GDF SUEZ: Lawsuit Plaintiffs, "Don’t Like The Rules," of the ERCOT Market, Want Court to Intervene
August 26,2014
GDF SUEZ Energy North America recently filed a second motion to dismiss a suit brought by two speculators against the generator for its bidding behavior in ERCOT, after the speculators amended their first complaint.
The speculators allege that GDF SUEZ Energy North America's bidding behavior, which is entirely consistent with Texas law and rules, amounts to market manipulation
In its recent motion to dismiss, aside from other defenses, GDF SUEZ offered the following:
"PLAINTIFFS KNOW THE RULES; THEY DON’T LIKE THE RULES
"Plaintiffs allege that Defendants have engaged in a concerted scheme to manipulate the ERCOT real-time market in order to benefit a hypothetical derivatives position on commodity futures markets such as ICE. However, the truth is far less dramatic. The facts (even those alleged by Plaintiffs) demonstrate that GDF SUEZ offered to generate and sell electricity in the ERCOT real-time market pursuant to the rules, protocols, guides, policies, and procedures established by ERCOT (together “ERCOT Rules”). As Plaintiffs acknowledge, GDF SUEZ’s conduct was in complete conformity with ERCOT Rules and was expressly authorized by the PUCT. See FAC at 17-21, 158.
"While Plaintiffs admit that ERCOT real-time prices were not “unlawful, wrong or too high,” [FAC at n.18] the entire Complaint nevertheless focuses predominately on prices in the ERCOT market. Boiled down to its sediment, Plaintiffs’ goal is to have this Court intervene in the functions of the ERCOT market and enjoin GDF SUEZ from engaging in actions specifically sanctioned by the PUCT.
"Plaintiffs would have this Court impose on every merchant generator operating in the ERCOT market an obligation to limit all offers of electricity to prices no greater than their marginal costs even though ERCOT Rules expressly provide for offers to be well above their marginal costs. As Plaintiffs acknowledge, ERCOT is an “Energy-Only” market, meaning generally generators are compensated for the energy (and associated ancillary services) they sell to ERCOT and do not receive other payments (e.g., capacity payments) to assist with the recovery of overhead costs, capital investments, or a return on their investments. In an Energy-Only market, generators must receive revenue from selling energy in excess of their marginal costs in order to recover their overall costs and to earn a return. Further, as Plaintiffs acknowledge, the PUCT has found that GDF SUEZ, as a generator with less than five percent of installed generating capacity in ERCOT, “cannot affect LMP prices through its supply or withholding of energy and cannot abuse market power by such withholding.” FAC at 17-21. In basing their Complaint on claims of Defendants’ withholding, Plaintiffs simply choose to ignore the PUCT’s findings.
"Plaintiffs’ claim that Defendants’ actions in ERCOT manipulated prices of ERCOT-related products on commodity futures markets such as ICE is conjecture. The prices of ERCOT-related products in the futures markets are derived from the prices for electricity established in ERCOT. However, this “common knowledge” cannot transform legitimate conduct in ERCOT into manipulation of futures markets. Plaintiffs do not allege any conduct on ICE, or in any other commodity markets outside ERCOT, that would cause ERCOT-related derivatives on ICE to have an artificial price. The only transactions of GDF SUEZ that Plaintiffs have identified are trades in the ERCOT market that are fully sanctioned by ERCOT and the PUCT. Those trades are not subject to the CEA. Furthermore, according to Plaintiffs’ logic, anyone that engages in lawful conduct in ERCOT cannot access markets that trade ERCOT-based derivatives without being subject to claims of market manipulation."
