UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
Investigation of Terms and Conditions of Public
Utility Market-Based Rate Authorizations
)
)
Docket No. EL06-16-000
REPLY COMMENTS OF THE EDISON ELECTRIC INSTITUTE
The Edison Electric Institute ("EEI") hereby submits its reply to initial comments
filed pursuant to the November 21, 2005 Order Proposing Revisions to Market-Based
Rate Tariffs and Authorizations (the "Repeal Proposal")1 issued by the Federal Energy
Regulatory Commission ("FERC" or "Commission") in the referenced docket. In its
Repeal Proposal the Commission requested industry comment on whether it should
repeal or revise existing market behavior rules (the "Market Behavior Rules" or "Rules")
embedded in market-based rate tariffs, in light of its pending adoption of potentially
duplicative or inconsistent anti-manipulation rules designed to implement new section
222 of the Federal Power Act ("FPA").2
STATEMENT OF ISSUES
1.
Whether all or some portion of the Market Behavior Rules should be retained? If
so, which portions of the rules and in what format? The substantive provisions of Rule 2
(excluding the "foreseeability" standard), Rule 3, Rule 4, and Rule 5 and all of the
procedural provisions contained in Appendices A and B of the Market Behavior Rules3
should be retained as specific and generally applicable FERC regulations. All of the
Market Behavior Rules should be eliminated as conditions in market-based rate tariffs.
1
Investigation of Terms and Conditions of Public Utility Market-Based Rate Authorizations, Order
Proposing Revisions to Market-Based Rate Tariffs and Authorizations, 113 FERC ¶ 61,190 (2005).
2
16 U.S.C. § 824 et seq. (2000).
3
See, Appendix A (last paragraph) and Appendix B of Order Amending Market-Based Rate Tariffs
and Authorizations, 105 FERC ¶ 61,218 (2003) (the "November 17, 2003 Order").
1
2.
Yes.
Whether, in any event, the foreseeability standard of Rule 2 should be eliminated?
3.
Whether retention of the Market Behavior Rules as a condition in market-based
rate tariffs is necessary in order for the Commission to retain a disgorgement remedy?
No. Granite State Elec. Co., et al., 113 FERC ¶ 61,289 (2005); Carolina Power & Light
Co., 87 FERC ¶ 61,083, 61,356 (1999); Prior Notice and Filing Requirements Under
Part II of the Federal Power Act, Final Order, 64 FERC ¶ 61,139 (1993) (citing line of
cases following Central Maine Power Co., 56 FERC ¶ 61,200 (1991), reh'g. denied 57
FERC ¶ 61,083 (1991); Niagara Mohawk Power Corp. v. FPC, 379 F. 2d 153 (D.C. Cir.
1967); also see, Mountain Fuel Supply Co., 59 FPC 24 (1977).
4.
Whether, under section 206 of the FPA, the existing Market Behavior Rules are
unjust, unreasonable, and unduly discriminatory? Yes.
COMMENTS
Initial comments filed with the Commission overwhelmingly support retention in
some format of various aspects of the Market Behavior Rules, particularly those that
bring greater certainty to the industry. Disagreement in the comments centers primarily
around two issues: (a) whether the Market Behavior Rules should be retained as a
separately applicable part of market-based rate tariffs, or instead, whether key features of
the Rules should be incorporated into rules with more generic application such as the new
anti-manipulation rule the Commission is developing under new FPA section 222; and
(b) whether the "foreseeability" standard of current Rule 2 should be retained.
EEI believes that repeal of the current Rules is the appropriate regulatory result,
with the proviso that the beneficial portions of the Rules should not be lost, but should be
incorporated into regulations that will be applicable on a non-discriminatory basis to all
entities covered by FPA section 222.
To retain the Market Behavior Rules within
market-based rate tariffs, as they are currently structured, would result in unnecessary
duplication, inconsistency, and undue discrimination.
2
A.
Several Portions of the Market Behavior Rules Are Beneficial to the
Industry and Should Be Retained in Generally Applicable Regulations.
Most comments, including those of EEI in both this docket and in Docket No.
RM06-3-0004 (proposing new anti-manipulation rules to implement new FPA section
222), support retention in some format of many of the provisions and concepts of the
Market Behavior Rules.
