FERC Jettisons Legitimate Business Purposes

Michael Giberson

An example of federal bureaucracy run amok? No, it is only FERC revamping their anti-market manipulation rules to accomodate changes brought about by the Energy Policy Act of 2005. The old market behavior rules sought to prohibit, among other things, “actions that are without a legitimate business purpose and that are intended to or foreseeably could manipulate market prices, market conditions, or market rules.” The phrase “legitimate business purpose” had been challenged in court as too vague. The new rules omit the problematic phrase.

For more see “FERC Jettisons ‘Legitimate Business Purpose;’ Retains Other Rules for Natural Gas & Power Wholesalers” on law firm Bracewell & Guiliani LLP’s Energy Legal Blog.

3 thoughts on “FERC Jettisons Legitimate Business Purposes

  1. “The phrase “legitimate business purpose” had been challenged in court as too vague.”

    If that phrase is too vague, how about “foreseeably could”. How much easier would it have been for FERC to “retroseeably” determine that a prior action “foreseeably could” result in manipulation.

    It might be interesting to “retroseeably” apply the “foreseeably could” standard to the California energy fiasco. I would suggest that it is “retroseeably” obvious that the rules put in place in the restructured and “re-regulated” (not deregulated)California “market” “foreseeably could” have induced actions by “market” participants to “manipulate market prices, market conditions or market rules”.

    However, I would also suggest that the energy marketer response to consistent underestimation of next day power needs by the CA utilities within CalPX had a “legitimate business purpose” as I understand that “too vague” term.

    As another example, consider the neverending story of increases in the minimum wage. It appears “retroseeably” obvious (based on several data sets) that an increase in the minimum wage results in a reduction in the number of minimum wage positions. Therefore, it would appear that those proposing increases in the minimum wage today would understand that the increases “forseeably could” result in a loss of minimum wage positions, though apparently they do not.

    Actually, the potential applications of the “foreseeaby could” standard appear endless.
    “Velly intellesting!”

  2. Mike,

    Is a pervasively regulated “market” which is well behaved because of an externally imposed set of “market behavior rules” really a market?

  3. I tend to think: Whenever two or more of us are gathered to exchange, there is a market.

    So, yes, why not? Of course some would argue that no “pervasively regulated” market could be well behaved, but I supposed that that would be an empirical issue.

    More important than good behavior in this sense of absence of manipulation is whether the pervasively regulated market is well functioning. While obviously I would not claim markets need bad behavior to function well, I think it as obvious that enforcement actions intended to eliminate bad behaviors could cause a market to function poorly.

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