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Posts Tagged ‘Federal energy regulatory commission’

 

One might be forgiven for mistaking the Federal Energy Regulatory Commission for an Agatha Christie mystery play in which the characters disappear one-by-one. With the earlier departures of three of its five commissioners, including former Chair Norman Bay, FERC is currently down to two: Acting Chair Cheryl LaFleur and Commissioner Colette Honorable. FERC has not had a quorum since those departures became effective. Honorable’s term ends in June, and she has said that she’ll step down then. LaFleur will be the sole commissioner at that point.

The Trump administration has named three replacements so far, but as of this date none of them have been confirmed by the U.S. Senate. Given the Senate’s work schedule (raising campaign funds is more important than all that boring Article I stuff), it’s not likely that the three nominees will be confirmed by June. So FERC could be hobbled for a while yet.

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Exelon CEO Chris Crane

Exelon CEO Chris Crane

Chicago, IL February 14, 2017:  Chicago energy attorneys, Patrick N. Giordano and Paul G. Neilan, announced they filed a lawsuit in the U.S. District Court Northern District of Illinois today against Anthony Star in his Official Capacity as Director of the Illinois Power Agency.  Village of Old Mill Creek, et al. v. Anthony Star was filed on Tuesday, February 14, 2017 at the U.S. District Court Northern District of Illinois.

Attorneys Giordano and Neilan represent Plaintiffs that are governmental, residential, commercial, and industrial electricity consumers located throughout the State of Illinois. Plaintiffs claim that P.A. 99-0906, executed by Governor Rauner on December 7, 2016, violates the U.S. Constitution’s Supremacy Clause, Commerce Clause, and 14th Amendment Equal Protection Clause. The underlying basis for the constitutional claims is that the prices charged by electricity generating plants are subject to federal rather than state regulation. A similar case has already been filed in federal court in New York challenging that state’s subsidy of Exelon nuclear plants by the law firm Boies, Schiller & Flexner, LLP, which is headed by preeminent attorney David Boies.

Among other things, P.A. 99-0906 is designed to subsidize Exelon Corp.’s Quad Cities and Clinton nuclear plants. This subsidy will be charged to all Illinois electricity consumers beginning June 1, 2017 regardless of what company supplies the consumer’s electricity. The lawsuit specifically asks that the U.S. District Court grant a permanent injunction blocking the charges from going into effect as scheduled on June 1, 2017. According to Mr. Giordano: “These additional charges will reverse twenty years of deregulation in Illinois which have given us perhaps the one advantage we have over neighboring states: relatively low electricity charges due to an effectively functioning competitive market.” Mr. Giordano also said: “We’re challenging the nuclear bailout provision of the legislation because the prices charged by electricity generators have already been established by the competitive wholesale electricity market subject to federal jurisdiction and cannot be increased by the State of Illinois.”

The estimated impact to all Illinois consumers will be about $3.3 billion over the ten years of the nuclear bailout. Mr. Neilan points out that: “This nuclear bailout is one of four rate increases to Illinois consumers this year, including increased delivery charges, increased renewable energy subsidies, increased energy efficiency subsidies, and these nuclear energy subsidies.” When the nuclear subsidies go into effect on June 1, 2017, Illinois residents and businesses can expect to see an average 3% increase in their electricity bills due to the nuclear subsidies alone.”

Giordano & Associates, Ltd. is Chicago’s first law firm devoted to energy issues. We provide clients with experienced counsel on regulatory, litigation, transactional, and legislative matters in the areas of electricity and natural gas. Pat Giordano can be reached at pgiordano@dereglaw.com.

The Law Offices of Paul G. Neilan, P.C. represents commercial, industrial and governmental energy users in disputes against public utilities, as well as in litigation and transactional matters with non-utility competitive energy suppliers.

