On Tuesday, the U.S. Senate Energy and Natural Resources Committee’s energy subcommittee released new legislation, authored by the subcommittee’s chairman, Senator Maria Cantwell (D-WA), to increase FERC’s authority over market manipulation. Specifically, the proposed legislation gives the Commission “cease and desist” authority when it suspects market manipulation in the natural gas or electricity industries.
Senator Cantwell’s bill, the Natural Gas and Electricity Review and Enforcement Act (“Enforcement Act”), strengthens the Commission’s authority with two new enforcement tools. First, the Enforcement Act grants FERC cease and desist authority within the Natural Gas Act, the Natural Gas Policy Act of 1978, and the Federal Power Act (“FPA”) whenever it suspects violations will likely result in “significant harm” to consumers. Second, the Commission can freeze the assets of the companies under investigation. Additionally, the Enforcement Act adds a provision to the FPA allowing FERC to suspend or change rates through emergency authority to ensure reliability or protect customers from potential abuse of market power or market manipulation in wholesale markets.
The Energy Policy Act of 2005 previously granted the Commission authority over manipulation used in futures trading activities affecting the gas and electricity markets. However, enforcement actions beginning in 2007 with Amaranth Advisors LLC (“Amaranth”) revealed holes in the Commission’s authority. After the Commission launched its initial enforcement proceedings against Amaranth, it was unable to complete all of its proceedings before Amaranth liquidated nearly all of its assets. In fact, FERC recently rejected a proposed settlement in the matter almost two years after the Commission began its proceedings (see February 20, 2009 edition of the WER).
The Enforcement Act is likely to be included in the Senate’s anticipated energy bill, which is scheduled for mark-up early next week. If the Enforcement Act passes, the Commission’s authority would be similar to enforcement authority held by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. A copy of Senator Cantwell’s bill, S-672, can be found on the Library of Congress’ website at http://thomas.loc.gov/cgi-bin/query/z?c111:S.672.