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Sep 10, 2010
CFTC Should Cede Electric Oversight, GOP Member Says Mar 09, 2010
By Simon Lomax
March 9 (Bloomberg) -- The Commodity Futures Trading Commission should cede oversight of certain contracts on U.S. wholesale power markets to the Federal Energy Regulatory Commission and end a turf battle between the agencies, Republican CFTC Commissioner Scott O’Malia said.
The federal energy regulator, known as FERC, oversees electricity markets and is “uniquely qualified to guard against manipulation of the pricing of this product,” O’Malia said in a statement today to the Senate Energy and Natural Resources Committee.
O’Malia, one of two Republicans on the five-member commission, said that while the CFTC has jurisdiction over the contracts it should exempt them from its oversight. His views conflict with those of CFTC Chairman Gary Gensler, a Democrat, who also appeared before the committee today.
The contracts, known as financial transmission rights, are used to hedge against congestion costs on power lines.
Financial overhaul legislation, which would impose new rules on trading in the $605 trillion over-the-counter derivatives market, has triggered a debate on the way wholesale power markets should be policed. Electricity industry groups and some lawmakers have called for the legislation to expressly block CFTC from moving into areas overseen by FERC.
‘Problem-Filled Loophole’
Congress should resist calls to limit the scope of new derivatives legislation to protect FERC’s jurisdiction over wholesale electricity markets, Gensler said in written testimony for today’s hearing.
“What may seem like a carefully crafted exclusion today can become a significant and problem-filled loophole tomorrow,” Gensler said. Instead, “cooperative working relationships between the two agencies” can deal with “potential overlaps in oversight,” he said.
O’Malia said an exclusion wouldn’t reduce regulation of the market. “If the CFTC were to exercise its exemptive authority, there would be no gap in oversight, as FERC would provide the necessary oversight role,” he said.
FERC Chairman Jon Wellinghoff said the market doesn’t need two regulators.
‘Higher Energy Costs’
Moving more energy market oversight to the CFTC may “impair FERC’s ability to protect consumers from excessive energy rates,” Wellinghoff said at today’s hearing. “Consumers could face higher energy costs if FERC’s role and authority in these markets is reduced by laws addressing financial derivatives,” Wellinghoff said.
The power industry wants to avoid “a duplicative, overlapping and potentially conflicting regulatory regime with both FERC and the CFTC imposing regulatory requirements and overseeing transactions,” Joseph Kelliher, an executive vice president at Juno Beach, Florida-based power company FPL Group Inc., said in a statement.
Kelliher, a former FERC chairman, testified at today’s hearing on behalf of the Edison Electric Institute and the Electric Power Supply Association.
To contact the reporter on this story: Simon Lomax in Washington at slomax@bloomberg.net.
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