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FERC Warns CFTC: Don't Tread on RTOs, ISOs

FERC has warned the Commodity Futures Trading Commission (CFTC) against trying to extend its jurisdiction to include trading of derivative transactions within regional transmission organizations (RTO) and independent system operators (ISO).

For the Federal Energy Regulatory Commission (FERC), the CFTC's jurisdiction extends to electricity contracts traded on the IntercontinentalExchange (ICE) and other exchanges, but trading within RTOs and ISOs is off-limits. FERC made this clear in a recent response to the CFTC's request for comments on whether five PJM Interconnection contracts heavily traded on the ICE online platform are significant price discovery contracts (SPDCs), making them subject to the agency's reporting requirements and CFTC jurisdiction.

"While a determination by the CFTC that any of the [PJM] ICE contracts serves a significant price discovery function would not appear to conflict with FERC's exclusive jurisdiction...over the transmission or sale for resale of electric energy in interstate commerce or with its other regulatory responsibilities under the FPA [Federal Power Act], the FERC staff will continue to monitor for any such conflict," FERC said.

And it "will monitor other similar determinations that could conflict with the FERC's regulation of wholesale electric markets. In this regard, many FERC-regulated public utilities, in particular regional transmission organizations and independent system operations, have electronic trading facilities used to provide FERC-jurisdictional services.

"With respect to RTOs and ISOs, FERC comprehensively regulates transmission in interstate commerce and related financial transmission rights, real-time and day-ahead energy markets, capacity markets and ancillary services, all of which are conducted using electronic trading facilities and which are provided in accordance with detailed market rules contained in tariffs and contracts on file at the FERC," the agency said.

"Congress has recognized that FERC's regulation of RTOs, ISOs and their markets was not intended to be affected by the SPDC amendments to [the Commodity Exchange Act]. Accordingly, the FERC staff will monitor proposed SPDC determinations and advise the CFTC of any potential conflicts with the FERC's exclusive jurisdiction over RTOs, ISOs or other jurisdictional entities," FERC said.

FERC Chairman Jon Wellinghoff last Tuesday echoed the agency's concerns about the CFTC overextending its jurisdiction into organized wholesale electricity markets, several published reports said.

This is not the first time that FERC and the CFTC have butted heads over jurisdiction. In 2007 FERC brought an enforcement action against a former gas trader for Amaranth Advisors LLC for allegedly manipulating the settlement prices of certain gas futures contracts traded on the New York Mercantile Exchange (see NGI, Nov. 10, 2008). FERC argued that its jurisdiction extended to the futures market because the manipulation in that market influenced FERC-jurisdictional physical gas prices in violation of the Natural Gas Act.

But the CFTC insisted otherwise, saying that FERC had overstepped the authority granted to it by Congress in the Energy Policy Act of 2005 and had encroached on the jurisdictional territory of the CFTC in the futures market.

In other action, the CFTC last Thursday published a notice reopening the period to receive comments on whether 11 power contracts heavily traded on ICE are SPDCs subject to the reporting requirements and jurisdiction of the agency.

The comment period, which closed Oct. 21, has been reopened until Nov. 27. The CFTC's request for comments, which was first published in the Federal Register on Oct. 6, "has generated substantial interest, and a number of commenters and potential commenters have informally requested that the Commission provide additional time in which to submit their views (see NGI, Oct. 12).

Power contracts on which comments are being sought include the SP-15 Financial Day-Ahead LMP (locational marginal pricing) Peak Contract; SP-15 Financial Day-Ahead LMP Peak Daily Contract; SP-15 Financial Day-Ahead LMP Off-Peak Daily Contract; SP-15 Financial Swap Real-Time LMP -- Peak Daily Contract; SP-15 Financial Day-Ahead LMP Off-Peak Contract; NP-15 Financial Day-Ahead LMP Peak Daily Contract; and NP-15 Financial Day-Ahead LMP Off-Peak Daily Contract.

The other power contracts are the Mid-C Financial Peak Contract; Mid-C Financial Peak Daily Contract; Mid-C Financial Off-Peak Contract; and Mid-C Financial Off-Peak Daily Contract.

The CFTC said it will determine whether the named contracts, which are based on some of the most heavily traded market locations, "perform significant price discovery functions," which would subject them to the Commission's position limit authority, emergency authority and large trader reporting requirements, among others.

The Oct. 6 request also sought comments on 13 natural gas contracts that are heavily traded on ICE to determine whether they are SPDCs, but the CFTC did not reopen the comment period on those contracts. The 13 natural gas financial basis contracts include PG&E Citygate; Waha; Malin; HSC; Dominion-South; AECO; Permian; TCO; San Juan; TETCO-M3; Zone 6-NY; Chicago; and NGPL TxOk.

Comments, which should identify the contract or contracts, can be sent to secretary@cftc.gov.

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