As EEI explained in its initial comments, many of the
procedural and substantive provisions of the Rules are very beneficial in terms of
providing clarity and certainty to the industry and others involved in markets.5
The substantive provisions of Rules 2 through 5 (excluding the "foreseeability"
standard of Rule 2) add specificity and clarity to the definition of market manipulation,
and actually aid market participants in their efforts to comply with the spirit and intent of
the law. For example, EEI believes that it is helpful to retain the safe harbor contained in
Market Behavior Rule 2 that provides that “[a]ctions or transactions undertaken by Seller
that are explicitly contemplated in Commission-approved rules and regulations of an
applicable power market (such as virtual supply or load bidding) or taken at the direction
of an ISO or RTO” will not be deemed to be manipulative.6
Further, Rule 2(a)
(prohibiting defined “wash trades”) and Rule 2(c) (prohibiting the creation and
subsequent relief of artificial congestion) are two definitive standards that should be
4
Prohibition of Energy Market Manipulation, Notice of Proposed Rulemaking, Docket No. RM063-000 (Oct. 20, 2005).
5
Reply Comments of EEI at 4-5, Docket No. RM06-3-000 (Dec. 5, 2005); Initial Comments of EEI
at 5-7, Docket No. EL06-16-000 (Dec. 29, 2005).
6
PJM Interconnection, L.L.C. argues in its comments that the safe harbor provision of Rule 2
should be applied very narrowly and only under limited circumstances. See Comments of PJM
Interconnection, L.L.C. at 6. EEI believes that actions taken pursuant to RTO or ISO tariffs or at the
specific direction of an RTO or ISO should not later be deemed manipulative (they are certainly not
intentionally manipulative and should not later be deemed manipulative on a retroactive basis), nor should
other actions taken to comply with directions from FERC or security coordinators. Contrary to PJM's
argument, the safe harbor should be relatively protective, to encourage compliance with such directives and
avoid inappropriate liability. However, the standards for enforcement of this safe harbor are not an issue
that needs to be debated or resolved in this docket.
3
explicitly incorporated within any new rules in order to maintain the industry guidance
and certainty that they provide.
EEI strongly urges the Commission to adopt as part of its generally applicable
regulations a set of procedural rules that mirror the timing, process, and remedial
provisions of Appendices A and B of the Market Behavior Rules. The procedural
structure of the Market Behavior Rules was established to reinforce the foundation for
Commission authority to order remedies (specifically the disgorgement remedy, effective
from the initial date of an act of manipulation) for deceptive or manipulative market
behavior. Such remedies are different than those potentially applicable in relation to
complaints regarding the justness and reasonableness, or the public interest, of rates
pursuant to complaints filed or investigations commenced under FPA section 206. The
Commission did not preclude complaints or investigations as to market manipulation
under FPA section 206. Rather, it supplemented the section 206 remedy with tariff
conditions placed in market-based rate tariffs that would allow a reasonable, limited
period of time for complaints to be filed. This process fairly balanced the need for
certainty and closure of transactions with a means for the Commission to order remedies
(including disgorgement of past profits) for prohibited behavior that took place before the
complaint date.7
As discussed below, EEI submits that, under new FPA section 222, disgorgement
of profits proximately linked to well-defined acts of market manipulation is a remedy
7
Certain parties have appealed the Commission’s authority to order disgorgement from the initial
date of a transaction, but the appeal only involves, as unduly vague and in violation of statutory
requirements, one limited provision in Rule 2 which prohibits “acts or transactions that are without a
legitimate business purpose and that are intended to or foreseeably could manipulate market prices, market
conditions or market rules . . .” Petition for Review of Petitioners Cinergy Marketing & Trading, LP, et al.,
Cinergy Marketing & Trading, LP, et al. v. FERC, No. 04-1168 consolidated (D.C. Cir. May 28, 2004) (the
“Cinergy Case”).
4
available to the Commission through a general regulation applicable to all “purchase[s]
or sale[s] of electric energy or the purchase or sale of [all] transmission services subject
to the jurisdiction of the Commission ... .”8 In adopting this statutory language, Congress
made clear that holders of market-based rate tariffs should not be the only entities subject
to prohibitions on market manipulation, nor to the full panoply of the Commission's
authority under the FPA to prevent or remedy such unlawful activity.
