Court Slaps FERC for Power Overreach; Agency Can't Regulate Futures Contracts

FERC exceeded its statutory powers in fining a natural gas trader $30 million for allegedly manipulating natural gas futures contracts because the Commodity Futures Trading Commission has exclusive jurisdiction over all transactions involving commodity futures contracts, the United States Court of Appeals for the District of Columbia Circuit found in an opinion issued Friday.

Pursuant to the Energy Policy Act of 2005, the Federal Energy Regulatory Commission fined petitioner Brian Hunter $30 million for what FERC said was manipulating natural gas futures contracts.

On appeal Hunter argued that FERC lacked authority to impose the fine because the Commodity Futures Trading Commission has exclusive jurisdiction over all transactions involving commodity futures contracts.

"Because manipulation of natural gas futures contracts falls within the CFTC's exclusive jurisdiction and because nothing in the Energy Policy Act clearly and manifestly repeals the CFTC's exclusive jurisdiction, we grant the petition for review," the Appeals Court agreed.

The Court noted that at the time of Hunter's trades, the Commodity Exchange Act (CEA) section 2(a)(1)(A) provided the CFTC with exclusive jurisdiction over transactions involving contracts of sale of a commodity for future delivery

Although the Energy Policy Act of 2005 significantly expanded FERC's authority to regulate manipulation in energy markets, nothing changed the exclusive jurisdiction granted to CFTC over futures, the Court said. FERC failed to establish that anything in the Energy Policy Act of 2005 repealed CEA section 2(a)(1)(A), the Court said.

Moreover, because FERC is free to prohibit manipulative trading in markets outside the CFTC's exclusive jurisdiction, there is no "irreconcilable conflict" between the two statutes and therefore no repeal of the CFTC's exclusive jurisdiction by implication, the Court said.

"'[A]bsent a clearly expressed congressional intention' to repeal CEA section 2(a)(1)(A), ... FERC cannot demonstrate that section 4A encroaches upon the CFTC's exclusive jurisdiction. Having failed to meet the high bar of showing an implied repeal, FERC lacks jurisdiction to charge Hunter with manipulation of natural gas futures contracts," the Court held