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“Who’s The Boss?”
Questions have resurfaced regarding the appropriate forum and degree of
oversight the Federal Government should exert over online energy trading
– specifically natural gas and energy futures – which was at the heart
of the Congressional debate held earlier this week before the Commodity
Futures Trading Commission (CFTC). In an unusual turn of sentiment,
Nymex Holdings, called on Congress to find and/or develop alternative
venues in which to trade energy futures. Trading in energy futures has
been considered the reason Amaranth Advisors failed, one of the largest
leading hedge funds in history and there has been speculation in the
press that Amaranth in some way rigged the system – and, to quote my
most favorite politician (...you’ll have
to guess who that is, it would be too easy to just hand the name over!),
Congress wants answers! It would be nice to think the questions were
asked beforehand, in order to minimize the chronic financial disruptions
caused by our ailing energy policy. One scenario would call for
additional regulation, namely adding the Federal Energy Regulatory
Commission (FERC) to the oversight equation – effectively resulting in a
double layer of regulation (...if we were
cynical, we might have added the word “conflicting” to this sentence),
namely the CFTC and FERC. Placing additional responsibilities on the
FERC, even on a prima-fascia basis, does not sound like a good idea to
us. The FERC’s record of maintaining orderly energy markets whether on
an “Administrative” basis or by “Law” has had less than “desirable”
outcomes (...and you thought we couldn’t
be discrete). The prospect of FERC’s intervention in the
energy markets is disturbing, especially given the agency’s history and
the strong political tone since its members are appointed by the
President and approved by Congress – not the best combination of factors
for an “effective agency” and a major uncertainty coming up in the 2008
Presidential elections (...those who
don’t read history, are destined to relive it).
The trading of energy futures may some mundane to
some but its relevance is only likely to increase in importance as
Trading Emission Credits becomes a major part of the worldwide climate
control endeavor. Whether the responsibility for managing the trading
of these Credits falls under the CFTC and FERC could materially impact
the strategies of many companies planning to use “Credits” to satisfy
emission compliance standards rather than engage in physical, hard
dollar modifications to “plant, property & equipment.”<
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