FERC ‘fundamentally’ changes review of markets

That’s how Chairman Joseph Kelliher described the commission’s final manipulation rules voted yesterday.

The new rules bar manipulation by anyone in the market -- even firms not under FERC jurisdiction if the deal falls under FERC control.

He’s wanted this authority for five years.

But it puts a big responsibility on FERC to follow through with enforcement, he added.

FERC will need more resources to police manipulation, said Kelliher. For Commissioner Nora Brownell it’ll be worth it as the rules restore FERC’s credibility.

"It’s awful hard to find sinners without the 10 Commandments," she said, citing the lack of clear manipulation authority that limited FERC’s response to the California energy crisis.

The rules changed little from an October NOPR (RT, 10/21) but FERC clarified some concerns in a preamble.

They prohibit fraudulent trades and practices and make it unlawful to make false statements or omit material facts. FERC chose a broad definition for fraud, including any deal that impairs, obstructs or defeats the honest workings of markets.

The rules don’t impose new disclosure duties on traders, Kelliher noted.

Stakeholder had worried modeling the rules on SEC codes could force traders to reveal sensitive information and harm their bargaining position (RT, 12/14).

The rules recognize energy markets are different from securities, added Kelliher, and the goal of the rules isn’t to promote full disclosure.

FERC didn’t include a laundry list of prohibited trades in the rules.

Why?

Fraud is fact-specific, Kelliher reminded. Markets change so rapidly that new, manipulative trades could arise before FERC could add them to a list.

Thus, it’s preferable to set a broad standard for what FERC will consider fraud rather than listing specific trades.

The rules require traders to have an intent to manipulate the markets for wrongdoing to be found.

Modeling the rules after SEC codes boosts regulatory certainty because of the wealth of precedent stemming from SEC laws, Kelliher said.

FERC’s no-action letters (RT, 11/18) and statement on policy enforcement (RT, 10/21) will add certainty, he added. Actions taken in compliance with RTO rules won’t be sanctioned, FERC ordered. FERC’s market behavior rules are still in effect and the commission is working separately on whether they should be repealed (RT, 1/4)

But for now, FERC won’t impose double sanctions under both rules for firms who test manipulation of markets.

To visit or subscribe to go:  http://www.restructuringtoday.com/.htm

©1997-2005 ghi, Washington, DC, USA. All rights reserved.