Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, D-NM, saying his committee was continuing to investigate “potential anomalies in natural gas market,” advised that he was scheduling a private meeting last week with Federal Energy Regulatory Commission (FERC) Chairman Joseph Kelliher to go over some unanswered questions about the integrity of the markets.
Both FERC and the Commodity Futures Trading Commission (CFTC) responded earlier this year to questions from the committee regarding their monitoring of the physical and financial natural gas markets. The letters sent by the two agencies in February were released last Monday pursuant to a Freedom of Information Act request. In a statement announcing release of the letters, Bingaman said the investigation was sparked by the collapse of the Amaranth Advisors LLC hedge fund in the fall of 2006 (see NGI, Oct. 2, 2006).
Kelliher’s letter apparently failed to answer some critical questions. “I hope to learn more about FERC’s role, beyond what is described in its letter, in ensuring just and reasonable natural gas prices, particularly in an environment where — by the Commission’s own account — physical and financial energy markets have become increasingly interdependent,” Bingaman said.
“In my view, the collapse last fall of the Amaranth Advisors hedge fund, with its large positions in natural gas markets, suggests congressional oversight in this area is warranted,” Bingaman said. “Given the billions of dollars at stake, it’s appropriate for the committee to ask serious questions about how our regulatory agencies are working together, whether they have the authorities they need to adequately police these markets, and if they are using the authorities they have as Congress intended — to protect American consumers and businesses.
“We are continuing to gather information and hear the perspectives of a variety of stakeholders concerned about the integrity of these markets,” the Senate energy leader said, adding he was looking for a “specific response to a number of questions that remain unanswered.”
While the CFTC’s written response to the Senate Committee’s request for information was similar to that of FERC in saying it would be illegal for them to divulge details of preliminary investigations, the CFTC won a pass from the committee by offering to provide private confidential briefings for the congressional committee. FERC did not.
The CFTC response included a footnote, to wit: “Upon receipt of a congressional request, Commission staff has provided private, confidential briefings in similar circumstances.”
The Senate committee “was satisfied with the oral responses from the CFTC. They told us what we were interested in learning. We haven’t had the same offer from FERC,” Senate committee spokesman Bill Wicker said. “Any response that is ‘Sorry, we can’t tell you about that’ is not going to be an acceptable response.”
FERC’s response to the committee outlined the Commission’s market monitoring activities, but noted that the “nonpublic” inquiries initiated by FERC staff are by law confidential. Only if the full Commission authorizes an investigation does the matter enter the public domain. “In practice, almost all investigations are initiated by staff and are both preliminary and nonpublic,” the response said. This is necessary to avoid disrupting markets when the Commission has only incomplete information. “Frequently, indeed in most instances, the Commission staff, through discovery, determines that what was at first glance suspicious or anomalous is in fact legitimate and legal.”
In the written response to one committee question about the impact of futures trading on the physical natural gas market, FERC said it had been monitoring New York Mercantile Exchange futures settlement closes since the fall of 2004, but said it could not disclose any information about any ongoing investigations. The committee had requested detailed information, saying it was concerned because of the inclusion of physical basis contracts (contracts based on the monthly futures market close) in the calculation of spot prices. The committee spokesman said it was too early to say whether the legislators would pursue the matter with hearings.
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