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Shell seeks FERC assistance to squash GreenHat Energy's lawsuit in Texas court

Highlights

GreenHat says Shell owed it $68 million, breached contract

Shell says dispute rests on faulty interpretation of PJM tariff

Washington — Shell Energy North America has asked the Federal Energy Regulatory Commission to step in to help resolve a breach-of-contract claim GreenHat Energy brought against it in a Texas state court.

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Shell is looking to FERC to interpret PJM Interconnection's rules for bilateral transfers of financial transmission rights to debunk GreenHat's "extraordinary claim that entering data into PJM's platform for reporting FTR transfers created additional separate, binding contracts, which Shell Energy allegedly breached," according to the petition for declaratory order (EL20-49) recently filed with FERC.

The commission, in a June 1 notice, set a June 29 deadline for comments in the proceeding. Shell asserts the matter could put every market participant that has ever entered data into FTR Center, PJM's reporting mechanism for FTR transfers, on the hook for "unknown terms of alleged contracts [they] never agreed to."

Left unresolved, GreenHat's claim could lead to widespread FTR market uncertainty and prompt countless legal disputes against PJM members associated with the 137,000 entries made into the platform at issue over the past six years, Shell said.

BILATERAL AGREEMENTS

Prior to GreenHat's massive June 21, 2018, default in PJM's FTR market, Shell entered into three bilateral agreements with GreenHat between August 2016 and February 2017. Those agreements resulted in a transfer to Shell and back to GreenHat of a portion of the FTR portfolio upon which GreenHat later defaulted.

Shell, in its May 29 petition to FERC, likened the agreements to consignment deals under which Shell would pay a discounted cash value to GreenHat for FTRs that sold at auction, and could return the uncleared FTRs to GreenHat or pay an agreed-upon price based on the auction results for uncleared FTRs it elected to keep.

The bilateral agreements required reporting of the FTR transfer in FTR Center as PJM only settles FTRs with the FTR holder and Shell could not offer the FTRs at auction without being designated the FTR holder in FTR Center.

Facing pressure from PJM over inadequate credit support, GreenHat in March 2017 told the grid operator it was owed about $62 million from the bilateral agreements with Shell and pledged those future proceeds to PJM. An investigation by PJM's board into the default later concluded that no such stream of revenue to GreenHat existed as Shell had already met its payment obligation to GreenHat through a lump-sum payment.

But in May 2018, ahead of FTR payments becoming due to PJM for the 2018-19 planning period, GreenHat began invoicing Shell for amounts it alleged were owed on separate, stand-alone agreements formed by the entry of data into FTR Center. The invoice amounts, according to the petition, matched the payments GreenHat said Shell owed in its pledge to PJM.

Following the June 2018 default, GreenHat in November 2018 filed a breach-of-contract claim against Shell in a Harris County, Texas state court (GreenHat v. PJM, et al, 2018-69829-A).

"By conducting trades over the PJM bilateral trading system, GreenHat agreed to sell, and Shell Energy agreed to buy, each FTR at the price specified in the price box," that lawsuit alleges. GreenHat contends that Shell breached its obligations by failing to pay "the price specified for each trade made on approximately 3,879 FTRs, which total approximately $68 million."

The court proceeding has been stayed until July 10, with limited discovery ongoing.

TARIFF INTERPRETATIONS

Shell believes "the heart of GreenHat's claim rests on the notion that PJM is operating an online exchange for the bilateral trading of FTRs, which the commission never authorized PJM to do," according to the petition.

"Data entered for a transfer of an FTR should not supersede the clear terms of written bilateral agreements," Shell argued in the petition. "FERC can avoid these potential disputes by providing the requested tariff interpretation."

That interpretation, Shell said, must "confirm that the parties' bilateral agreements control ... the terms and conditions of their transactions; in the context of bilateral FTR transfers, FTR Center is only a reporting mechanism for the transfers; and entering data into FTR Center to report the transfer of FTRs does not create a separate, stand-alone contract between the parties to the bilateral agreement, or modify the parties' bilateral agreement."

In the petition, Shell also asks FERC to "assert primary jurisdiction over and resolve GreenHat's claim on the merits, which will allow Shell Energy to file a pleading seeking dismissal of GreenHat's state court claim against Shell Energy for failure to state a claim as a matter of law."