This is an important and useful work, and the first of its kind. The electricity and natural gas industries are old industries, and many areas of the law governing them are well-established. But other areas of law are new and evolving; one of the newest and most dynamic areas is the law governing market manipulation. This publication is an interesting survey of the law of market manipulation across nations and industries, and reflects the contributions of recognised experts.

The fundamental duty of an energy regulator is to ‘guard the consumer from exploitation’[2] by preventing market power exercise. Historically, that was accomplished through rate-making powers, and the authority to set terms and conditions. That approach worked well for many years. The advent of competition policy required the development of new approaches, however. The shift away from cost-based rates to market-based rates meant that rate-making power was a less effective means of controlling market power exercise. The markets operated by regional transmission organisations and independent system operators were governed by a panoply of complex market rules. Unfortunately, there was little ability to enforce market rules and police market behaviour during the California and Western Power Crisis in the United States during 2000–2001. That experience convinced the US Congress to enact a new law charging FERC with enforcing compliance with market rules and policing market behaviour.

Competition policy does not entail a complete break with regulation. The nature of the regulatory regime governing the electricity and gas industries has changed dramatically, but these industries were not deregulated. The United States was not the only nation to embrace competition policy, and nations that adopted competition policy have had to struggle with similar challenges about how to enforce market rules and police behaviour. There is a lot that can be learned from these experiences.

Implementing new anti-manipulation authority in electricity and natural gas markets has been no simple exercise. At FERC we looked to the US Securities Exchange Commission, since FERC anti-manipulation authority was modelled on the Securities Exchange Act. In establishing the modern FERC enforcement programme we surveyed the enforcement practices of a wide range of US agencies, looking for best practices. The object of FERC enforcement policy was ‘firm but fair’ enforcement, but in practice, I confess, there may have been more of an emphasis on firmness.

When I was FERC chairman and the agency was establishing the modern FERC enforcement programme, I was guided by an interesting observation by the US administrator of civilian price controls during World War II: ‘20% of the regulated population will automatically comply with any regulation, 5% will attempt to evade it; and the remaining 75% will comply as long as they think the 5% will be caught and punished.’ If you accept that proxy, the question is what steps can the regulator take to help the 95 per cent of the regulated community that is trying to comply.

Greater clarity on what behaviour is permitted and proscribed would facilitate compliance. That is more difficult when it comes to market manipulation than other areas, and more than 80 years after the enactment of US securities law, there is still no perfect clarity on what constitutes market manipulation in securities. But the government has a duty to help the regulated community comply, by providing as much clarity as possible as to what constitutes market manipulation.


[1] Joeseph T Kelliher is executive vice president of NextEra Energy, Inc.

[2] NAACP v. FPC, 520 F.2d 432, 438 (D.C. Cir. 1975).

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