posted on Tuesday, October 09, 2007 8:03 AM by Jennifer Rinker

Commodity Futures Trading Commission and Federal Energy Regulatory Commission No Longer Playing Nice In Jurisdictional Battle over Gas Futures Market Enforcement

In dueling briefs filed in the United States District Court for the Southern District of New York, the Commodity Futures Trading Commission (CFTC) and Federal Energy Regulatory Commission (FERC) came out on opposite sides of the question whether FERC has authority to take enforcement actions against manipulators of the natural gas futures market.  CFTC and FERC until recently had been acting in tandem to investigate allegations that Amaranth Advisors, its trader Brian Hunter, and Energy Transfer Partners manipulated the natural gas futures market in 2006. 

The CFTC argued that federal statutes and legal precedent clearly established that the CFTC had "exclusive jurisdiction" over the natural gas futures trading activity and that it was clear the statutory language establishing the CFTC's jurisdiction "superseded or limited" the ability of other federal and state agencies to take action on futures trading activities.  FERC argued to the contrary that the Commodity Exchange Act (CEA) did not permit the CFTC's authority automatically to prevent other federal agencies from taking enforcement actions against market manipulation.  

Additionally, FERC pointed to its stand-by argument that Congress in the Energy Policy Act of 2005 "granted FERC broad authority to police market manipulation by 'any entity' who engages in conduct that is 'in connection with' any [FERC]-jurisdictional transaction," and did not limit that jurisdiction "to manipulative conduct solely concerning physical markets."  

In separate statements, FERC Chairman Joseph Kelliher warned of a regulatory gap that could be created by courts acting in favor of Amaranth and CFTC in this area.  "If the Amaranth position prevails," said Kelliher, "the CFTC won't be able to protect [customers] because the physical market is not jurisdictional to CFTC."  James Kerr, president of the National Association of Regulatory Utility Commissioners echoed this sentiment, stating that "[i]f FERC is unable to police market manipulation in financial markets that affects the price of natural gas, state regulators will be unable [to] prevent retail customers from being unfairly overcharged."