Three U.S. Senators are calling for the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC) to work more cooperatively on ensuring comprehensive oversight of energy markets. The Senators made their request in a letter to both agencies in the aftermath of a recent ruling by the U.S. Court of Appeals for the D.C. Circuit. The court held that the CFTC has exclusive jurisdiction over all transactions involving natural gas futures contracts, and that FERC may not regulate such contracts.
The Senators’ letter to CFTC and FERC urged the two agencies to execute more robust Memorandums of Understanding (MOUs) addressing market oversight, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The letter was signed by Senators Dianne Feinstein (D-CA), Chair of the Energy and Water Subcommittee of the Senate Committee on Appropriations; Ron Wyden (D-OR), Chair of the Senate Committee on Energy and Natural Resources; and Lisa Murkowski, (R-AK), the ranking Republican member of the Senate Committee on Energy and Natural Resources.
The Senators expressed strong concerns that disputes between CFTC and FERC undermine the free flow of information and allow market manipulators to exploit gaps in regulatory oversight—ultimately driving up energy prices for American consumers. They noted that, while federal statutes divide the jurisdiction of FERC and CFTC between cash markets and futures markets, detecting various forms of manipulation in these integrated markets requires active, integrated oversight of both markets. Dodd-Frank directed FERC and CFTC to negotiate MOUs by 2011 to integrate market oversight efforts and improve information sharing.
The Senators noted that both Commissions share information only when a specific request is made—a process that often takes months. In addition, each agency compiles investigation documents in a distinct manner, impeding the integration of data even in cases where a potential bad actor has been identified. The letter explains that this approach allows neither agency to comprehensively monitor energy markets where trading in futures contracts can affect prices in cash markets, and vice versa.
According to the Senators, the separation of data impedes both agencies’ ability to identify manipulative trading schemes, ignores the reality that traders will exploit this gap in oversight, and makes it more difficult for either Commission to identify market-distorting misconduct. New MOUs are necessary to ensure that the agencies work together to identify manipulation, share and integrate data for natural gas and electricity trading, and cooperate to protect American consumers.
The Energy Policy Act of 2005 significantly expanded FERC’s regulatory and enforcement authority in the energy sector, and Dodd-Frank gave CFTC unprecedented new authority to regulate futures markets, including the energy futures market. It appears that, in the past few years, each agency has been struggling to find the limits of its authority and has become reluctant to give up some of that authority to the other.
If you have any questions, please contact Dena E. Wiggins at 202.661.2225 or wigginsd@ballardspahr.com, or Jack N. Semrani at 202.661.7640 or semranij@ballardspahr.com.
