Senate Colloquy Clarifies CFTC-FERC Jurisdiction in Reauthorization Bill

A colloquy between Sen. Bingaman, Chair of the Energy Committee, and Senators Levin, Harkin and Feinstein clarified the respective jurisdictions of the FERC and the CFTC in the CFTC Reauthorization Act passed last month by the Senate as part of the Farm Bill. The colloquy revealed that nothing in the bill would prejudice or interfere with ongoing, energy market enforcement-related litigation or administrative proceedings currently involving FERC and the CFTC. Sen. Harkin, a sponsor of the Act, and Senate Agriculture Committee Chair, assured that the current jurisdictional boundaries between the two Commissions are maintained in the legislation, with respect to the authority of FERC under the Federal Power and Natural Gas Act and the CFTC under the Commodity Exchange Act. Sen. Harkin said that nothing in the bill would erode either Commission’s authorities under the statutes. Similarly, nothing in the bill would limit FERC’s existing ability to gain information from market participants.

Sen. Feinstein, a primary author of the Act, as well as one of the coauthors of sections 315 and 1283 in the Energy Policy Act of 2005, which gave FERC additional anti-manipulation authorities under the Federal Power and Natural Gas Acts, confirmed that nothing in the Act undermines or alters those authorities. Section 13203 of the Commodity Reauthorization Act, which preserves FERC’s existing authority, does not undermine or alter those authorities.

The bill expands the CFTC’s authority with respect to the requirements it may impose on transactions it deems significant price discovery contracts. This significant price discovery contract determination may be applied to contracts, agreements, and transactions that are conducted in reliance on the exemption included in section 2(h)(3) of the Commodity Exchange Act. In closing the Enron loophole, the bill extends the CFTC’s exclusive jurisdiction over these significant price discovery contracts.

As a forward-looking matter, Sen. Bingaman clarified the intent of the bill with respect to this new class of significant price discovery contracts. Electronic trading facilities that currently operate under the exemption included in section 2(h)(3) of the Commodity Exchange Act for purposes of trading energy swaps also trade physical or cash contracts in electricity and natural gas. For oversight and enforcement purposes, emphasized Sen. Bingaman, it is crucial that FERC retain its jurisdiction over these physical energy transactions.

According to Sen. Levin, in addition to the savings clause in the bill that preserves FERC’s jurisdiction under its statutes as a threshold matter, FERC’s jurisdiction
over these transactions would, in any event, be preserved. These kinds of cash transactions would not be captured within the bill’s significant price discovery contract test. The test is reserved for those transactions conducted in reliance on the exemption in paragraph 2(h)(3) of the Commodity Exchange Act. Because the CEA does not apply to cash transactions for purposes of regulation, these transactions cannot, by definition, be conducted in reliance on this exemption. As such, FERC’s authority in this area is preserved on all accounts.