Top Senate lawmakers called on FERC and the Commodity Futures Trading Commission four months ago to execute a memorandums of understanding (MOU) to coordinate their actions in monitoring natural gas and electricity market trading. But the agencies failed to iron out their disagreements, mostly over jurisdiction.
In late April, Sens. Dianne Feinstein (D-CA), chairwoman of the Senate Energy and Water Development Appropriations Subcommittee; Ron Wyden (D-OR) and Lisa Murkowski (R-AK), the chairman and ranking member of the Senate Energy and Natural Resources Committee, called on two agencies to broker a more robust MOU to resolve their jurisdictional disputes, which the lawmakers said were hampering oversight of the nation's energy markets.
In a letter to CFTC Chairman Gary Gensler and Federal Energy Regulatory Commission (FERC) Chairman Jon Wellinghoff (see Daily GPI, May 1), the senators wrote that "recent disputes over the jurisdiction of each commission to punish wrongdoing in these markets have undermined efforts to monitor energy commodity trading. We have strong concerns that such disputes undermine the free flow of information and allow market manipulators to exploit gaps in regulatory oversight and ultimately drive up the price of energy for American consumers."
The senators sent the letter after a federal appeals court in Washington, DC, issued a controversial decision that held that FERC lacked jurisdiction in the natural gas futures market, and that its jurisdiction was confined to the physical gas market (see Daily GPI, March 18). The court overturned a $30 million penalty that the Commission had imposed on then-Amaranth gas trader Brian Hunter.
In statements issued Friday, Feinstein and Wyden mostly faulted the CFTC for the MOU not being executed. "In the Dodd-Frank Act, Congress directed CFTC and FERC to cooperate in order to protect American consumers from manipulation, so it is unconscionable the CFTC would be unwilling to share this essential information with FERC," Feinstein said.
"Unfortunately, in developing the new information-sharing MOU required by Dodd-Frank, the two agencies disagree over whether the CFTC should provide FERC with certain data that we believe is critical to our surveillance program to detect and deter energy manipulation," wrote Wellinghoff in a letter to the senators.
Wyden signaled his support for FERC. "While FERC has already taken major enforcement actions against traders and companies that manipulated energy prices, it appears that their federal counterparts at the CFTC have been working to undermine FERC's efforts. Chairman Wellinghoff has asked Congress to step in; I will be consulting with our colleagues on Capitol Hill about doing exactly that."
Wellinghoff and other FERC commissioners have asked Congress to come up with a "legislative fix" to determine which agency, FERC or the CFTC, would have jurisdiction when manipulation crosses over into both the futures and physical markets.
Because of the decision in the U.S. Court of Appeals this year, Wellinghoff contends that FERC was deprived of bringing action based on manipulation in the futures market even though the activity affected prices in the physical natural gas and electricity markets, over which FERC traditionally has had jurisdiction. "Although we believe the Hunter decision is narrow in scope, it has been interpreted broadly by some market participants to support arguments that FERC does not have the authority to bring manipulation cases for conduct that is squarely within FERC's jurisdictional markets," he said.
"Accordingly, I support a legislative fix to eliminate uncertainty on this matter and ensure that FERC has the full authority needed to police manipulation of wholesale physical natural gas and electric markets. Such legislation would also assist both agencies in clearing the remaining hurdles to executing the jurisdictional MOU."