However, the Commission must set forth procedures, including for example as to
the timing for filing complaints referring to acts or transactions that were undertaken
before the complaint is filed. EEI urges the Commission to avoid risking confusion and
future legal challenge by making explicit the future use and applicability of the process,
procedures, and remedies developed in conjunction with the Market Behavior Rules. The
Commission should specifically adopt the Market Behavior Rule process as a new
regulation applicable to all sales and transmission covered by FPA section 222. This
would provide a fair means to invoke a retroactive remedy supplementing the authority
the Commission otherwise has under FPA section 206. As noted in prior EEI comments,
the Commission expended a great deal of effort to balance the interests of all parties
when it adopted the time limitations and procedural requirements of the Market Behavior
Rules.
The balance was carefully wrought and should be retained to give market
participants a modicum of certainty, yet provide for disgorgement remedies when and as
appropriate.
Some further elements of the Market Behavior Rules, in addition to those
discussed above, also could either be incorporated into the new anti-manipulation rules or
into separate regulations that the Commission adopts. For example, EEI agrees with the
8
FPA section 222, 16 U.S.C. § 824v.
5
comments of Indicated Market Participants9 that violations of Market Behavior Rule 3
(regarding communication of facts and information to the Commission and other
designated entities),10 Rule 4 (regarding reporting of transactions to price indices), and
particularly Rule 5 (regarding records retention), even if such violations are intentional or
fraudulent, do not necessarily result in actual market manipulation.
Rather than
continuing to retain these requirements as part of tariff conditions defining market
manipulation, it would be more appropriate for these rules to be adopted as stand-alone,
generally applicable regulations.11 To the extent that a market participant violates one of
the above rules and manipulates the market by having done so, then such act would be
covered by new section 47.1. To the extent one of these rules is violated without causing
market manipulation (such as in an ex post failure to keep all applicable records), that
offense should be subject to separate, remedial measures, as warranted, designed on a
case-specific basis.
Certain parties support retention of Market Behavior Rule 1 as necessary to give
the Commission independent authority to regulate and penalize violations of
9
Comments of Constellation Energy Group, Inc., DTE Energy Company, and Sempra Energy on
Proposal to Repeal the Market Behavior Rules and Sections 284.288 and 284.403 of the Commission’s
Regulations at 7-8, Docket Nos. EL06-16-000 and RM06-5-000 (Dec. 29, 2005).
10
Some parties, including EEI, have proposed that if there is a general disclosure requirement in the
new anti-manipulation rule (in a revision to section 47.1(a)(2), as originally proposed), the requirement to
disclose should be limited to specifically designated entities, such as those contained in Market Behavior
Rule 3.
11
In particular, with regard to Rule 4, the Commission should affirm that its policy on price
reporting remains in effect, and that index price reporting will continue to be voluntary. Price Reporting in
Natural Gas and Electric Markets, Policy Statement on Natural Gas and Electric Price Indices, Docket No.
PL03-3-000, 104 FERC ¶ 61,121 (2003). See, also, Price Reporting in Natural Gas and Electric Markets,
Docket No. PL03-3-001, 105 FERC ¶ 61,282 (2003); Price Reporting in Natural Gas and Electric Markets,
Report on Natural Gas and Electricity Price Indices, Docket No. PL03-3-004 (May 5, 2004); Price
Reporting in Natural Gas and Electric Markets, Docket No. PL03-3-005, 109 FERC ¶ 61,184 (2004); and
Price Reporting in Natural Gas and Electric Markets, Docket No. PL03-3-006, 112 FERC ¶ 61,040 (2005).
EEI believes that this policy is well-reasoned, that price reporting and market liquidity has improved, and
that there is no reason to make price reporting mandatory or to change the current Policy Statement's
standards and safe-harbor provisions.
6
Commission-approved rules and regulations of an applicable power market.12
EEI
responds that this is not only unnecessary and unwise, but it is the ultimate in “piling on.”
