Regulatory Uncertainty Remains in Energy Markets

The Federal Energy Regulatory Commission (FERC) has become increasingly aggressive in pursuing alleged acts of market manipulation. The Energy Policy Act of 2005 (EPAct) expanded FERC’s enforcement authority and empowered FERC to impose civil penalties of up to $1 million per day per violation.¹ Since then, FERC has expanded its Office of Enforcement to more than 200 staff members, including lawyers, investigators, analysts and economists. In 2012, when FERC announced that it had imposed $148 million in civil penalties and ordered $119 million in disgorgements,² Chairman Jon Wellinghoff remarked that enforcement was “getting up to full speed.”³ If so, FERC enforcement went into overdrive in 2013. In July of this year, FERC assessed the two largest penalties in its history, ordering nearly $900 million in fines and disgorgement.⁴ In one case, FERC also imposed penalties of $1 million on each of three traders and $15 million on the head trader.⁵

EPAct⁶ amended the Federal Power Act (FPA)⁷ and the Natural Gas Act (NGA)⁸ to prohibit the use of “any manipulative or deceptive device or contrivance” in connection with natural gas and electricity trading that is subject to the jurisdiction of FERC.⁹ The amendments were patterned after, and directly reference, §10(b) of the Security and Exchange Act of 1934 (Exchange Act).¹⁰ In turn, FERC modeled its “Anti-Manipulation Rule”¹¹ after Securities and Exchange Commission (SEC) Rule 10b-5, and intended it “to be interpreted consistent with analogous SEC precedent.”¹²