Institutional Investor's Alpha Magazine - February 2008 - (Page 35)

Energy Trading a former Louisiana Republican congressman, became president in early February), dismisses Barton’s claim to authority. “It won’t be the one-off statement of a sitting congressman that decides this,” Gaine says. “This will be decided in a federal court of appeals.” The issue of regulation jurisdiction has surfaced before. Gaine was at the CFTC during the first assault on its exclusive jurisdiction, in the 1970s, when the SEC sought to block a Chicago Board of Trade plan to trade Ginnie Mae futures. The CFTC thwarted that move and subsequent efforts to pry futures-trading regulation from its grasp, paving the way for innovation and growth in the industry. “If there were no exclusive jurisdiction, the global derivatives landscape would look a lot different,” Gaine asserts. “Two federal regulators with differing standards could make it almost impossible for us to function on a day-to-day basis,” says James Newsome, CEO of Nymex Holdings and a past chairman of the CFTC. And other regulators of cash commodity markets, like the U.S. Department of Agriculture, have come to a clear understanding with the CFTC that leaves enforcement in futures trading to that agency. “There is an effective blueprint in place that has worked for many years,” Newsome says, adding that what the futures industry wants is for the FERC to follow the blueprint. The turf war between Lukken and Kelliher has an added dimension: Both are lame-duck appointments in a lame-duck administration. Kelliher’s reappointment to the FERC languished for months in the Democratic-controlled Senate before he was approved in December; Lukken is still just acting chairman though the White House nominated him in September for the permanent chairmanship. Nevertheless, Kelliher has seized on the mandate in the revised Energy Policy Act and beefed up the agency’s surveillance and enforcement capacity. And by taking on the Amaranth case, he has drawn attention to the recent expansion of the FERC’s authority. “It’s the single biggest grant of regulatory power since the New Deal,” Kelliher says. Under the 2005 revisions, the FERC can impose penalties of up to $1 million a day — far beyond what the CFTC can levy — which means that it is more likely to order a fund to disgorge proﬁts in a market-manipulation case, holding out the promise to consumers that they can be made whole, Kelliher maintains. “We do not seek to regulate futures markets,” he insists. “That is the CFTC’s job. But futures prices can and do inﬂuence prices in the physical energy markets that we regulate. Our consumer protection mandate therefore requires that we monitor and, where appropriate, sanc- tion manipulative conduct in these instances.” This is what worries the participants in the futures markets, including hedge fund managers, who argue that the kind of enforcement Kelliher seeks in the Amaranth case constitutes de facto regulation. “It’s not regulation per se,” the MFA’s Gaine asserts, “but enforcement has the effect of being regulation.” The FERC has evolved immensely since its creation in 1920 by the Federal Water Power Act, the founding legislation that gave it the authority to license hydroelectric projects. It was known for years as the Federal Power Commission after receiving the authority in 1935 to regulate interstate transmission of electricity. Reorganized in 1977 under its current name, the FERC has jurisdiction over interstate electricity sales, wholesale electricity rates, hydroelectric licensing, natural-gas pricing and oil pipeline rates. It also reviews applications for liqueﬁed-natural-gas terminals, interstate natural-gas pipelines and nonfederal hydropower projects. The agency received its latest expansion of powers — the ones Kelliher insists give it statutory powers over manipulation of energy prices — in the wake of the California energy crisis in the spring of 2001 and Commodity Futures Trading Commission acting chairman Walter Lukken is championing his agency’s right to maintain exclusive authority over the futures industry. FEBRUARY 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 35

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - February 2008

Institutional Investor's Alpha Magazine - February 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Alternative Perspective The Good Guys: A Simple Plan Cover Story: Energy and Commodities: Fueling Opportunity Regulation: Energy Trading: The Brawl on the Hill Interview: Master of Values Regulation: Hedge Fund Registration: Way Out West Research Center: Top Hedge Fund Analysts Alpha Bytes: Rocket Man Unhedged: Commentary: Structured for Success

Institutional Investor's Alpha Magazine - February 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.