FERC Clarifies Scope of Proposed RTO and ISO Disclosure Requirements
On December 8, 2015, the Federal Energy Regulatory Commission (“FERC) Office of Enforcement held a technical conference respecting FERC’s recent Notice of Proposed Rulemaking (“NOPR”) on Connected Entity Data. As discussed in an earlier post, if adopted, the NOPR would dramatically increase the amount of information that entities participating in Regional Transmission Organization (“RTO”) and Independent System Operator (“ISO”) markets would be required to disclose regarding their affiliates, contractual arrangements, and employees. If adopted, the NOPR would require each market participant to report to each RTO and ISO any “Connected Entities,” a term that is defined to include:
Any entity that directly or indirectly owns, controls, or holds 10% or more of the ownership instruments of a market participant, that is under common control with the market participant and participates in
FERC-jurisdictional markets, or in which the market participant holds an ownership interest;
The CEO, CFO, chief compliance officer, and the traders of each market participant;
Any entity that is the holder or issuer of a debt interest or a structured transaction that gives it the right to share in the market participant’s profitability above a de minimis amount or that is convertible to a direct or indirect ownership interest of 10% or more in the market participant;
Any entity 10% or more of whose ownership interests could, with the conversion of debt or structured products, be owned, directly or indirectly by a market participant; and
Entities that have entered into an agreement with the market participant that relates to the management of resources that participate in FERC-jurisdictional markets or otherwise relates to operational or financial control of such resources, such as a tolling agreement, energy management agreement, asset management agreement, fuel management agreement, or the like.
Each market participant would also be required to update this information within 15 days of any material change and certify the accuracy of its Connected Entity data on an annual basis. FERC convened the technical conference in response to a request from a number of industry participants who expressed concern regarding the burden associated with FERC’s proposal and the scope and ambiguity of the definition of Connected Entities.
FERC staff opened the technical conference with a presentation outlining its proposal and the need for such data. FERC staff emphasized that the NOPR is intended to enhance the Office of Enforcement’s ability to screen for potentially manipulative conduct by identifying previously “hidden” relationships that may motivate and influence a market participant’s behavior. FERC staff explained that, without such information, the screens it applies to identify manipulative or anticompetitive behavior is “less reliable at flagging anomalous behavior” and “can flag too little or create false positives that require unnecessary follow up.”
In its presentation, FERC staff also emphasized that market participants’ provision of Connected Entity data would be subject to the general prohibition on false and misleading statements contained in Section 35.41(b) of the Commission’s regulations, which provides that a seller “must provide accurate and factual information and not submit false or misleading information, or omit material information, in any communication with [FERC, market monitors, or an RTO/ISO] unless [it] exercise due diligence to prevent such occurrences.” While FERC has taken enforcement actions against market participants for violation of this prohibition, including the assessment of civil penalties, FERC staff indicated that it would not typically pursue inaccurate or late submissions that are “inadvertent, timely remedied, and cause no harm.”