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GDF Suez uses ‘small fish’ defense in alleged market manipulation suit

By: Mark Watson |

GDF Suez cited the Public Utility Commission of Texas’ “small fish swim free” rule 17 times in its 25-page motion to dismiss a lawsuit that alleges the French company used its Texas generation fleet to manipulate electricity markets, according to court documents.

In a motion to dismiss the suit filed Monday, GDF Suez North America argued that the plaintiffs, Aspire Commodities and Raiden Commodities, acknowledge GDF Suez’s conduct in managing its 3,957 MW of generation capacity at six Texas sites “was in complete conformity with” Electric Reliability Council of Texas rules and “was expressly authorized by” the Public Utility Commission of Texas.

The “plaintiffs’ suggestion that GDF Suez may have improperly benefitted from nonpublic information about its own activities is without merit because the Commodity Exchange Act permits trading on lawfully obtained nonpublic information,” states the motion to dismiss.

Aspire and Raiden allege in their suit that GDF Suez has used its generation assets to engage in economic and physical withholding in order to drive locational marginal prices “to artificially high levels, even the $5,000” system-wide offer cap, which has since risen to $7,000/MWh.

PUC Substantive Rule No. 25.504(c) states: “A single generation entity that controls less than 5% of the installed generation capacity in ERCOT … excluding uncontrollable renewable resources, is deemed not to have ERCOT-wide market power.” The rule is known as the “small fish swim free” rule.

Despite GDF Suez’s activities being authorized under this rule, Aspire and Raiden’s suit argues GDF Suez violated the Commodity Exchange Act in such a manner that “intentionally, knowingly and recklessly … manipulated and continues to manipulate the price of electricity in the ERCOT market.”

But GDF Suez said the Commodity Futures Trading Commission “has sought to keep open the question as to what extent conduct in ERCOT (a purely intrastate market) is subject to the CEA.”

The CFTC has “nevertheless granted a broad exemption to ERCOT expressly exempting the market from most provisions of the CEA,” GDF Suez’s motion states.

The motion to dismiss argues that plaintiffs lack standing to file a civil suit alleging violation of the CEA, which is normally exclusively the province of the CFTC. Therefore, the plaintiffs lack standing to pursue any of the causes of action, the motion states.

It also argues that the complaint is precluded under the “filed rate doctrine” and that the complaint lacks sufficient detail to state a cause of action under the CEA.

“The filed rate doctrine … provides that ‘any “filed rate” — that is, one approved by the governing regulatory agency — is per se reasonable and unassailable in judicial proceedings brought by ratepayers,'” states the motion to dismiss, which cites a Second US Circuit Court of Appeals case.

“The filed rate doctrine is driven by the principle that legislative bodies create agencies for the specific purpose of setting rates, and courts are not well suited to engage in retroactive rate setting,” the motion states.

The motion also cites a Fifth US Circuit Court of Appeals decision that ruled that even though Texas utility regulatory law does not require ERCOT rates to be filed with the PUC and “even though the PUCT does not set or approve rates, the ‘PUCT’s oversight over the market is sufficient to conclude that … energy rates are “filed” within the meaning of the filed rate doctrine.'”

In arguing that the complaint lacked sufficient detail to state a cause of action, the motion asserts that Aspire’s claim of damages totaling $20 million “for unspecified injuries suffered over the last two years is unsupported by any factual allegations.”

“Raiden’s statement of its alleged damages is even more speculative,” the GDF Suez motion states.

Aspire and Raiden filed the suit April 22 in the US District Court for the Southern District of Texas. The two companies are power trading companies. Aspire is based in Houston. Raiden is based in the US Virgin Islands.