Sens. Dianne Feinstein (D-CA), chairwoman of the Senate Energy and Water Development Appropriations Subcommittee, Ron Wyden (D-OR) and Lisa Murkowski (R-AK), the chairman and ranking member of the Senate Energy and Natural Resources Committee, have called on FERC and the Commodity Futures Trading Commission (CFTC) to execute more robust memorandums of understanding (MOU) to resolve their jurisdictional disputes, which the lawmakers said are hampering oversight of the nation’s energy markets.
In a letter to CFTC Chairman Gary Gensler and Federal Energy Regulatory Commission (FERC) Chairman Jon Wellinghoff Monday, the senators wrote that “recent disputes over the jurisdiction of each commission to punish wrongdoing in these markets have undermined efforts to monitor energy commodity trading. We have strong concerns that such disputes undermine the free flow of information and allow market manipulators to exploit gaps in regulatory oversight and ultimately drive up the price of energy for American consumers.”
While federal statute divides the jurisdiction of FERC and the CFTC between cash markets and futures markets, respectively, federal law also recognizes that detecting many forms of manipulation in these integrated markets requires the active oversight of both markets in an integrated fashion, the senators said. The Dodd-Frank Wall Street Reform Act directed FERC and CFTC to negotiate an MOU that would integrate market oversight efforts and improve information sharing.
In the case of manipulation of the gas futures markets by hedge fund Amaranth Advisors, “it is our understanding that CFTC and FERC worked together to build their respective cases under the Commodity Exchange Act and the Natural Gas Act. Such cooperation allowed for more complete oversight of these markets,” the senators said (see Daily GPI, July 27, 2007; July 26, 2007).
“Unfortunately, the joint investigation of Amaranth was followed by legal battles between the CFTC and FERC regarding the scope of each commission’s jurisdiction,” they said. In March, the U.S. Court of Appeals for the District of Columbia Circuit shot down FERC’s arguments that transactions in the futures market by a former Amaranth gas trader “had a direct and substantial effect upon FERC-jurisdictional natural gas transactions,” and therefore FERC claimed that it had the right to penalize the trader (see Daily GPI, March 18). The court overturned the FERC order imposing a penalty on the trader.
The two federal regulatory agencies have butted heads over jurisdictional issues for several years (see Daily GPI, Nov. 5, 2008). “Relations between FERC and the CFTC have been strained for some time,” FERC Commissioner Tony Clark told executives attending the Natural Gas Roundtable Tuesday.
“We strongly urge the commissions to avoid jurisdictional disputes in the future and instead work together to effectively police energy markets jointly…We call on FERC and CFTC to comply with…the Dodd-Frank Act as soon as possible. New MOUs are necessary to ensure that the agencies will work together to pursue manipulation, will share and integrate all data for natural gas and electricity trading, and will cooperate in order to protect American consumers,” wrote Feinstein, Wyden and Murkowski.
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