While W&L was on Spring Break, the DC Circuit issued an interesting decision with a substantial effect on the FERC’s enforcement jurisdiction. In the meantime, the decision has been extensively covered by a variety of firms, and energy news sources (google “DC Circuit Hunter” or see below) so I will spare a long discussion of facts and analysis and jump straight to the point.
Acting under jurisdiction, that it believed to possess under EPAct 2005, and section 4A of the Natural Gas Act, the FERC fined Amaranth commodities trader Brian Hunter for allegedly manipulating natural gas futures contracts during a three month period in 2006. FERC claimed that in each of those months Hunter increased his trading volume during the settlement periods for natural gas that determined the actual price of physical natural gas for the following month, and as result the actual price for natural gas fell. Federal regulators soon realized that Hunter had also “shorted” natural gas commodities contracts at higher prices that came due during those periods of deflated prices. The CFTC also filed a civil enforcement action against Hunter.
Hunter appealed the FERC’s decision and fine against him, and the CFTC intervened in support of his claim. The court found that in section 2(a)(1)(A) of the Commodity Exchange Act, Congress gave the “CFTC exclusive jurisdiction over transactions conducted on futures markets.” As a result, despite Hunter’s indirect interference in the markets for physical natural gas–which FERC has jurisdiction over under section 4A of the NGA–the FERC has no enforcement authority under that section to fine Hunter for his trades in natural gas futures contracts. The DC Circuit could find no implication in EPAct 2005, that removed the CFTC’s exclusive jurisdiction over natural gas futures contract.