Commissioners John Norris and Philip Moeller plan to begin developing this month a first-of-its-kind licensing program for traders and other players in FERC-regulated markets. A licensing requirement could give FERC a mechanism to impose new standards of conduct on individual traders and to bar individuals from future trading activity. By giving FERC additional leverage over individual traders, the new rules could increase cooperation by these key witnesses in agency investigations.
FERC’s existing authority to regulate individual traders is unclear. Section 4A of the Natural Gas Act and Section 222 of the Federal Power Act authorize FERC to assess penalties of up to $1 million per day per violation against “any entity” that uses a “manipulative or deceptive device or contrivance” in connection with a jurisdictional purchase or sale of natural gas, natural gas transportation service, electric energy, or electricity transmission services. In Hunter v. FERC, FERC assessed a $30 million civil penalty against Brian Hunter, formerly a natural gas trader for Amaranth Advisors, LLC, for allegedly manipulating natural gas futures prices. Hunter appealed to the D.C. Circuit, arguing, among other things, that “NGA § 4A’s prohibition directed at ‘any entity’ cannot reasonably be read to include individuals.” The D.C. Circuit dismissed the case against Hunter on other jurisdictional grounds, leaving FERC’s authority over individuals unclear. FERC’s assessment of civil penalties against four individuals for allegedly manipulative conduct in the electricity market is currently being litigated in a federal district court,1 but it may be years before the issue is resolved.
FERC can seek an injunction prohibiting an individual who has engaged in market manipulation from acting as an officer or director of a natural gas company or an electric utility or engaging in jurisdictional sales of natural gas, natural gas transmission services, electric energy, or electricity transmission services.2 In addition, FERC has relied on voluntary settlement agreements to bar individuals from trading markets that it regulates.3 During the summer of 2013, FERC referred for criminal investigation allegations that individual traders tried to impede an investigation of alleged manipulation of power markets. The proposed new licensing requirement would give FERC additional leverage against individuals who get caught up in market manipulation cases.
Other agencies already have licensing requirements for traders. For example, persons and organizations doing business as futures professionals must register under the Commodity Exchange Act. Similarly, Securities and Exchange Commission’s Rule 13h-1 imposes licensing requirements on large traders in the securities market.
1 Federal Energy Regulatory Commission v. Barclays Bank Plc, 13-01158, U.S. District Court, Eastern District of California (Sacramento); see also Barclays Bank PLC, 144 FERC ¶ 61,041 (2013) (assessing civil penalties against company and four individual traders)
2 15 U.S.C. 717s(d); 16 U.S.C. 825m(d).
3 See In re PJM Up-To Congestion Transactions, 142 FERC ¶ 61,088 (2013) (individual agreed to refrain from trading for one year); In re Vista Energy Marketing, L.P., 139 FERC ¶ 61,154 (2012) (individual agreed to participate in FERC markets only as a passive investor for two years); In re Joseph Polidoro, 138 FERC ¶ 61,018 (2012) (individual agreed to two-bear ban from demand response markets); see also Constellation Energy Commodities Group, Inc., 138 FERC ¶ 61,168 (2012) (including settlement condition that company no longer employ certain individuals).
