciting statistics about the investigation, including the number of document pages reviewed and the number of witnesses interviewed. Order, 168 FERC ¶ 61,042 at P 31. I do not doubt that the Office of Enforcement was thorough in its work. Rather, my point is that the evidence staff uncovered raised serious concerns about manipulation and provided a more-than-sufficient basis to continue the enforcement process.
18 C.F.R. § 1b.9 (2018).
Order, 168 FERC ¶ 61,042 at P 5 (explaining that Zone 4 cleared at $16.75/MW-day in the 2014/2015 capacity auction and $150/MW-day in the 2015 auction). That increase in price is particularly striking given the clearing price in every other MISO zone cleared below $4/MW-day in the 2015 auction. Id.
Id. P 32.
Energy Policy Act of 2005, Pub. L. No. 109-58, §?1283, 119 Stat. 979.
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