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Trading Spaces? Will CFTC Move Into FERC's House?

Will the CFTC move Into FERC's house?
Fortnightly Magazine - January 2004

(CEA), 3 deal with commodities and may well be part of our future, whether we like it or not. This probably should have been apparent to all of us much earlier, when some of the organized Boards of Trade (NYMEX, .) began to trade contracts for the future delivery of power, but no one can avoid noticing that in the proposed Energy Policy Act of 2003, Section 1281 would amend Part II of the Federal Power Act by adding, , a new Section 220, "Market Transparency Rules," which would have included subsection c: 4

(c) This section shall not affect the with respect to accounts, agreements, contracts, or transactions in commodities under the Commodity Exchange Act. … Any request for information to a designated contract market, registered derivatives transaction execution facility, board of trade, exchange, or market involving accounts, agreements, contracts, or transactions in commodities (including natural gas, electricity and other energy commodities) within the exclusive jurisdiction of the Commodity Futures Trading Commission shall be directed to the Commodity Futures Trading Commission..

Moreoever, Section 332 (c) of H.R. 6 would have added similar language in a new Section 26 of the Natural Gas Act. So what is going on here?

As it turns out, Congress is not trying to pull a fast one but is reacting to developments that have been in progress for some time, and doing so in a manner that is arguably sympathetic to CFTC jurisdiction rather than to that of FERC. We have been watching for some months a train wreck in progress. While some attempts have been made to try to avert the upcoming clash of commissions, those efforts have thus far been unsuccessful.

With hindsight, the conceptual commoditization of electricity, however correct as a matter of economic theory, appears to have arguably handed jurisdictional control of a number of transactions over to the CFTC. Certainly, some at the CFTC think so, and it is pretty clear that this issue is headed to the Supreme Court the first time it swings a decisional result. As explained below, CFTC rules are different from those of FERC, with different statutes of limitations, so it will eventually be in the interest of someone ordered by FERC to pay money to assert CFTC exclusive jurisdiction. As a result, this issue may arise faster than some think will occur.

In fact, however, we should not be too much surprised.

The idea that we can distinguish electric generation product from the transmission needed to deliver it and can treat this new item ("energy") as a commodity-with any kilowatt-hour essentially indistinguishable from another at the same location-underlies much of the rationale upon which the antitrust laws have been applied to the electric industry. This assumption also drives many of the ideas we have seen in PURPA (the Public Utility Regulatory Policies Act of 1978), EPACT (Energy Policy Act of 1992), FERC Order 888 (equal access), and FERC Order 2000 (regional transmission organizations, or RTOs).

Yet the consequences of this idea are today much more significant for the public interest than a simple territorial dispute