FACT SHEET

  1. Village of Old Mill Creek, et al. v. Anthony Star was filed in the United States District Court for the Northern District of Illinois on February 14, 2007.
  2. The Plaintiffs are: Village of Old Mill Creek, Ferrite International Company, Got it Maid, Inc., Nafisca Zotos, Robert Dillon,Richard Owens, and Robin Hawkins, both individually and d/b/a Robin’s Nest.
  3. The Defendant is Anthony Star in his official capacity as Director of the Illinois Power Agency.
  4. This case arises from unlawful Illinois legislation that invades the exclusive jurisdiction of the Federal Energy Regulatory Commission (“FERC”) over “the sale of electric energy at wholesale in interstate commerce” pursuant to the Federal Power Act. 16 U.S.C. 824(b)(1).
  5. The unlawful legislation is contained in subsection (d-5) Zero Emission Standard of Illinois Public Act 99-0906 (“P.A. 99-0906”), which was enacted on December 7, 2016 and is available at http://www.ilga.gov/legislation/99/HB/09900HB65761v.htm.
  6. Subsection (d-5) Zero Emission Standard of P.A. 99-0906 requires the Illinois Power Agency to procure contracts for Illinois utilities Commonwealth Edison Company, which serves northern Illinois, and Ameren Illinois Company, which services central and southern Illinois, for purchases of Zero Emission Credits (“ZECs”) from nuclear-fueled generating plants.
  7. The ZEC payments will be passed through by the utilities to all Illinois consumers through automatic adjustment tariffs.
  8. A. 99-0906 is designed to provide additional revenues to the Illinois-based Quad Cities and Clinton nuclear plants.
  9. Exelon Corp. owns both the utility ComEd and Exelon Generation, which owns the Quad Cities and Clinton nuclear plants that will sell the ZECs to the utilities.
  10. Although P.A. 99-0906 has many other provisions, this case concerns only subsection (d – 5) Zero emission standard.
  11. Plaintiffs are not challenging any other provisions of P.A. 99-0906. Section 97 of P.A. 99-0906 provides that the provisions of the Act are severable under Section 1.31 of the Illinois Statute on Statutes. 5 ILCS 70/1.31.
  12. In New York, ZEC payments to Exelon nuclear plants in that state are being challenged on the same grounds set forth by Plaintiffs in Illinois. Coalition for Competitive Electricity, et al. v. Audrey Zibelman, et al. was filed in the U.S. District Court Southern District of New York on October 19, 2016.
  13. A typical residential customer using 1 mWh (1,000 kWh) per month would pay an additional $2.64 per month beginning June 1, 2017 based on the initial ZEC price established in P.A. 99-0906.
  14. A manufacturing company using 10,000 mWh per month would pay an additional $26,400 per month beginning June 1, 2017 based on the initial ZEC price established in P.A. 99-0906.

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Ms. Masters testifies before a U.S. Congressional Committee in 2009

Ms. Masters testifies before a U.S. Congressional Committee in 2009

Blythe Masters, who headed up JP Morgan Global Commodities Group, of which JP Morgan Ventures Energy Corp. (JPMVEC) was a major part, is reported to be under investigation by the feds:

Blythe Masters Is Under Investigation By The Feds.

Masters and her group manipulated power markets in California and, to a lesser extent, Michigan. JPMVEC settled the charges with FERC for $410 million last year. So what was going on? Let’s just take one example of the manipulation strategies used by her group.

In addition to regular bilateral markets, the electricity market has a real time and day ahead market. Under the California Independent System Operator tariff rules in effect during her tenure, bidders in the day ahead market were paid for  “ramp” hours that day at their bid price for hours on each side of their bid. This is intended to reflect a power plant’s need to power up and then power down to supply electricity during the bid hours. JPMVEC knew that CAISO’s software for evaluating bids did so only one day at a time.

During the hours of midnight to 2:00 a.m., demand is very low, and market prices are very, very low. Most people are asleep.

JPMVEC bid -$30/MWh (yes, that’s right, negative thirty dollars — they’re paying CAISO to take their power) for the hour between 11:00 p.m. and midnight on Day 1, and then submitted a bid for $999/MWh for the wee  hours between midnight and 2:00 a.m. on Day 2. Because of its one-day-at-a-time software, CAISO took the midnight to 2:00 a.m. bids as ramp hours, and CAISO paid JPMVEC at its bid price of $999/MWh, even though the market price was just $12/MWh.

Blythe and her crew played this little game between April 1 and June 18, 2011, or about 78 days, and raked in a cool $20 million (net) off CAISO. That comes out to about $256,400 in pure profits every day. And that’s just one of the simpler of JPMVEC’s market schemes.