The Commission has already stated that it will not prosecute the same violation under
different provisions of its rules and will not impose duplicative penalties.13
Yet
proponents of retention of Rule 1 would like three avenues to prosecute violations of the
rules and tariff provisions of organized markets: the rules and tariff provisions of the
market itself, the Market Behavior Rules, and the new anti-manipulation rule. Surely, the
rules and tariffs of the organized market, as approved by the Commission, are sufficient
to prevent or to adequately remedy defined acts of manipulation under the specific
structure and policy choices of each organized market. Since the Market Behavior Rules
were first proposed in 2001 and adopted in 2003, the rules and tariffs of organized
markets have developed in complexity and sophistication. Whereas, in 2001 and 2003,
the Commission might have been concerned about gaps in the rules and tariffs of
organized markets, those concerns should be substantially alleviated today. EEI submits
that there is no need today to keep Market Behavior Rule 1, given the sophisticated
organized market rules that now exist, the Commission’s new authority under section
222, and the Commission’s commitment to avoid “double jeopardy” in prosecution of
market manipulation.
Some comments advocate retention of the Market Behavior Rules in marketbased rate tariffs on the theory that they provide an additional check on unlawful exercise
12
Comments of American Public Power Assoc. and The Transmission Access Policy Study Group at
3, 3-14; Comments of the California Independent System Operator Corp. ("CAISO") at 10; Motion to
Intervene & Comments of the New York Independent System Operator ("NYISO") at 15-16; Motion to
Intervene & Comments of Pacific Gas & Electric Co. ("PG&E"); Notice of Intervention and Comments of
the Public Utilities Commission of the State of California ("CPUC") at 3, 5-6.
13
Repeal Proposal at P 11.
7
of market power.14 This concern is unfounded in two respects. First, the Commission
has established an increasingly sophisticated screening process to identify and require
mitigation of any potential market power a tariff applicant may possess – prior to
granting or reauthorizing market-based rate authority. In addition, the Commission has
developed several other tools, including RTO market rules and tariffs, market monitor
oversight, and OMOI enforcement capabilities, to prevent and remedy the exercise of
market power. The Market Behavior Rules are designed, not to mitigate market power,
but to prevent market manipulation, which is and should remain a separate issue.
Second, elimination of the Market Behavior Rules from market-based rate tariffs
does not mean that their substance and effect no longer exists, as some commenters fear.
To the contrary, to the extent that the substantive and procedural aspects of the Market
Behavior Rules are incorporated into and become generally applicable FERC regulations,
as suggested by EEI, they govern the activities of all sellers and transmitters of electric
energy, including, but not limited to, market-based rate tariff holders.
EEI believes that this last point is of particular importance. The Market Behavior
Rules, as they are currently structured, apply only to a limited number of market
participants: sellers holding market-based rate tariffs.
However, FPA section 222
prohibits market manipulation by virtually all market participants, including jurisdictional
sellers under cost-based or “up to” tariffs, transmission providers, RTOs, ISOs, and
governmental entities that are not otherwise subject to FERC jurisdiction.15 It is therefore
14
Comments of American Public Power Assoc. and The Transmission Access Policy Study Group at
6, 10-12; Comments of New England Conference of Public Utilities Commissioners and the Vermont
Department of Public Service at 2-3; Comments of PJM Interconnection, L.L.C. at 3-5; and Comments of
the Sacramento Municipal Utility District ("SMUD") at 2.
15
Some comments argue that the Commission is required to retain the Market Behavior Rules to
ensure that the rates charged and services provided by market-based rate tariff holders are just and
reasonable. Comments of American Public Power Assoc. and The Transmission Access Policy Study
8
important that the new anti-manipulation rules apply equally across the board to all
entities covered by section 222. Generic rules and regulations implementing section 222
will accomplish that result to the maximum extent possible. Conversely, retention of the
Market Behavior Rules as tariff conditions applicable only to a small universe of the
entities covered by section 222 will result in potentially disparate treatment and undue
discrimination.
B.
The "Foreseeability" Standard of Market Behavior Rule 2 Should Be
Eliminated.
Several parties argue that the “foreseeability” standard of Rule 2 should be
retained on the basis that the Commission has the responsibility to ensure that all rates
charged under market-based rate tariffs are just and reasonable. They assert that the
foreseeability standard defines a “lesser included offense” to market manipulation, and
they further argue that the determination of whether a rate or charge is just and
reasonable does not rest on "intent."
On the other hand, EEI and other market
participants have argued that the foreseeability standard of Rule 2 is unduly vague,16 is in
conflict with the new statutory definition of “manipulation” under section 222, and
should either be eliminated in its entirety or revised to mirror the standards of section
222.
