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FERC Investigator Tells Traders What A Regulator Wants

Anyone trading natural gas or electricity should know that what sets a FERC investigator off is a whiff of market manipulation. Trading desk cheating has been a Commission enforcement priority for several years, and that isn't going to change, an investigations division chief said in Houston Tuesday.

"That's what gets the press; that's what we're most concerned about in terms of how it's affecting the marketplace," Federal Energy Regulatory Commission investigations Branch Chief Jay Matson said. "We will look at tariff violations. We will look at instances where incorrect or incomplete information is given to an RTO [regional transmission organization], market monitor, to the Commission itself. But manipulation is really the bullseye of the focus."

Matson told attendees at EnergyRisk Summit 2016 USA that he's more of an "electric guy," but he had plenty to say about regulation of natural gas trading. Cross-product market manipulation, such as that alleged in the ongoing Total case (see Daily GPIMay 10), is "one of the standard flavors that we see from manipulation," he said.

In a manipulation investigation, the Commission particularly looks for who has the dirty hands. Individuals are targeted and named, Matson said.

"For several years now it has been a priority of enforcement that individuals be named and prosecuted so that there is individual accountability for trading that goes on,” he said. "There have always been individuals named going all the way back to [former Amaranth trader] Brian Hunter [see Daily GPIApril 4, 2013]; however, it's been more of a priority in recent years.

"In Total, you'll note that there were two individuals that happen to be the managers of the desk where the traders were engaged in the conduct that have been named and [Commission] staff has recommended a penalty."

FERC enforcement picks its battles, though, and doesn't necessarily pursue an entire slate of wrongdoing that has been alleged by Commission staff. In the Total case, Matson said, the Commission is prosecuting 38 instances of trading at a particular location during a certain month. In the Commission staff report on Total, there were more examples of conduct believed to be manipulative.

"However, we decided to go with simply the 38, feeling that those were the ones that were most egregious and the ones where the evidence most suggested that there was a problem," Matson said. "We exercise discretion in what we prosecute; we close the vast majority of cases."

That's especially true in cases when a company comes forward and self-reports activity it believes might have run afoul of market rules. At the Commission, forthrightness and honesty are noticed and appreciated, Matson said.

"Very few self-reports become a full-blown investigation. Please self-report. Please self-report to us," he said. "The market monitor is fine, but I like it even better when I get the phone call. And we absolutely do give credit to people [for self-reporting] and think of self-reporting in cultures of compliance when other larger matters may come across our radar screen."

The Commission and courts are still working through instances of a market manipulation alleged to have occurred over the last decade or so. The years ahead will give market participants plenty to watch on the regulatory and enforcement front.

"We are just getting to the point now where a lot of cases are starting to percolate up to the courts and we'll start to answer some of the thorny issues that are unresolved," Matson said. "We have cases pending in California, in Virginia, in DC, in Maine. We have several more cases that I think will be in the courts in the not-too-distant future.

"Really, over the next probably three, five, seven years is when you're going to see, on the FERC side of things, a lot of issues start to be resolved."

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