• June 19, 2017

A vague standard for what constitutes energy market manipulation could “deter trading practices” that help guarantee a steady supply of power and gas at reasonable prices, Andrew N. Kleit, a Nathan academic affiliate, wrote in commentary for the online news service Law360.

The Federal Energy Regulatory Commission, or FERC, “now is devoting a substantial amount of its resources to fighting events of manipulation,” Kleit, professor of energy and environmental economics at Pennsylvania State University, said in the June 15 commentary. The problem is that political pressure on FERC to act after the Western Energy Crisis in 2000–2001 led the commission to adopt a loose definition.

FERC found a “perfect scapegoat” in Enron Corp., the huge energy trader and supplier best known for its accounting scandal and collapse, Kleit said. FERC accused Enron of “gaming” the California energy market. The only problem was that Enron’s strategies “were market-enhancing arbitrage and product innovation,” not manipulation.

The more recent Powhatan case, involving an energy trading fund and now in federal court, “builds upon the Enron case,” Kleit said. In this widely publicized matter dealing with practices occurring over two months in 2010, Powhatan was accused of manipulation and was fined even though traders “violated no tariffs and did not attempt to hide their transactions.”

“Market participants know that they have to be aware of the threat of litigation in this area,” he said. “The strong worry here, however, is that the open-ended nature of FERC’s manipulation jurisprudence will deter trading practices that act to improve the efficiency of markets that the commission oversees.”

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