The Commodity Futures Trading Commission (CFTC) said last week the Commodity Exchange Act (CEA) clearly gives it “exclusive jurisdiction” over the natural gas futures market, and the Energy Policy Act of 2005 (EPAct) did nothing to alter that. At the same time, however, it asked a federal court in New York to deny Amaranth Advisors LLC’s request to stay FERC’s enforcement action against the fallen hedge fund for alleged manipulation of gas markets.

The CFTC asked the U.S. District Court for the Southern District of New York to “set aside” Amaranth’s challenge to FERC’s claim that it has jurisdiction in the event activities in the gas futures market negatively impact physical gas prices. It noted that the issue of the jurisdiction of the Federal Energy Regulatory Commission is already before the U.S. District Court for the District of Columbia and FERC as well.

“FERC should now have the opportunity to interpret the new mandate that Congress has given it [in EPAct], and to determine how to apply its new [authority] in light of the exclusive jurisdiction that Congress granted [the CFTC] in CEA…with respect to futures trading” on the New York Mercantile Exchange (Nymex), the agency said.

The CFTC and FERC brought parallel enforcement actions against Amaranth in July for alleged manipulation of gas markets (see Daily GPI, July 26; July 27). FERC alleged that Amaranth and its former traders, by manipulating gas futures on Nymex, influenced the price in the physical gas markets over which FERC has exclusive jurisdiction. The agency said many participants in physical gas markets use the settlement price of the Nymex gas futures contract to determine the price of FERC-jurisdictional physical gas transactions.

In seeking an injunction, Amaranth claims that FERC exceeded its jurisdiction when it sought to penalize the hedge fund for alleged activities in the gas futures market. The Greenwich, CT-based hedge fund contends that only the CFTC, not FERC, has the authority over the futures markets. It argued that FERC’s jurisdiction is limited solely to the physical gas markets.

But FERC, in asking the court to reject Amaranth’s plea, countered last week that EPAct gave it new authority to combat manipulation wherever it saw it (see Daily GPI, Oct. 1). “EPAct 2005 did not limit FERC’s jurisdiction to manipulation by entities traditionally regulated by FERC, nor did it limit FERC’s jurisdiction to manipulative conduct solely concerning physical markets. Rather, Congress granted FERC broad authority to police market manipulation by ‘any entity’ who engages in conduct that is…’in connection with’ any jurisdictional transaction,” FERC said in a court brief.

The CFTC took issue with FERC. “The Energy Policy Act did nothing to affect the scope of the CFTC’s exclusive jurisdiction. Nor did it change the scope of FERC’s jurisdiction over natural gas transactions,” the CFTC told the district court.

“Had Congress intended in the Energy Policy Act to reverse 30 years of unbroken precedent regarding the application of…the CEA to futures trading on designated contract markets, it would have done so clearly and unambiguously. Because nothing in the Energy Policy Act explicitly repeals any provision of the CEA, the question arises whether Congress’s grant of authority to FERC…implies an intention to do so.”

The CFTC does not believe this was the case. “Repeals by implication are not favored in law, and they will not be found unless a congressional intent to repeal ‘is clear and manifest,'” said the agency, citing a 1987 Supreme Court ruling.

“The general authority provided to FERC in the Energy Policy Act to combat the effects of manipulative behavior on FERC jurisdictional markets is insufficient to carve out an implicit exception to the exclusive jurisdiction that the CEA adopted as part of a carefully crafted statutory regime to specifically govern futures trading on designated contract markets. In short, nothing in the text or legislative history of the Energy Policy Act evinces a congressional intention to change the long-settled law in this area.”

Despite its assertion of exclusive jurisdiction over the gas futures market, the CFTC asked the district court to deny Amaranth’s request to stay FERC’s enforcement action. Pointing out that the issue of FERC’s jurisdiction is already before another court and the FERC itself, the CFTC called Amaranth’s motion a “thinly veiled attempt to forum shop for a favorable ruling on the jurisdictional issue.”

The CFTC “submits that this court should refrain from ruling prematurely on the jurisdictional argument presented by Amaranth so that normal administrative processes…can be permitted to work as Congress intended.”

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