Like the song says, nice work if you can get it.  And people ask why the banksters are trading electricity. What a stupid question.

 

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In an interesting article on prospective growth in solar energy, Reneweconomy reports a statement by FERC Chairman Wellinghoff that, at its current rate of expansion, solar energy will overtake wind in about ten years, and radically change the relationship between consumers and traditional utilities. Read the article here.

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The Wall Street Journal reports that JP Morgan agreed Tuesday to pay $410 million to U.S. energy regulators to settle accusations that the banks’ traders manipulated electricity markets in California and the Midwest.

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Back in the 80’s, Olivia Newton-John came out with her hit song Physical, and though tame by today’s standards it was considered avant garde by the standards of AM radio back in the day. Well, the D.C. Circuit Court of Appeals just told the Federal Energy Regulatory Commission to get physical and keep its nose out of the futures markets, but the court’s tune was significantly less romantic than Olivia’s. The case involved Amaranth Advisers, the hedge fund that failed spectacularly in 2006.

Not on the D.C. Court of Appeals

Not on the D.C. Court of Appeals

In 2005, Brian Hunter was a natural gas futures trader with Amaranth making more than $100 million a year. The next year Amaranth collapsed after losing more than $6 billion on natural gas trades. In fact, it was J.P. Morgan, Amaranth’s clearing firm, that took Amaranth’s positions in exchange for $2.5 billion. Today he’d probably be called Amaranth’s Calgary Whale, were the company still alive. Every bank and hedge fund should have a whale, just to be sure they lose enough money to make the papers and spark Congressional hearings.

The gist of Hunter’s alleged scheme was to sell as many natural gas futures contracts as he could at the end of the trading day. He hoped to drive the closing price of the futures lower in order to benefit swap positions that Amaranth held.

In 2007, FERC charged Hunter with manipulating natural gas markets and pursued the case until last week, when the D.C. Court of Appeals said that the energy regulatory agency had overstepped its authority. Hunter was a futures trader, not a physical trader.

FERC’s position had at least some support. A futures contract does envision delivery of a set quantity of the physical commodity at the standard delivery location at some point in, well, the future. If you think futures contracts don’t have a connection to the physical markets, just ask any trader who tried to offset a long position with a short for the same delivery month, but hit the “buy” rather than the “sell” button. Far from clearing the position, he wound up with twice as much of the unwanted commodity. In the immortal words of Gomer Pyle, “Surprise, surprise, surprise!”

But the reality is that in an active, heavily traded futures market like natural gas, about 99.99% of the open interest is cleared by the contract’s last trading day with no physical delivery whatsoever. Sure, some hedgers will take delivery under a futures contract, but for the most part the players in the futures market trade the contract, not the commodity.

In the Deutsche Bank case that we previously commented on, the situation was very different. There, Deutsche Bank was manipulating the physical market in order to benefit its separate position on financial transmission rights, and FTR markets are regulated by FERC.

FERC argued that it had jurisdiction over Hunter because his futures trades affected the price of natural gas in the physical markets that FERC oversees.

Well, of course they would. So would the outbreak of war in the Middle East, but I don’t think FERC wants to negotiate an end to the Intifada or try to muzzle Mahmoud I’m-a-Dinner-Jacket.

In an odd twist, the Commodity Futures Trading Commission, which does regulate futures markets, including natural gas futures, intervened in the case on Hunter’s behalf. The CFTC argued that FERC should not be allowed to walk its dog near CFTC’s fire hydrant, and mark for their what should be the CFTC’s regulatory turf. The D.C. Circuit agreed, ruling that FERC did not have jurisdiction to pursue charges against Hunter for his activities in the futures markets.

After the court ruled in Hunter’s favor, his lawyer set a new standard for fatuous attorney statements to the press. He claimed that FERC had been unjustly vilifying his client for years, but in fact it was FERC that had acted outside the law. He forgot to mention that the CFTC is also pursuing charges against Hunter for these same activities, and that its intervention in his client’s case was made not to help his client, but to protect their fire hydrant from FERC’s watering can. Put another way, he might as well have said:  “The frying pan has been trying to cook my client for seven years, but it was really the frying pan that was acting outside the law. We are pleased with the Court of Appeals decision, and my client is now securely in the fire.”

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