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Frequently Asked Questions - #62

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FAQ-62

Energy marketer A is a Qualified Bidder in a BGS Auction.  If energy marketer A acquires energy marketer B, would energy marketer A be considered to have substituted, assigned or transferred its rights as a bidder or be unable to make or uphold any of the certifications of the Association and Confidential Information Rules?  Energy marketer B is also active in PJM but has not applied to participate in the BGS Auctions.


By energy marketer A acquiring energy marketer B, we assume you mean that the corporate entity that is energy marketer A acquires the corporate entity that is energy marketer B or a corporate entity that owns energy marketer B.

This transaction most likely would not be considered a substitution, transfer or assignment of energy marketer A’s rights as a bidder.  However, this transaction would pose a high risk of energy marketer A not being able to make or uphold certifications made in the Part 2 Application.  This in turn may mean that energy marketer A may not be able to become a Registered Bidder or, if energy marketer A is already a Registered Bidder, that energy marketer A risks sanctions including disqualification (see, for instance, FAQ-32 and FAQ-33).

If energy marketer A acquires energy marketer B or an entity that owns energy marketer B, any information held by energy marketer B would, by definition, be information held by energy marketer A as well.  It would not be possible to keep energy marketer A as a standalone entity, by attempting to separate it from information held by energy marketer B that may cause it to be unable to make or uphold certifications in the Part 2 Application.  Energy marketer A would own energy marketer B and all certifications that it has made would apply to it and to energy marketer B that is now part of energy marketer A.  If energy marketer B had confidential information relative to the bidding strategy of another Qualified Bidder, energy marketer A would be unable to make or uphold its certification that it did not have any knowledge of confidential information relative to the bidding strategy of another Qualified Bidder.  If energy marketer A had made this certification in the Part 2 Application already, energy marketer A would face sanctions, which could include forfeiting the right to any further participation in the auction.  We note that energy marketer A is also at risk of receiving information, during the due diligence process, concerning transactions that energy marketer B had made with respect to the auction, rendering energy marketer A unable to make or uphold the certification that it did not have any knowledge of confidential information relative to the bidding strategy of another Qualified Bidder.

As the time between becoming a Qualified Bidder and the end of the Auction Process is reasonably short, it would be advisable for Qualified Bidders to refrain from any acquisitions that would involve entities active in trading and marketing in PJM during that period, as there is a risk that a Qualified Bidder can then be in a position of not being able to make or uphold the certifications of the Part 2 Application, and of facing possible disqualification.

Furthermore, if energy marketer B had made any transactions with another Qualified Bidder (say, energy marketer C) where energy marketer C relied on the fact that energy marketer B was not a Qualified Bidder, the acquisition by energy marketer A could raise issues with respect to the certifications made by energy marketer C.  All Qualified Bidders are asked to certify that they have not disclosed confidential information relative to their bidding strategy.  However, notwithstanding that certification, “during negotiations prior to the auction for contractual arrangements for power to serve BGS load were it to be a winner at the BGS Auction”, Qualified Bidders are permitted to “discuss with the counterparty to such arrangements the nature of the products to be purchased, the volume, and the price at which you are willing to buy these products.”  See, for instance, FAQ-52, which explains that the counterparty in such negotiations must be an entity that is not a Qualified Bidder.  Energy marketer C may have discussed confidential information with energy marketer B, believing, correctly at the time, that energy marketer B was not a Qualified Bidder.  However, by being acquired by energy marketer A, energy marketer B would be part of a Qualified Bidder.  The certifications of energy marketer C would become inaccurate through the action of energy marketer A.  This type of circumstance may lead the Auction Manager to disqualify energy marketer A, who would be unable to make or uphold the certification that it did not have confidential information relative to the bidding strategy of another Qualified Bidder (i.e., energy marketer C) because of its acquisition of energy marketer B.



11/15/2021, in Association and Confidential Information Rules.

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