EEI urges the Commission to entertain only one definition of “manipulation” –
the one explicitly imposed by Congress in its adoption of new FPA section 222. The
definition of “manipulation,” as ordered by Congress, clearly involves the elements of
Group at 5-7; Comments of CPUC at 8-9; Comments of NYISO at 3-4; Comments of PG&E at 8-9 The
same can be said, however, for all jurisdictional sellers and providers of transmission and other
jurisdictional services.
16
In the Cinergy Case cited above, appellants argue that this foreseeability standard is illegal as a
tariff condition.
9
fraud and intent. No commenter in Docket No. RM06-3 has argued otherwise. An act or
transaction could foreseeably have a market impact, as could negligence on the part of a
market participant. But unless that negligence rises to recklessness having detrimental
effects on the market or unless the “foreseeable” impact on the market was done with the
intent to defraud and deceive, and actual detriment occurred, the resulting market price is
simply not the result of “manipulation,” as that term has now been defined by Congress.
In fact, the phrasing of the foreseeability standard itself ("foreseeably could
manipulate") uses the word "manipulate," which, at the specific direction of Congress,
must now incorporate the elements of fraud and intent. Thus, the arguments of those
commenters supporting retention of the foreseeability standard become circular
tautologies, all ending in definitions that require fraud and intent. EEI submits that, with
adoption of the Congressionally mandated "fraud and intent" standard to define
manipulation, the “foreseeability” standard in Rule 2 has no meaning and becomes no
standard at all by which any market participant can conform its conduct or under which
the Commission could make a determination of whether the subject rate or charge or
related activity is just and reasonable or not. Commenters' arguments that the justness
and reasonableness of a rate or charge does not depend on "intent" thus miss the point
that there is no definition for what might be "unjust and unreasonable" absent an act of
"manipulation" under FPA section 222 or absent a traditional, fact-specific finding under
FPA section 206.
Certain parties supporting retention of the foreseeability standard raise arguments
that rest on standards and definitions of "manipulation" and "foreseeability" that were
discussed early in the market behavior rulemaking process, but were later refined or
10
rejected by the Commission in the final rule, with its adoption of the precise language of
Rule 2. For example, one commenter notes that "when [the Commission] first proposed
the Market Behavior Rules, [it sought to prohibit] '[m]arket conduct which is
anticompetitive or which constitutes an abuse of market power.'"17
However, this
comment and similar arguments fail to acknowledge that the Commission later revised
the originally proposed language of Rule 2 in response to industry concern that terms
such as "anti-competitive," "manipulate," and "prices . . . which do not reflect the
legitimate forces of supply and demand"18 were simply too vague to give the industry
adequate guidance on what conduct was prohibited. Commenters cannot now seek to
have the "foreseeability" standard retained and enforced on the basis of unduly vague
language that has no accepted industry definition and that has been considered and
rejected by the Commission in its adoption of the language in the final Market Behavior
Rules. In fact, other commenters in this docket and in Docket No. RM06-3-000 continue
to complain that even the language adopted in the final rule is vague and confusing to the
industry, giving no guidance on what conduct it prohibits,19 and, as noted previously, the
legality of the final language remains subject to court appeal.
Further, as discussed above with regard to other aspects of the Market Behavior
Rules, the Commission should avoid adopting a regulatory scheme that contains two
different definitions of market manipulation, one for market-based rate tariff holders and
another applicable to all other entities subject to FPA section 222. In addition to being
17
Comments of the American Public Power Association and the Transmission Access Policy Study
Group at 6 (quoting Investigation of Terms and Conditions of Public Utility Market-Based Rate
Authorizations, Order Seeking Comments on Proposed Revisions to Market-Based Rate Tariffs and
Authorizations, 103 FERC ¶ 61,349 at P 17 (2003)).
18
Id. at Attachment.
19
Comments of Ameren Services Co. at 7; Comments of EEI at 10; Comments of Cinergy Services
at 5; Initial Comments of PNM Resources, Inc. at 8.
11
unduly discriminatory, this approach is legally inconsistent, legally unsupported, and, by
sending confusing signals to industry participants, constitutes poor public policy. It is
also at odds with the Commission's statements that it will not subject a tariff holder to
prosecution under two different standards, nor apply double penalties. Finally, and most
importantly, it is indisputable that “Congress has spoken” with regard to the definition of
market manipulation. Market manipulation must include the elements of fraud and
intent, and any other definition violates this explicit Congressional mandate.
