The Federal Energy Regulatory Commission (FERC) and the Commodity Futures Trading Commission (CFTC) have entered into a long-overdue, congressionally mandated Memorandum of Understanding (MOU) to establish procedures to resolve conflicts between the agencies over their respective overlapping jurisdictions to police, respectively, physical energy markets (i.e., contracts for physical delivery) and financial energy markets (i.e., futures, swaps, and derivative contracts). While the MOU adopts inter-agency, non-public procedures for the two agencies to discuss how they might resolve their respective regulatory concerns on a case-by-case basis, the MOU does not establish legal criteria for determining the scope of either agency’s jurisdiction or the potentially overlapping reach of either agency’s enforcement authority. CFTC and FERC concurrently agreed to share non-public information relating to the markets within their jurisdiction that may be relevant to the other agency’s market surveillance and investigations into potential manipulation, fraud, or market power abuse. This means that it is likely that FERC will continue its aggressive investigations of allegedly manipulative and fraudulent schemes that involve coordinated trading of both physical and financial energy contracts.
FERC has aggressively asserted jurisdiction under the Energy Policy Act of 2005 to take enforcement action against allegedly fraudulent and manipulative trading schemes that involve purported coordination of a trader’s related physical and financial energy positions. In one enforcement action, FERC and CFTC separately sought to impose penalties upon traders that are alleged to have engaged in uneconomic trading in energy futures markets to move price indices for the benefit of their positions in physical energy products that settled against the indices. See Hunter v. FERC, 711 F.3d 155 (D.C. Cir. 2013) (holding that CFTC has exclusive enforcement jurisdiction over scheme to manipulate futures transactions). In a second, reverse-direction, enforcement action, FERC has sought to impose penalties upon traders that are alleged to have engaged in uneconomic trading in physical energy products to move price indices for the benefit of their positions in energy futures contracts that settled against the indices. See Barclays Bank et al., 144 FERC ¶ 61,041 (2013). Barclays Bank and individual traders are now asking a federal district court to extend the Hunter v. FERC decision to displace FERC enforcement jurisdiction over a reverse direction scheme of allegedly uneconomic trading in FERC-jurisdictional physical markets, because the scheme “involves” a purported attempt to benefit their positions in futures markets subject to exclusive CFTC jurisdiction.
While these cases and the underlying legal issues remain pending in the courts, there is no sign that FERC will abandon its claimed enforcement authority to police any manipulative scheme that involves, as one element, coordinated trading in FERC-jurisdictional electricity or natural gas transactions. That the MOU and information sharing agreement were executed by the two agencies without apparent compromise by either as to their respective “overlapping” enforcement jurisdiction suggests that the energy industry remains at risk for dual and potentially inconsistent enforcement actions by FERC and CFTC.