FERC Friday rejected a challenge by failed hedge fund Amaranth Advisors and affiliates to FERC’s claim that it has jurisdiction to sanction manipulative trading of natural gas futures contracts when that activity significantly affects prices in the physical gas market, over which the agency has exclusive jurisdiction.

Amaranth Advisors and parties sought rehearing in August of the Federal Energy Regulatory Commission’s determination that it has jurisdiction over activities in the gas futures market, arguing that this market instead was the sole purview of the Commodity Futures Trading Commission (CFTC). “[FERC’s] claim that it has the implicit power to assess civil penalties for transactions conducted entirely beyond its purview cannot be reconciled with its admission that those transactions lie solely within the province of the CFTC,” they said at the time (see Daily GPI, Aug. 29).

In the Friday order, FERC said the Energy Policy Act of 2005 (EPAct) gave the agency broad authority to sanction manipulative conduct by any entity “in connection with” the purchase, sale or transport of natural gas within its jurisdiction [IN07-26-001]. The Commission noted that at this stage in the proceedings Amaranth has not disputed that trading of gas futures contracts is connected to FERC-jurisdictional markets.

FERC rejected Amaranth’s argument that the CFTC has exclusive jurisdiction over the manipulation of gas futures contracts. It noted that the Commodities Exchange Act, from which the CFTC derives its authority, makes clear that other agencies, including FERC, retain their jurisdiction beyond the confines of “accounts, agreements and transactions” involving gas futures markets.

FERC reaffirmed that it does not seek to regulate the day-to-day operation of exchanges subject to the CFTC’s exclusive jurisdiction. However, it said when manipulation in one market affects the other, then both agencies have an enforcement role.

In seeking rehearing, Amaranth Advisors, affiliates and former natural gas traders asked FERC to terminate a July show cause order that accused the parties of indirectly influencing the price of jurisdictional physical gas transactions in 2006 through manipulation of the New York Mercantile Exchange (Nymex) natural gas futures contract (see Daily GPI, July 27).

The FERC show cause order, which followed an investigation that began in May 2006, cited Greenwich, CT-based Amaranth, seven affiliates and two traders — Brian Hunter and Matthew Donohoe. The parties have up to 14 days after the Nov. 30 rehearing decision to respond to the FERC allegations, the agency said.

In their response, the parties will have an opportunity to demonstrate why they should not be assessed civil penalties and be required to disgorge profits totaling $291 million for allegedly manipulating trading in the Nymex natural gas futures contract in February, March and April 2006, which FERC argues subsequently impacted the price of Commission-jurisdictional transactions in the physical gas market.

The FERC charges against Amaranth followed the filing of a civil complaint in a New York federal court by the CFTC against the hedge fund that also listed Hunter, who directed the fund’s natural gas trading (see Daily GPI, July 26). The CFTC accused the parties of attempted manipulation in the gas futures market.

Last month, a federal court judge in New York denied a plea by Amaranth Advisors to bar FERC from proceeding with its enforcement action against the hedge fund until the parallel complaint brought by the CFTC is resolved, although he said he believed it would be “prudent” for FERC to defer to the CFTC case. The judge, who is presiding over the CFTC-Amaranth complaint case, did not rule on the critical issue of whether FERC has jurisdiction in the futures market, saying he believed that was a matter to be decided by an appeals courts (see Daily GPI, Nov. 5).

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