Who is best able to protect ratepayers -- the Federal Energy Regulatory Commission or the Commodity Futures Trading Commission? During today's OnPoint, Jon Wellinghoff, chairman of FERC, explains why he believes Congress needs to establish a "bright line" indicating who has jurisdiction over what in electricity markets. He discusses how such a mark could affect markets and gives his take on whether a compromise over jurisdiction can be negotiated with the CFTC.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Chairman Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission. Chairman Wellinghoff, thank you for coming back on the show.

Jon Wellinghoff: Thank you for having me, Monica.

Monica Trauzzi: The question of who is best able to protect rate payers, FERC or the CFTC, is being debated on the Hill right now. Last year the House passed a financial reform bill, but sought to sort of settle the differences between the two agencies. Where did that legislation miss the mark though?

Jon Wellinghoff: Well, we think that legislation really didn't do what I think Senator Lincoln said needed to be done in the hearing that we just had recently and that is really set up a bright line between the two agencies. We think that ultimately it is Congress's responsibility to set that line. What the House bill did is really leave it to the agencies to work it out among themselves, but really gave the CFTC the ultimate leverage there and we believe that that could have jeopardized our jurisdiction and jeopardized our ability to ensure that customers costs and rates are just and reasonable and also could have jeopardized our ability to ultimately ensure that there's no fraud or manipulation in the energy and gas physical markets. So, that's where that legislation we think went off the line was by not setting a specific boundary between the two. And I think, from the hearing that we had this week, it looks like we're going to work towards a boundary.

Monica Trauzzi: So, talk about the level of ambiguity that exists right now about who has jurisdiction over what and sort of how that's impacting your day to day.

Jon Wellinghoff: Well, there is, for example, a particular product in the electric market called FTRs or firm transmission rights, excuse me, financial transmission rights. Those are products that are necessary to reduce congestion in the transmission system that are allocated to the load serving entities, which would be utilities that serve customers. And those are products that are traded to ensure that if congestion increases that those customers serving entities can, in fact, reduce their costs. The CFTC believes that those products are sort of like derivatives, so because they think they're like derivatives they think they have jurisdiction over them. The problem is that they're not exactly like derivatives. They're much more complex than that. They really relate to the physical transmission system itself, unlike a derivative that can be somewhat unlimited, and so there's ambiguity there and what it does is put uncertainty in that market and by putting uncertainty in that market it can raise costs to consumers. So that's one area we really want things clarified, where FERC has a tariff under which we're operating a particular market. We believe that that should be our jurisdiction and should not be under the jurisdiction of the CFTC. If we can do that, we can put certainty back in the market. We can also then ensure that costs for consumers are just and reasonable.

Monica Trauzzi: CFTC Chairman Gensler though has indicated that these bright lines that you spoke about could have unintended consequences on the markets. Are you at all concerned about that?

Jon Wellinghoff: I know he said that in the hearing. He, in essence, implied that bright lines can create loopholes. I don't see that happening. I don't see that bright lines can do that, number one, and, number two, even if there is an unintended consequence or a loophole that may ultimately be created, we could still go back and fix that in a way that would still preserve the jurisdiction for FERC and not give it to the CFTC. So, I really don't see the basis of his argument.

Monica Trauzzi: So, the two options here are either to let Congress settle this dispute or let CFTC sort of decide what falls under its jurisdiction?

Jon Wellinghoff: That's correct. That's what is under the House bill right now and we believe that's not the best thing for consumers.

Monica Trauzzi: Do you believe a compromise can be negotiated?

Jon Wellinghoff: Well, I think we can negotiate a compromise, but the compromise ultimately needs to be negotiated with the Senate staff and put in legislation that then sets the line, sets the bright line. We can compromise where the line might be. Senator Lincoln, for example, asked me whether or not FERC has any need or requirement to regulate the NYMEX and ICE markets for example and I said very clearly to her, no, we don't want to regulate those markets. We do need data in those markets if we are, in fact, investigating things on the physical side of a gas and electric market that may relate to manipulation, but we don't need to regulate them. She then asked the question to Chairman Gensler does he need to regulate the RTO markets that are under our tariffs? And he said, well, I can't tell you. So, see, we do need to set that bright line and I think we can work out a compromise ultimately by working with the Senate staff people.

Monica Trauzzi: And is there anyway to do it without Congress stepping in?

Jon Wellinghoff: No.

Monica Trauzzi: You mentioned all the things that need to be decided upon and I would imagine that many discussions need to happen between yourself and Chairman Gensler. What's the relationship like between you two in terms of the working relationship?

Jon Wellinghoff: Well, I think generally we do work very well. I mean ultimately we have been working on a number of cases together. We are interested in sharing data and there are instances where he might be working on an investigation where he needs data from our side, which is the physical side to the market. We certainly are more than willing to provide that data to him and I think we have been able to get data on their side of the market, the financial side as well. So, I think with respect to that we can work out arrangements of sharing data across the line. Certainly we can do that just between the two agencies. So, I think we generally have a good working relationship. What this is, is simply, as I think former Chairman Kelleher of the FERC indicated at hearing, it's an honest disagreement of where that line should be drawn and we need to just get in a room with the Senate staff people and ultimately, you know, see if we can work out that dividing line and if not, you know, then the Senate is going to have to do it. But ultimately, it will have to be put into a piece of legislation.

Monica Trauzzi: OK, we're going to end it right there, nice to see you again.

Jon Wellinghoff: Thank you Monica.

Monica Trauzzi: Thanks for coming on the show.

Jon Wellinghoff: Appreciate it.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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