FERC’s first serious test of its new market enforcement authority is immersed in court, and it is critical that the federal energy regulators win if they are going to be able to protect consumers in the future, Chairman Joseph Kelliher told a national meeting of state regulators last Tuesday in Anaheim, CA. He thanked the National Association of Regulatory Utility Commissioners (NARUC) for its timely support in the fight with the Commodity Futures Trading Commission (CFTC).
The two jurisdictions 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, according to CFTC Commissioner Bart Chilton, speaking earlier this month.
In contrast, Kelliher told the state regulators, many of whom have expressed support for FERC in court, that he expected the amount of “push back” it has gotten from the industry, but he was surprised the CFTC turned against FERC after at first cooperating closely with his regulatory staff.
FERC is not disputing CFTC’s jurisdiction, but it is arguing that the trading commission does not have “exclusive” authority in this case and the courts have already ruled that when CFTC asserts jurisdiction it is not automatically exclusive relative to other government entities, Kelliher said.
“We’ve already won in the court of public opinion; now we have to win in the court of law,” he said. FERC has alleged that Amaranth manipulated gas futures markets — not physical trading — and that the manipulation actually harmed customers and has assessed $458 million in penalties, contending that the federal energy regulators must guard against consumer exploitation.
“There was no attempt to manipulate the physical gas deliveries,” Kelliher said. “I think we will win, and there is a lot at stake. If we lose in court, our ability to protect customers will be seriously eroded.”
CFTC’s Chilton, however, has characterized the intra-governmental fight as “dueling government banjos,” calling it “very disappointing.”
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.
For the state regulators, Kelliher chose to emphasize that the Amaranth case has solidified state-federal regulatory relationships with both sets of regulators seeing this as a case that is critical to their consumer protection powers. Kelliher said he could see why the company would prefer jurisdiction coming from CFTC, since its penalties are considerably less harsh that what FERC is proposing.
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