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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
  1. is the precise sort of transaction over which FERC claims exclusive jurisdiction.
  2. Who sets the rules for these markets operated by RTOs/ISOs? It does not appear that any of the current RTO/ISO markets keep records or operate by rules that are consistent with CFTC rules for markets it regulates. Is PJM, for example, in violation of the CEA requirements?
  3. What happens when there has been a violation of the "rules" of a market? What is the remedy? Where?
  4. Both FERC and the CFTC seem to be going after those who are deemed to have manipulatemd the markets in the West Coast and California. At what point do these efforts, to the extent duplicative, invoke double jeopardy or due process protections?
  5. How will the CFTC approach affect participants in electricity and natural gas sales? How far will the CFTC go?

There are no answers here; it seems pretty clear that there will be significant litigation required before these issues can be resolved unless and until Congress focuses on these problems much more seriously than it has thus far been willing to do.


  1. Federal Power Act ("FPA") section 201(a), 16 U.S.C. 824.
  2. We focus on electricity here, but the same issue applies to trading in natural gas.
  3. 7 U.S.C. 1, et seq.
  4. Here and elsewhere, emphasis within quotations is supplied.
  5. The CEA has been amended on a pretty regular basis. The last big amendment was in 1992.
  6. 15 U.S.C. 78(a), . Sometimes referred to herein as the "SEA."
  7. 7 U.S.C. 1(a)(4).
  8. We are not aware of anyone who has argued that the CEA is entirely consistent internally.
  9. 7 U.S.C. 1(a)(19).
  10. 7 U.S.C. 1(a)(2).
  11. 7 U.S.C. 1(a)(27).
  12. A careful reader will note (we think) some of the reasons why Enron originally structured Enron OnLine as it did, to attempt to avoid CFTC jurisdiction, but note the CFTC action against Enron alleging the operation of an unregistered exchange.
  13. CFTC Commissioner Brown-Hruska delivered a speech before the Energy Bar Association on Dec. 4, 2003, in which she asserted that the "cash markets" for energy remained within FERC jurisdiction. Responding to a question thereafter, she stated that she (as a non-lawyer) had no intention of asserting jurisdiction over the RTO day-ahead and hour-ahead markets.
  14. In
  15. See,
  16. Retroactively, that approach cannot work with the Power Act in its current form. FERC has elected to address the California energy market malfunctions in a manner that basically is disconnected from and significantly different from the way in which all other markets in this country are regulated. Thus FERC is currently going through an exercise of figuring out what parties should have bid (given the assumption that all sellers should bid their opportunity costs, usually their short-run marginal costs), given what they should have paid for natural gas, and concluding that the level at which such reconstructed bids should have cleared was the just and reasonable rate, and that all sales in excess of that reconstructed price were at unjust and unreasonable rates.
  17. bE. H. Schopler, Annotation, Civil Action By Private Person Under § 10(B) Of Securities Exchange Act Of 1934