Senators Feinstein, Cantwell and Wyden Urge CFTC and FERC to Work Together to Pursue Cases of Manipulation in Energy Markets
Sep 21 2007
Washington, DC – U.S. Senators Dianne Feinstein (D-Calif.), Maria Cantwell (D-Wash.), and Ron Wyden (D-Ore.) today urged the Commodities Futures Trading Commission (CFTC) to work in tandem with Federal Energy Regulatory Commission (FERC) to pursue cases of manipulation in energy markets.
In a letter to CFTC Acting Chairman Walter Lukken, the Senators cited the recent case of Amaranth Advisors – the hedge fund that lost $6.6 billion in September 2006 speculating in natural gas futures – as an example of an opportunity where the agencies must work in tandem, and not become entangled in a turf battle.
In July, for the first time, FERC used new anti-manipulation authority authored by Senators Feinstein, Cantwell and Wyden to initiate proceedings against Amaranth, which at one point controlled more than half of the U.S. natural gas futures. The charges allege that Amaranth traders manipulated prices of natural gas futures on regulated markets in order to exploit electronic energy markets exempt from government oversight – under the so-called “Enron Loophole” – thereby maintaining enough market power to drive prices.
Under Section 315 of the Energy Policy Act of 2005, FERC was given authority to pursue natural gas market manipulators whose actions impact consumer energy prices. The agency was also given significant punitive powers.
“We believe that a jurisdictional battle between the CFTC and FERC will weaken both Commissions, and could significantly constrain our government’s ability to pursue future market manipulation cases under the authority and penalty regime Congress created just two years ago,” the Senators wrote. “The American people need both FERC and CFTC to fight market manipulators, not each other.”
Following is the letter written by Senators Feinstein, Cantwell and Wyden to CFTC Acting Commissioner Walter Lukken:
September 20, 2007
Acting Chairman Walter Lukken
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
In response to the considerable increase in the size, scope, and vulnerability of energy markets, we have fought for many years to ban market manipulation in natural gas and electricity markets, to provide Federal Energy Regulatory Commission (FERC) with enforcement authority, and to increase the financial punishment for market abuse. The provisions we wrote, sections 315 and 1283 of the Energy Policy Act of 2005, were intended to provide FERC with broad authority and significant punitive power with which to pursue market manipulators whose actions impact consumer energy prices.
We were pleased to see FERC utilize its anti-manipulation authority when it initiated proceedings against multiple Amaranth entities and former Amaranth natural gas traders Brian Hunter and Matthew Donohoe in July. Working under a congressionally required Memorandum of Understanding with your Commission, FERC built a case which asserts that Amaranth’s traders manipulated natural gas futures prices that explicitly determine the price of natural gas spot prices regulated under the Natural Gas Act. According to FERC’s filings, Amaranth’s manipulation had the potential to harm all natural gas market participants, including consumers.
In an attempt to defeat the FERC charge, Amaranth has asserted that FERC cannot pursue its case because the designated futures markets on which part of the alleged manipulation scheme occurred are the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act, which Congress last reauthorized in 2000. Amaranth’s filing asserts that manipulation of natural gas markets in a manner that directly impacts consumer prices does not violate the anti-manipulation provisions we fought to add to the Natural Gas Act in 2005, as long as part of that manipulation scheme occurred in the futures market.
We believe that a jurisdictional battle between the CFTC and FERC will weaken both Commissions, and could significantly constrain our government’s ability to pursue future market manipulation cases under the authority and penalty regime Congress created just two years ago.
In 2005 Congress acted to prohibit manipulating the price of natural gas. We intended that authority to be broad, and we expected that FERC would work with CFTC to build and pursue cases against bad actors whose behavior impacted the markets in both agencies’ jurisdiction. We encourage the agencies to continue working together so that Congress does not have to revisit this issue. The American people need both FERC and CFTC to fight market manipulators, not each other.
Dianne Feinstein Maria Cantwell
United States Senator United States Senator
United States Senator