"Oh what a tangled web we weave, When first we practise to deceive!"
Sir Walter Scott, Marmion, Canto vi. Stanza 17
Some energy markets in the United States, notably California's, have proven to be vulnerable to manipulation.1 In response, Congress included provisions in the Energy Policy Act of 2005, now implemented by the Federal Energy Regulatory Commission (FERC),2 that enhanced the power of the FERC to address manipulation and deception that affects transactions within the FERC's jurisdiction.3 These far-reaching rules subject transactions and actors who were not previously exposed to FERC jurisdiction to the enforcement powers of that agency, including very substantial penalties.5 Under the FERC's new rules, all participants in the organized energy markets, including those who trade in the retail portion, governmental, and certain cooperative utilities, and quite possibly including those who trade in the financial markets with an impact on FERC jurisdictional transactions, have become subject to the FERC's enforcement jurisdiction.6 This Article addresses the scope and meaning of the new FERC rules.7
Consideration of the enhanced powers of the FERC is an occasion to reflect on the fact that a single transaction with an impact on an energy market may be subject to civil enforcement action by multiple federal regulatory agencies as well as to criminal prosecution.8 Thus, one who trades in energy derivatives on an exchange, who may have a natural tendency to focus on the potential for enforcement action by the Commodities Futures Trading Commission (CFTC), must recognize that he may also be subject to action by the FERC. For example, a hedge fund that might take comfort that it is largely unregulated by the Securities and Exchange Commission (SEC) and focus solely on its vulnerability to oversight by the CFTC when trading in a regulated market might nevertheless also be in the sights of the FERC if that hedge fund were to engage in transactions in derivatives that affected the FERC jurisdictional market for natural gas or electricity. Similarly, one-such as a utility-who engages in transactions in energy with a propensity to focus on enforcement by the FERC must take into account that it may also be exposed to action by the CFTC if the transaction in the energy market had a manipulative effect on a market for derivatives that is regulated by the CFTC. At all times there also lurks the potential that a manipulation of the markets will violate the antitrust laws.
In order to present the full picture of civil and criminal financial penalties and other remedies that can be imposed on those who engage in misconduct affecting any of these markets, this Article outlines the other significant regulatory regimes that intersect or overlap with the FERC's anti-manipulation enforcement powers in the energy market.9 Finally, there is a detailed discussion of factors that enforcement agencies, such as the FERC and the CFTC, consider in determining whether to bring an enforcement action and what remedies will be sought under the facts of a specific case. These factors provide significant guidance on the steps that can be taken to minimize any enforcement sanction, before or even after there has been a violation.10
II. THE FEDERAL ENFORCEMENT FRAMEWORK
This section describes the regulatory regimes for enforcement of the most pertinent federal laws and regulations that could affect energy markets.
A. Enforcement by the Federal Energy Regulatory Commission
1. The FERC Enforcement Regime Prior to the Energy Policy Act of 2005
The FERC has long had authority to address overcharges in the regulated electricity and natural gas sales, which it exercises through orders, rules, regulations, and regulatory enforcement proceedings. This authority stems from the FERC's primary mission to protect natural gas and electricity consumers from exploitation by natural gas companies and electric utilities. …