Commissioner Richard Glick Statement
March 19, 2020
Docket No. EL15-70-002
Dissent Regarding Public Citizen, Inc. v. Midcontinent Independent System Operator, Inc.
I dissent from today’s order because the Commission continues to sidestep the key question posed in these proceedings: Whether the results of the Midcontinent Independent System Operator, Inc.’s (MISO) 2015/2016 capacity auction (2015 auction) were just and reasonable in light of the allegations of market manipulation by Public Citizen and others. 1
Rather than directly confronting that issue, the Commission states that the relevant tariff language was followed and that a non-public investigation was conducted and did not, in my colleagues’ view, uncover manipulative conduct. That enforcement proceeding, however, was terminated by the Chairman without a vote by the Commission and the details of that investigation remain confidential. Accordingly, the Commission has at no point provided Public Citizen with an adequate response to the concerns raised in its complaint or explained why, in light of those concerns, the auction results were just and reasonable
As an initial matter, the fact that MISO and the individual market participants appear to have followed the relevant tariff language does not insulate them against the argument that market manipulation rendered the resulting rates unjust and unreasonable. 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 the relevant tariff language. To the contrary, in cases involving section 10(b) of the Securities Act of 1934 2
—the template for the prohibition on market manipulation in section 222 of the Federal Power Act (FPA) 3
— courts have repeatedly recognized that a facially legal action can constitute manipulation when it is taken for an improper purpose. 4
The courts have similarly admonished the Commission to “not take a cramped view of the types of deception that can give rise to fraud” 5
and that “the same conduct may or may not be deceptive depending on an actor’s purpose.” 6
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. 7
I do not interpret the underlying order—or today’s order on rehearing—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 policy 8
and would seem to directly contravene the case law cited in the previous paragraph. That 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, the Commission must also conclude that the 2015 auction results were not the product of market manipulation. I see no basis for such a conclusion in today’s order. As in the underlying order, the Commission notes that a non-public investigation into alleged manipulation was commenced by the Commission and has since been closed. 9
Although the Commission directed that investigation, 10
the decision to terminate the enforcement process was made by the Chairman without consulting the other commissioners. 11
Had I been consulted, I would have argued against terminating the enforcement process. 12
Because the details of the investigation remain non-public, I cannot explain why I believe that the Chairman erred in terminating the enforcement process. Suffice it to say that I am confident that the evidence uncovered in that investigation was more-than-sufficient to press ahead.
But even putting aside my disappointment with the fate that befell 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 refused to do so here, meaning that the evidence uncovered and staff’s findings remain confidential. 14
As such, 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. 15
Instead, all we have is the Commission’s unsubstantiated assurance that there is nothing to see here.
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 those auction results are just and reasonable.
Guarding against market manipulation remains one of the Commission’s most important obligations. Competitive wholesale electricity markets have yielded tremendous 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 order, however, does little to inspire confidence in that regard.
For these reasons, I respectfully dissent.
- 11 The Illinois Attorney General and Southwestern Electric Cooperative, Inc. also filed complaints, although only Public Citizen sought rehearing of the Commission’s July 19, 2019 Order. See Public Citizen, Inc. v. Midcontinent Independent System Operator, Inc., 170 FERC ¶ 61,227, at P 1 (2020) (Rehearing Order); Public Citizen, Inc. v. Midcontinent Independent System Operator, Inc., 168 FERC ¶ 61,042, at P 8 (2019) (July 2019 Order).
- 22 15 U.S.C. § 78j (2018).
- 33 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)”).
- 44 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)).
- 55 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)).
- 66 Id. at 235 (citing Markowski, 274 F.3d at 529).
- 77 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) (applying this principle).
- 88 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.”).
- 99 Rehearing Order, 170 FERC ¶ 61,227 at P 4; July 2019 Order, 168 FERC ¶ 61,042 at P 12.
- 1010 Investigation into MISO Zone 4 Planning Resource Auction Market Participant Offers, 153 FERC ¶ 61,005 (2015) (Investigation Order). As that order recognized, the Commission had already begun investigating the results of the 2015 auction. See id. P 1.
- 1111 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 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.
- 1212 In the underlying order, the majority responded to my concerns by reciting statistics about the investigation, including the number of document pages reviewed and the number of witnesses interviewed. July 2019 Order, 168 FERC ¶ 61,042 at P 31. Now, as then, I do not doubt that the Office of Enforcement was thorough in its work and rigorously reviewed the relevant conduct. Rather, my point is that the evidence uncovered as part of that review raised serious concerns about manipulation and provided a more-than-sufficient basis to continue the enforcement process.
- 1313 18 C.F.R. § 1b.9 (2018).
- 1414 Under those circumstances, it is a little rich for the Commission to chide Public Citizen for failing to adduce adequate evidence to carry its burden under section 206 of the FPA, Rehearing Order, 170 FERC ¶ 61,227 at P 14, when the Commission has a complete enforcement dossier that it refuses to make public.
- 1515 July 2019 Order, 168 FERC ¶ 61,042 at P 5 (explaining that Zone 4 cleared at $16.75/MW-day in the 2014 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.
- 1616 Energy Policy Act of 2005, Pub. L. No. 109-58, §?1283, 119 Stat. 979.