FERC Commissioner William Massey last week said that he believes the time has come for the Federal Energy Regulatory Commission to assert jurisdiction over energy trading platforms after FERC issued an order approving a petition filed by Pacer Power LLC, a new power trading electronic bulletin board, in which the federal agency disclaimed jurisdiction over Pacer.

In November 2002, Pacer Power asked FERC to issue an order declaring that it will not be labeled a “public utility” under the Federal Power Act as the New York-based entity strived to start operations during the first quarter of 2003.

In its filing, Pacer noted that it is a new membership-based electronic bulletin board providing parties that buy and sell capacity reservations with non-power services. Pacer plans to provide its members with trading, clearing and related administrative services currently not available anywhere else.

Pacer said that its establishment has been funded by equity contributions from its founders. It has also been “substantially capitalized” by Liberty Partners, a private equity fund based in New York with well over $1.8 billion in assets under management.

Massey noted that “significant” numbers of electricity and energy transactions are facilitated and confirmed through market facilitators such as Pacer. “The products transacted on such platforms are becoming increasingly integral to energy suppliers and their customers,” he said.

“As the importance and influence of such platforms grows so does the need for effective Commission oversight,” Massey added. “We have seen what can happen when platforms are not operated in a fair way.”

In addition Massey said that “it’s clear that asserting jurisdiction over trading platforms would amount to an evolution of the Commission’s jurisdictional reach.” But Massey “firmly” believes that the agency has this jurisdiction.

“In situations involving trading platforms such as Pacer, the key consideration in my judgment is the degree to which the platform operator affects trade,” the Commissioner said. Pacer “is not merely a passive bulletin board provider. It sets certain standards for the trades that may be transacted on it and certain standards regarding who may participate in its operations.”

Through such standards, Massey said, Pacer “may affect which jurisdictional transactions are made and the prices of those transactions. This significant effect on jurisdictional transactions renders Pacer’s platform a jurisdictional facility.”

Massey also believes that “routine, assured” FERC access to trading data from platforms such as Pacer “is integral to the Commission’s oversight of wholesale markets.” While Pacer has agreed to provide some of this information to FERC, “such access depends on the promise of a non-jurisdictional entity, and thus is not assured and it does not apply to other non-jurisdictional entities either.”

As for how FERC should exercise its jurisdiction, Massey said that “there’s no need for intrusive regulation of fees and intrusive regulation of the practices of platforms and exchanges.” Instead, FERC needs to “craft an appropriately light-handed approach,” Massey went on to say.

“I believe the need right now is solely to have some degree of oversight of the platform markets and this can be satisfied with reporting requirements that could be done on a confidential basis,” Massey said.

“When we looked at this in January, I was inclined to find that we had jurisdiction as well,” FERC Chairman Pat Wood acknowledged, although he ultimately voted in favor of disclaiming jurisdiction over Pacer, along with Commissioner Nora Brownell.

The FERC chairman said that if Pacer’s business plan evolves over time to the point where it starts to look more like the California Power Exchange or Automated Power Exchange (APX) “then that could change the regulatory treatment.”

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