“Small Fish” to Keep Swimming Free in ERCOT

Should this small fish swim free?

Should this small fish swim free?

The “small fish swim free” rule — a controversial regulation that critics say could leave the door open to manipulation of the Texas energy market — may be here to stay.

That’s because a lawsuit involving the controversial regulation was dismissed this week by a federal judge. The Texas Public Utility Commission last June also dismissed similar objections.

Under the rule, relatively small energy companies — i.e., the “small fish” — can engage in trading practices that otherwise might be construed as illegal market manipulation if conducted by larger companies. The rule defines “small fish” as those generation companies that own less than 5 percent of the wholesale power market overseen by the Electric Reliability Council of Texas.

Raiden Commodities and Aspire Commodities, two commodity trading companies, filed both the federal lawsuit and the PUC complaint. In both, the companies allege that French trading company GDF Suez improperly manipulated the Texas electric market. GDF owns just less than 5 percent of the generation in ERCOT and so can engage in practices that otherwise might be considered suspect.

Donna Nelson

Donna Nelson

Under the logic of the Small Fish rule, such relatively tiny generation companies should not have the ability to improperly manipulate the ERCOT market because their share of it is so small. But Raiden, Aspire and other critics have said small fish generators nonetheless have that ability. They have cited findings of ERCOT’s independent market monitor to bolster those claims.

PUC chair Donna Nelson has countered that if a “small fish” company were to attempt to bid its power into ERCOT at excessively high prices, other generators would enter the market. “It’s a short-term issue — and one that the market handles well,” she said last year, as the agency handed down a 3-0 regulatory decision against Raiden and Aspire.

On February 4 a judge handed down the order that ended the companies’ federal lawsuit against GDF Suez.

Some media have reported that the U.S. Commodities Futures Trading Commission also may be looking into the allegations. But those reports have never been confirmed by the company or the CFTC.

— R.A. Dyer

What is the Texas Coalition for Affordable Power?

TCAP is a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.

 

Subscribe To Our Newsletter

Each month, TCAP sends out an e-newsletter covering major events in Texas electricity and advances in public policy. Sign up for the newsletter and check out old newsletters to get caught up on Texas energy.

You have Successfully Subscribed!

Share This