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Moeller: FERC Should Crack Down on Energy Manipulators

FERC should consider developing a model -- one that is closer to those used by other federal enforcement agencies -- for cracking down on individual traders who repeatedly manipulate energy markets, Commissioner Philip Moeller said Thursday.

"We've had a number of high-profile enforcement cases" at the Federal Energy Regulatory Commission (FERC) in the past year, he said.

FERC has gone after the trading desks of the large Wall Street banks -- Deutche Bank, Barclays Bank and an affiliate of JPMorgan and Chase (JP Morgan Ventures Energy) for manipulation of the electricity markets. In the natural gas market, the largest civil penalty was assessed against Brian Hunter, former head gas trader at Amaranth, which made a number of wrong-way trades that led to more than $6 billion in gas trading losses and the collapse of the hedge fund in September 2006 (see NGI, Oct. 9, 2006). The $30 million penalty, which is still pending in court, is one of the largest imposed on a gas trader since the passage of EPAct 2005 (see NGI, April 25, 2011).

The Commission's most recent enforcement action came last Monday when it approved a settlement with Gila River Power LLC, a subsidiary of Entegra Power Group LLC, in which the company admitted manipulating power prices in trading on the California Independent System Operator market. The company will pay a $2.5 million fine and disgorge unjust profits of $911,553, plus interest.

The Commission confirmed that it has the authority to suspend individual traders for energy manipulation, but Chairman Jon Wellinghoff agreed with Moeller that the agency needs to explore the extent of this power. Both the Natural Gas Act and Federal Power Act provide FERC with suspension authority, according to a Commission spokeswoman..

"One of my takeaways [from all of these cases] is that there seem to be a few individuals who've created an [enormous] amount" of alleged harm in the market, Moeller said. "It strikes me that if we can find a way to get rid of some specific individuals in this trading, we could possibly take away a lot of what we have to deal with on a constant basis related to allegations of market manipulation.

He suggested that FERC possibly develop some type of system, such as the registration/licensing system used by the Securities and Exchange Commission, to keep track of energy traders and their activities.

"That's not a model we have here, but it's one I want your thoughts on [it] in terms of going after individual traders, perhaps in a model closer to other enforcement agencies, and what that would entail and whether it's worth discussing," he told Justin Shellaway of the Office of Enforcement.

"We think it's a good and useful idea to be thinking about the individuals who are pursuing the kind of conduct that we're concerned about in these markets," Shellaway responded.

Commissioner Cheryl LaFleur raised the issue of whether FERC should issue guidance to help the agency more easily deal with manipulators and violators. Guidance may be useful in the future, but "probably not at this point," Shellaway said.

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