C.
Generally Applicable Anti-Manipulation Regulations Do Not Limit the
Commission's Remedial Authority. Remedies for Manipulative Conduct
Should Be Determined on a Case-Specific Basis and Not in a Vacuum.
Several commenters insist that the Commission must retain the Market Behavior
Rules as tariff conditions in market-based rate tariffs because, otherwise, the Commission
might not have disgorgement authority.20 These fears raise false alarms, as they are not
based on fact or law, as developed under the governing statutes.
Under the FPA, prohibitions, such as the prohibition against manipulation in
section 222, are applicable to and unequivocally govern the activities of all entities
covered by the statute. If an entity engages in a prohibited activity, as set forth in the
statute or in generally applicable FERC regulations implementing its statutory
responsibilities, the Commission has the authority to “undo” the results of that activity
and place the parties in the position they would have been in, had the illegal or
unauthorized activity not occurred.21
This ability to undo a statutorily illegal or
20
Comments of American Public Power Assoc. and The Transmission Access Policy Study Group
at 10; Comments of CAISO; Comments of the California Electricity Oversight Board ("CEOB");
Comments of New England Conference of Public Utilities Commissioners and the Vermont Department of
Public Service at 6; Comments of NYISO at 7; Comments of PG&E at 12-13; Comments of SMUD at 1,
3, 6; Comments of Transmission Dependent Utility Systems at 4.
21
Granite State Elec. Co., et al., 113 FERC ¶ 61,289 (2005); Carolina Power & Light Co., 87 FERC
¶ 61,083, 61,356 (1999); Prior Notice and Filing Requirements Under Part II of the Federal Power Act,
12
unauthorized activity provides the Commission with the disgorgement authority that
commenters fear will be lost. Indeed, EEI is puzzled as to why these commenters take
the position that disgorgement authority may be lost, absent retention of the Market
Behavior Rules as tariff conditions, because the Commission has more authority today to
prohibit manipulation (and thus order disgorgement, as well as new civil penalties) than it
did previously, and its authority extends to a much larger set of entities, including those
that do not sell under FERC-approved tariffs.
Prior to enactment of EPAct 2005,22 it may be argued that the Commission did
not have the authority to order a disgorgement remedy retroactively to the initiation of a
prohibited act of manipulation, except through its enforcement, ab initio, of tariff
conditions. Whether or not that was true in the past, Congress has now enacted a specific
statute prohibiting acts of manipulation "in contravention of such rules and regulations as
the Commission may prescribe . . .".23 Although, clearly, the subject act must fall within
the new definition of manipulation, once that is so determined, the party committing the
Final Order, 64 FERC ¶ 61,139 (1993) (citing line of cases following Central Maine Power Co., 56 FERC
¶ 61,200 (1991), reh'g. denied, 57 FERC ¶ 61,083 (1991); Niagara Mohawk Power Corp. v. FPC, 379 F.
2d 153 (D.C. Cir. 1967); also see, Mountain Fuel Supply Co., 59 FPC 24 (1977), where the Federal Power
Commission stated in footnote 4: "In the instant proceeding where service had already commenced, the
Commission could have exercised its authority pursuant to Section 16 of the Natural Gas Act, which
permits the Commission to 'perform any and all acts, and to prescribe, issue, make, amend, and rescind
such orders, rules and regulations as it may find necessary or appropriate to carry out the provision of this
act' in the following manner. Since Section 154.63(e)(2)(ii) of the Regulations denies rate treatment for
uncertificated facilities, the Commission could have ordered appropriate refunds from the date certificate
approval is granted back to the date the facilities were first included in rates of all amounts associated with
such facilities; i.e., return, related taxes, and depreciation expense) [sic] absent purchase gas costs."
22
Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005).
23
Id. § 1283, 119 Stat. at 979-980. EEI also notes that disgorgement authority exists as the remedy
under Securities and Exchange Commission Rule 10b-5, which forms the basis for the new definition and
enforcement of manipulation under FPA section 222. Although disgorgement is not specifically provided
for in the securities statutes, Congress has expressly endorsed that sanction, see, e.g., H.R. Rep. No. 101616, at 13 (1990), reprinted in, 1990 U.S.C.C.A.N. 1379, 1380 (the Securities Enforcement Remedies and
Penny Stock Reform Act authorizes courts "to order the payment of civil money penalties, in addition to
disgorgement" (emphasis added)). The disgorgement remedy has long been upheld as within the general
equity powers granted to courts in securities matters by Section 22(a) of the Securities Act, 15 U.S.C.
