11.01.07

Cantwell, Feinstein and Wyden Work to Prevent Price Manipulation in Energy Markets

WASHINGTON, DC – Thursday, U.S. Senators Maria Cantwell (D-WA), Dianne Feinstein (D-CA), and Ron Wyden (D-OR) sent a letter to the chairmen of the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC) giving them 45 days to develop a plan to deliver effective oversight for energy markets and implement anti manipulation provisions. Questions over jurisdiction and interagency cooperation have held up effective implementation of key consumer protections and transparency in the energy markets. Today, in fact, the New York Federal District Court, overseeing the CFTC enforcement action against Amaranth definitively upheld both agencies’ jurisdiction to police the energy markets. 

In the Energy Policy Act of 2005, Congress acted to prohibit manipulating certain energy markets and expected FERC would work with CFTC to build and pursue cases against bad actors whose behavior impacted the markets in both agencies’ jurisdiction.  Specifically, Congress directed FERC and CFTC to execute a Memorandum of Understanding (MOU) to ensure effective cooperation between the agencies to police the energy markets and protect the public interest.  

The senators believe as energy prices increase dramatically, a jurisdictional battle between FERC and CFTC will only weaken both Commissions and constrain the government’s responsibility to pursue future market manipulators under authority Congress created just two years ago.
[The text of the Senator’s letter to Chairman Kelliher and Acting Chairman Lukken follows below]
 
November 1, 2007
 
Acting Chairman Walter Lukken
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
 
Joseph T. Kelliher, Chairman
Federal Energy Regulatory Commission
888 First Street, NE
Washington, DC 20426
 
Dear Chairmen,
 
Thank you for meeting with us and our staff to discuss your agencies’ efforts to implement anti-manipulation provisions of the Energy Policy Act of 2005 (EPACT).
 
Recent history teaches us that energy markets operate best when they are subject to effective oversight. To this extent, we fought for provisions in the 2005 Energy Policy Act that banned natural gas market manipulation and provided the Federal Energy Regulatory Commission (FERC) with stronger enforcement authority. Today, that authority was upheld by a Federal District Court.
 
In the wake of the Western power crisis of 2000-2001 and the revelation of schemes perpetrated by Enron and others that spanned both physical and financial energy markets, Congress anticipated that FERC’s expanded anti-manipulation authority would require FERC to work with other federal regulatory agencies including the Commodity Futures Trading Commission (CFTC). Sections 316 and 1281 of EPACT directed FERC and CFTC to execute a Memorandum of Understanding (MOU) to ensure effective cooperation between the agencies to police the energy markets and protect the public interest.
 
FERC, for the first time, sought to exercise its new anti-manipulation authority in relation to the activities of multiple Amaranth entities and relevant natural gas traders, in alleged violation of the Natural Gas Act. Similarly, the CFTC filed its own enforcement action against Amaranth in the New York Federal District Court in July, alleging violations of the Commodity Exchange Act. We understand that the CFTC worked with FERC under the terms of the EPACT-directed MOU to build each agencies’ respective case. And while we understand that the CFTC opposed Amaranth’s request to enjoin the FERC enforcement action on procedural grounds, both Amaranth and the CFTC challenged the scope of FERC’s authority to take enforcement action in connection with the manipulation of physical natural gas prices—a reading of the law that would essentially provide immunity for activities that constitute violations of the Natural Gas Act. But today, the New York Federal District Court overseeing the CFTC enforcement action against Amaranth definitively ruled that the FERC action should proceed simultaneously with the CFTC action. The Court clearly stated that “Congress intended the CFTC and FERC to coordinate their efforts…” and urged the two agencies to work together. It’s now become clear that what started out as a cooperative and coordinated investigation and enforcement effort has become one of conflict, to the potential detriment of the natural gas customers our federal laws were designed to protect. 
 
In short, we believe FERC’s authority here is clear. A jurisdictional battle between FERC and CFTC is compromising both agencies’ enforcement authorities. FERC and CFTC have complementary roles to play with the same end goal of preventing energy market manipulation and protecting our nation’s consumers. 
 
Given this series of recent events, we believe the existing MOU is likely inadequate to ensure that your two agencies can, in fact, carry out the coordinated market oversight and enforcement efforts of the natural gas and electricity markets contemplated by Congress in the 2005 Act. As such, we respectfully suggest that you engage in discussions designed to broaden the scope of the MOU and report back to us within 45 days on your progress. 
 
 
Sincerely,
 
 
 
Senators Maria Cantwell, Ron Wyden, and Dianne Feinstein
 
 
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