The CFTC and FERC Began the New Year with Steps toward Enforcement Coordination via MOUs on Jurisdiction and Information Sharing


Several months ago we discussed the lack of coordination between the Federal Energy Regulatory Commission (“FERC”) and the U.S. Commodity Futures Trading Commission (“CFTC”) regarding energy market enforcement activities.  See our previous post: Barriers to Cooperation between the CFTC and FERC Hinder Investigations into Energy Market Manipulation – A Legislative Fix May be on the Horizon.  On January 2, 2014, the CFTC and FERC took steps towards the coordination envisioned by the Dodd-Frank Act by signing two new Memoranda of Understanding (“MOUs”) that set forth procedures for addressing matters in which both agencies may have jurisdiction and for the sharing of information related to the agencies’ market surveillance and investigations.  It may be, however, that the agencies took a long time to draft MOUs that ultimately deliver fairly minor results for regulated entities. The Jurisdictional MOU states that the agencies, which have not played well with each other in the past, will notify and attempt to work through their differences and establishes an inter-agency protocol to do so.  But, it does little to clarify the boundaries between the jurisdictions of FERC and the CFTC.  In essence, a company conducting certain energy-related activities may remain in the dark about which agency will oversee and potentially conduct enforcement actions within that space.  We summarize key components of the MOUs below.

The Jurisdictional MOU

The Jurisdictional MOU, effective January 2, 2014, establishes an agreement that the agencies will notify each other when presented with activities in which the other may have a jurisdictional interest and will coordinate to resolve the agencies’ concerns.  Key components of the MOU:

Notification: Each agency agrees to notify the other if it is considering an authorization or an exemption, whether requested by a regulated entity or sua sponte, that “may arguably fall within the overlapping jurisdiction of the other agency.”  Through informal consultation and in good faith, the agency considering the matter will assist the notified agency in determining whether the notified agency in fact has any interest in the matter.

Declaration of Notified Agency Interest: No specific time frame is given for the notified party to declare an interest in the matter under consideration.  The MOU requires that, “promptly” after being notified, the notified party must advise the agency considering the matter whether the notified agency is declaring either (1) no interest in the matter, (2) an interest and the desire to proceed with the procedures for resolving overlapping jurisdiction, or (3) the desire to reserve the determination until after the regulated entity has engaged in a particular procedural action, such as filing an application.

Resolution of Overlapping Jurisdiction:  The agencies must confer regarding the matter and “diligently and cooperatively communicate to coordinate and develop an approach that meets both agencies’ regulatory concerns.”  Each agency must “by Commission action, whether pursuant to a petition or sua sponte, issue such public orders as are necessary to address such overlap.”  The agencies are able to determine that some portion or all of the activity is not subject to their authority, or in the case of the CFTC, that the activity may be eligible for a public interest waiver exemption under to Section 722 of Dodd-Frank and Section 4(c) of the Commodity Exchange Act.

Resolving Disputes between the Agencies:  The MOU establishes procedures to escalate any dispute through the ranks of the agencies – from initial contact through Director-level to the Commissions – so that any dispute that cannot be resolved at lower levels will reach the Commissions within 35 working days of notification of the dispute.  The timeframes established may be altered upon agency agreement.

The New Information Sharing MOU

The New Information Sharing MOU, effective January 2, 2014, supersedes the previous MOU between the agencies that was signed on October 12, 2005.  It establishes procedures for the agencies to share information related to market surveillance and investigations that maintain the confidentiality of information shared.  Key components of the MOU:

Purpose: The MOU seeks to coordinate information requests issued by FERC and the CFTC “to minimize duplicative information requests, and to address the treatment of confidential information.”

Information Requests: Each agency will submit written requests to the other for “market participant information” in possession of the other agency.  Additionally, each agency will direct to the other any requests for information from market participants within the purview of the other agency.  FERC will direct to the CFTC information requests from “a designated contract market, a registered swap execution facility, a registered derivatives clearing organization, or any other board of trade, exchange, or derivatives market or swap data repository.”  The CFTC will direct to FERC information requests from “a Regional Transmission Organization (“RTO”) or Independent System Operator (“ISO”), the independent market monitor of the RTO or ISO, the North American Electric Reliability Corporation (“NERC”), or interstate pipelines and storage facilities.”  The agencies must work to “promptly obtain responsive information” and provide it to the requesting agency.

Ongoing Information Sharing:  Under the MOU, and by separate Letter Agreement, the agencies agree to share information regarding market surveillance, investigative, and enforcement activities on an ongoing basis.

Proprietary & Privileged Information:  The agencies set forth procedures to address the treatment of non-public, proprietary, and privileged information that is shared between them.  All information shared is presumed to be non-public and should not be disclosed to a third party unless consented to by the providing agency or required by law.  The sharing of Privileged Information in Common Interest Matters pursuant to the MOU is not a waiver of privilege.

The Impact of the MOUs

Acting FERC Chaiman LaFleur stated: “These memoranda will further strengthen FERC’s ability to perform its market oversight and enforcement responsibilities….As FERC’s role in overseeing the competitive energy markets has grown since the passage of the Energy Policy Act of 2005, our need to coordinate with the CFTC is increasingly important.”  The actual impact of the MOUs remains to be seen and we will keep you posted.

Published In: Energy & Utilities Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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