The jurisdictions of FERC and the Commodity Futures Trading Commission (CFTC) clashed when the Federal Energy Regulatory Commission (FERC) decided to take its newfound authority under the Energy Policy Act of 2005 (EPAct) out for a “little jurisdictional test drive” in the case accusing failed hedge fund Amaranth Advisors LLC of manipulation of natural gas prices, said CFTC Commissioner Bart Chilton last week.
“They took their Act on the road too soon, I think, and it has resulted in a rendition of dueling government banjos. And that is very disappointing. It is the type of government that I have worked in for over 20 years and try to avoid,” he said in a speech to the American Public Gas Association last Tuesday in Memphis, TN.
“In 2005 when EPACT was enacted, the [Commodity Exchange Act’s, CEA] exclusive jurisdiction was well established, had been for 30 years, and if Congress had meant to overturn it or change it in some way by the terms of the EPAct, it would have explicitly done so. A plain reading of EPAct will show you Congress did not do this in 2005; rather, it gave FERC certain manipulation authority, but it did not in any way overturn the exclusive jurisdiction of the CEA,” from which the CFTC derives its authority. “Therefore, the CEA’s exclusive jurisdiction [in the futures market] remains in full force and effect,” he said.
Chilton noted that FERC and the CFTC negotiated a memorandum of understanding (MOU) to spell out their respective authorities over energy markets. “In that MOU, it says that the CFTC has exclusive jurisdiction over risk management markets. But MOUs are only as good as those who [are] supposed to use them. The CFTC-FERC MOU didn’t work so well.”
The CFTC’s claim of exclusive jurisdiction in the futures market was put to the test in the enforcement case involving Amaranth Advisors. Amaranth argued that only the CFTC had authority over the company’s actions in the gas futures market, and it sought to stay FERC’s parallel enforcement action against it for alleged manipulation of the gas futures market. FERC countered that it has oversight authority when activities in the gas futures market negatively impact the prices in physical gas markets over which it has exclusive jurisdiction.
A federal court judge in New York earlier this month denied a plea by Amaranth Advisors to bar FERC from proceeding with its enforcement action against the company until a similar complaint brought by the CFTC was resolved, although he said he believed it would be “prudent” for FERC to defer to the CFTC case. The court left the critical issue of whether FERC has any jurisdiction in futures markets unsettled, saying it was an issue to be decided by an appeals court (see NGI, Nov. 5).
U.S. District Judge Denny Chin for the Southern District of New York rejected Amaranth Advisors’ request for a preliminary injunction to block FERC from pursuing its case against Amaranth, several affiliates and two ex-traders for alleged attempted manipulation of natural gas markets. The agency is seeking penalties and disgorgement of unjust profits totaling $291 million. The CFTC’s complaint, which was filed in the New York court in July, accused Amaranth of attempted manipulation of natural gas prices (see NGI, July 30).
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