§ 77v(a), and Section 27 of the Exchange Act, 15 U.S.C. § 78aa, see, e.g., SEC v. Wang, 944 F.2d 80, 85
(2d Cir. 1991); SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1103 (2d Cir. 1972).
13
act had no legal authority to undertake it in the first instance, and the Commission may
enforce the new statute (and its implementing regulations) by placing the party in the
position it would have been in absent occurrence of the illegal act, i.e., by requiring
disgorgement of all profits and, under some circumstances, of all revenues. In addition,
the Commission may now impose significant civil penalties on a violator.
EEI agrees with comments that Congress intended to strengthen the Commission's
authority to prevent, remedy, and punish "manipulative" activity.
Fears that
disgorgement authority will be lost if tariff conditions are eliminated are not only
inconsistent with the governing law, but also find no support in Congressional intent. In
fact, if the Commission has, for some reason unexplained by commenters, lost any
authority to order disgorgement under section 222, EEI questions how it can enforce its
anti-manipulation rules against any violator (other than market-based tariff holders),
other than through imposition of civil penalties. This seems to be an unduly restrictive
result, and one not intended by statute.
As a final point, EEI believes that remedies do not need to be determined in a
vacuum or as dicta in a generic rulemaking. The Commission should resist requests to
formulate a list of the remedies it will use to address manipulation.24 EEI believes it is
both premature and an unnecessary waste of time for the Commission to try to identify all
the remedies it may have available (even if the list is non-exclusive) to address acts of
manipulation, when the real remedy should be determined on a case-specific basis, where
the facts and circumstances of the case and the actual harm to the market can be taken
into account in fashioning an appropriate solution.
24
Comments of CEOB at 3.
14
D.
Retention of the Market Behavior Rules in Market-Based Rate Tariffs
Would Result in Unnecessary Duplication, Inconsistent Legal Standards,
and Undue Discrimination.
The Commission has ample evidence, not only from the record compiled in the
instant docket, but also from the indisputable concerns expressed in the Repeal Proposal
about duplication and inconsistency and from the logical conclusions that it should draw,
given the facts under consideration, that retaining the Market Behavior Rules in marketbased rate tariffs is not only unnecessary, but would result in duplication, inconsistency,
and undue discrimination.
Under FPA section 206, therefore, the Commission has
adequate justification to find that the existing Market Behavior Rules are unjust and
unreasonable in that their substance and effect can be better implemented, with less
discriminatory impact, in generic regulations applicable to all entities now subject to FPA
section 222.
CONCLUSION
For the reasons set forth above and in its initial comments, EEI supports the
Commission's proposal to repeal in their entirety the Market Behavior Rules currently
embedded in market-based rate tariffs. In their place, EEI respectfully requests that the
Commission adopt and incorporate the provisions of Market Behavior Rule 2 (excluding
the foreseeability standard), Rule 3, Rule 4, Rule 5, and the procedural provisions of
Appendices A and B of the November 17, 2003 Order into generally applicable FERC
rules and regulations. EEI also respectfully requests in every event that the Commission
eliminate the foreseeability standard of Market Behavior Rule 2 or, at the very least,
15
replace it with the fraud and intent standard under development in Docket No. RM06-3000, revised as per EEI's comments in that docket.
Respectfully submitted,
/s/ Edward H. Comer
Edward H. Comer
Henri D. Bartholomot
Melissa L. Lauderdale
Edison Electric Institute
701 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2696
(202) 508-5615 (phone)
[email protected] (email)
January 13, 2006
16
CERTIFICATE OF SERVICE
I hereby certify that I have this day served the foregoing document upon each
person designated on the official service list compiled by the Secretary in this proceeding.
Dated at Washington, D.C. this 13th day of January, 2006.
/s/ Henri D. Bartholomot
Henri D. Bartholomot
Edison Electric Institute
701 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2696
(202) 508-5622 (phone)
[email protected] (email)
17