"It is also increasingly apparent that there are a number of areas in which the jurisdictions of, and legal precedents set by, FERC and CFTC may overlap, intersect, or conflict..." - Paul Pantamo, Jr. in "Shall We Dance: The Jurisdictional Interplay Between The CFTC and FERC"
The very point of this trivia question was to point out how and why zealous, misdirected regulators were directly and indirectly responsible for many of the problems (real and perceived) that arose in energy markets over the last year and a half or so.
It's yet another example of a ridiculously interventionist regulatory regime trying so hard to engineer niceness that, in fact, it does far more harm than any measure of "good." There are not one but two major regulatory bodies - and potentially even more minor supervising entities - fighting in and jockeying for jurisdiction over these markets...and leaving portions of it incompletely covered in the meantime.
The FERC (Federal Energy Regulatory Commission) covers the wholesale transmission and transaction of energy as well as physical/financial instruments used to hedge congestion and capacity of the aforementioned areas - these include spot and forward transactions. Under the CEA (Commodities Enforcement Act), the CFTC (Commodity Futures Trading Commission) covers derivative transactions, but does not cover spot or forwards. There's also the potential for options and futures exchange involvement to the extent that some of the transactions are, or have been, cleared by the exchanges on a trial basis.
This disjointed accountability and the confusion arising from yet another regulatory turf war shouldn't be terrible surprising; by way of example, it's akin to having one regulatory body cover common stock and equity options, and another to cover equity warrants and preferred stock: issues that are not only quite similar, but in some cases mutually fungible and traded among some common, but in most cases disparate, entities.
And not only is there an enforcement disconnect where a spectrum of financial products is split among regulatory bodies, but there is also a reporting disconnect: until recently, FERC did not require power marketers to report any transactions that didn't result in delivery, and didn't require any reporting of energy derivative transactions. On the other hand, the CFTC has the right, in the course of an investigation, to compel individuals to produce information; the FERC does not.
There's also potential conflict where the CFTC and the FERC are bound to determine where, or if, "manipulation" has taken place. The CFTC's guideline is whether, in a given transaction, prices are or were "artificial;" for the FERC, the guidelines for scrutiny arise where rates do not seem "just and reasonable." The latter is not only subjective, but the FERC itself has said that under the FPA (Federal Power Act), there is "no precise legal formulation for setting a just and reasonable rate and no precise bright-line setting for when a rate becomes unjust and unreasonable."
Not unlike a Keystone Cops routine, the clumsiness of the situation makes it likely that truly fraudulent activity will go unpoliced while legitimate businesses and their practices will be among the first, and the most gravely harmed. And the ultimate losers? Well, one need only watch the recent withdrawal of many firms - firms at least as of yet not implicated of any wrongdoing, mind you - from the energy trading business to imagine the illiquidity and volatility that will arise with transactions occuring among fewer and less capitalized energy market participants.
And yet, the cries for additional regulation continue at their fever pitch.
LP. |
