Hunter v. FERC: Federal Court Holds that FERC Has No Authority to Regulate Natural Gas Futures Contracts | Practical Law

Hunter v. FERC: Federal Court Holds that FERC Has No Authority to Regulate Natural Gas Futures Contracts | Practical Law

The US Court of Appeals for the District of Columbia held that the CFTC has exclusive authority to regulate natural gas futures contracts even if those contracts affect the purchase and sale of natural gas, which are within the purview of the Federal Energy Regulatory Commission. 

Hunter v. FERC: Federal Court Holds that FERC Has No Authority to Regulate Natural Gas Futures Contracts

by PLC Finance
Published on 20 Mar 2013 • USA (National/Federal)
The US Court of Appeals for the District of Columbia held that the CFTC has exclusive authority to regulate natural gas futures contracts even if those contracts affect the purchase and sale of natural gas, which are within the purview of the Federal Energy Regulatory Commission.
On March 15, 2013, the US Court of Appeals for the District of Columbia held that the Federal Energy Regulatory Commission (FERC) does not have the authority under the Natural Gas Act (15 U.S.C.A. §717) (NGA) to impose a fine on a trader for manipulating natural gas futures because that authority lies exclusively with the Commodity Futures Trading Commission (CFTC).
Petitioner Brian Hunter allegedly manipulated the settlement price for natural gas futures contracts. On July 25, 2007, the CFTC filed a civil action against the petitioner alleging that he violated Section 13(a)(2) of the Commodity Exchange Act. On July 26, 2007, FERC filed an administrative enforcement action against the petitioner alleging violations of section 4A of the NGA and subsequently imposed a fine of $30 million. The petitioner filed for judicial review arguing, among other things, that FERC lacked jurisdiction to pursue the enforcement action. The CFTC agreed that FERC lacked this authority and intervened in support of the petitioner.
Under Section 4A of the NGA, as amended by the Energy Policy Act of 2005 (EPAct 2005), it is
"unlawful for any entity, directly or indirectly, to use or employ, in connection with the purchase or sale of natural gas or the purchase or sale of transportation services subject to the jurisdiction of the [FERC], any manipulative or deceptive device or contrivance .... in contravention of such rules and regulations as [FERC] may prescribe as necessary in the public interest or for the protection of natural gas ratepayers."
However, the EPAct 2005 also provides that "[n]othing in this section may be construed to limit or affect the exclusive jurisdiction of the Commodity Futures Trading Commission under the Commodity Exchange Act." Section 2(a)(1)(A) of the CEA in turn provides that the CFTC has exclusive jurisdiction with respect to "transactions involving contracts of sale of a commodity for future delivery, traded or executed" on a CFTC-regulated exchange.
Relying on these provisions, the court found that the CFTC has exclusive jurisdiction over the manipulation of natural gas futures contracts even if the manipulation affects the purchase and sale of natural gas, an area within FERC's regulatory authority.
By establishing the scope of FERC's authority as it relates to the regulation of the natural gas markets, this case provides jurisdictional and enforcement clarity and will help parties avoid duplicative enforcement actions by the CFTC and FERC in cases that may implicate areas over which they both have regulatory authority.