WASHINGTON Feb 7 Federal judges on Thursday
heard arguments from the leading U.S. electricity markets
regulator and its futures market counterpart over who has the
authority to sanction a trader who brought down a billion-dollar
The Federal Energy Regulatory Commission (FERC), which
traditionally regulates physical power markets, and the
Commodity Futures Trading Commission (CFTC), which oversees
financial trades in commodities, have wrangled over who has the
authority to sanction Brian Hunter, the trader who booked some
$6 billion in bad bets on natural gas futures that caused the
collapse of Amaranth Advisors LLC.
After the two regulators reached a joint $7.5 million
settlement with Amaranth in 2009, the CFTC argued that an
additional $30 million fine levied against Hunter by FERC was
overreach by the power regulator, as his trades had taken place
in futures markets - the CFTC's traditional jurisdiction.
On Thursday, appeals court judge David Tatel said FERC's
authority to sanction Hunter was "falling short", while judge
Stephen Williams of the three-judge panel asked whether CFTC was
not better equipped to pursue the case. The judges will decide
who has authority within the next few months.
Hunter and the CFTC have sided over the case. An attorney
for the CFTC argued Thursday FERC did not have the power to go
after a futures trader in a market it typically polices.
Congress gave the CFTC new powers in the Dodd-Frank Wall
Street reforms of 2010 and the agency has filed far more
enforcement actions since that legislation was passed.
FERC has also been testing its authority recently, with
tough sanctions against banks that manipulate energy markets.
Many of the regulators' cases allege banks have manipulated
physical markets to boost their financial positions.
John Estes, an attorney with Skadden, Arps, Meagher, Slate &
Flom who has defended the energy trading industry in FERC cases,
said the Hunter case should not have much bearing on other
"It seems the court is inclined to reverse FERC, finding it
has no jurisdiction, but since the Hunter case is somewhat
unique for a FERC enforcement case, since it involves only
futures transactions, the effect on FERC's enforcement program
may be limited," Estes said.
FERC in November decided to strip JPMorgan Chase & Co
of its ability to make preferential trades - or tap
"market based rates" - in the energy market for six months as
punishment for its handling of a past investigation.
Specifically, in the six months from April 1, JPMorgan will
only be allowed to make physical electricity sales at cost.
Market-based rate authority allows a company to trade power at
whatever price the market will bear. JP Morgan is fighting the