Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

This past Monday, September 9, the Federal Energy Regulatory Commission (FERC) posted a letter from its chairman, Jon Wellinghopf, to Senators Elizabeth Warren and Edward Markey responding to their inquiries on the relationship between FERC and the Commodity Futures Trading Commission (CFTC) and FERC’s recent $410 million settlement against J.P. Morgan Energy Ventures. Read Letter to Senators Warren and Markey from Chairman Wellinghopf.

On the CFTC relationship, the chairman said the Memorandum of Understanding (MOU), as required by the Dodd-Frank Act, had not yet been reached with the CFTC.  FERC wants access to the Large Trader Report provided by the Intercontinental Exchange to the CFTC.  The chairman said the data will allow “FERC to see the names and positions of parties that have a financial interest in the formation of prices in FERC’s jurisdictional markets.”  Wellinghopf Letter at 3.  In the absence of the MOU and the Large Trader Report, FERC has developed “automated algorithmic screens” for surveillance purposes. Id.

On another CFTC relationship issue, in Hunter v. FERC, 711 F.3d 155 (D.C. Cir. 2013), the United States Court of Appeals for the District of Columbia Circuit ruled that the CFTC has exclusive jurisdiction over manipulation in the futures markets, even if the activity affected prices in the physical markets for which FERC has exclusive jurisdiction.  The chairman said he viewed that opinion “narrow in scope.” Id. at 2  But market participants view the decision more broadly to include additional transactions and products squarely within FERC’s jurisdictional markets.  Therefore, the chairman said he supported a legislative fix to “ensure FERC has the full authority needed to police manipulation of wholesale physical natural gas and electric markets.” Id.

On the JP Morgan settlement, the total amount of the settlement had been reported at $410 million – a $285 million civil penalty and disgorgement of $125 million in revenues. But the chairman said that JP Morgan also agreed to waive $262 million of claims against the California Independent System Operator, thereby raising the total dollar value of the settlement.

Finally, while the chairman conceded that “[t]he Federal Power Act does not give the Commission authority to ban traders from electricity markets for market manipulation,” Id. at 4, he said that in the Settlement Agreement, “JP Morgan has assured the Commission that the traders who engaged in the bidding strategies at issue here will not participate in bidding generation into organized markets, or otherwise engage in power market trading, on behalf of JP Morgan.” Id.