25614 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

1 The comment must be accompanied by an 

explicit request for confidential treatment, 

including the factual and legal basis for the request, 

and must identify the specific portions of the 

comment to be withheld from the public record. 

The request will be granted or denied by the 

Commission’s General Counsel, consistent with 

applicable law and the public interest. See 

Commission Rule 4.9(c), 16 CFR 4.9(c) (2008). 

Subject 

(d) Air Transport Association (ATA) of 

America Code 24: Electrical Power. 

Reason 

(e) The mandatory continuing 

airworthiness information (MCAI) states: 

Following in-flight test deployments, 

several Air-Driven generators (ADGs) failed 

to come on-line. Investigation revealed that, 

as a result of a wiring anomaly that had not 

been detected during ADG manufacture, a 

short circuit was possible between certain 

internal wires and their metallic over-braided 

shields, which could result in the ADG not 

providing power when deployed. This 

directive mandates checking of the ADG and 

modification of the ADG internal wiring, if 

required. It also prohibits future installation 

of unmodified ADGs. 

The unsafe condition is that failure of the 

ADG could lead to loss of several functions 

essential for safe flight. 

Actions and Compliance 

(f) Unless already done, do the following 

actions. 

(1) For airplanes having serial number (SN) 

7305 through 7990 and 8000 through 8083: 

Within 12 months after the effective date of 

this AD, inspect the SN of the installed ADG. 

A review of airplane maintenance records is 

acceptable in lieu of this inspection if the 

serial number of the ADG can be 

conclusively determined from that review. 

(i) If the serial number is not listed in 

paragraph 1.A of Bombardier Service Bulletin 

601R–24–113, Revision A, dated August 11, 

2005, no further action is required by this 

AD. 

(ii) If the serial number is listed in 

paragraph 1.A of Bombardier Service Bulletin 

601R–24–113, Revision A, dated August 11, 

2005, before further flight, inspect the ADG 

identification plate and, as applicable, do the 

actions of paragraph (f)(1)(ii)(A) or (f)(1)(ii)(B) 

of this AD. 

(A) If the identification plate is marked 

with the symbol ‘‘24–2’’, no further action is 

required by this AD. 

(B) If the identification plate is not marked 

with the symbol ‘‘24–2’’, modify the ADG 

wiring in accordance with the 

Accomplishment Instructions of the service 

bulletin. 

(2) For airplanes having SN 7305 through 

7990 and 8000 and subsequent: As of the 

effective date of this AD, no ADG as 

described in Table 1 of this AD may be 

installed on any airplane, unless the 

identification plate of the ADG is identified 

with the symbol ‘‘24–2’’ (refer to Hamilton 

Sundstrand Service Bulletin ERPS10AG–24–

2 for further information). 

TABLE 1.—ADG IDENTIFICATION

ADG part No.— Having ADG serial No.—

604–90800–1 (761339C), 604–90800–17 

(761339D), or 604–90800–19 (761339E).

0101 through 0132, 0134 through 0167, 0169 through 0358, 0360 through 0438, 0440 through 

0456, 0458 through 0467, 0469, 0471 through 0590, 0592 through 0597, 0599 through 

0745, 0747 through 1005, or 1400 through 1439. 

(3) Actions done before the effective date 

of this AD according to Bombardier Service 

Bulletin 601R–24–113, dated April 22, 2004, 

are considered acceptable for compliance 

with the corresponding actions specified in 

this AD, provided the ADG has not been 

replaced since those actions were done. 

FAA AD Differences 

Note 1: This AD differs from the MCAI 

and/or service information as follows: No 

differences. 

Other FAA AD Provisions 

(g) The following provisions also apply to 

this AD: 

(1) Alternative Methods of Compliance 

(AMOCs): The Manager, New York Aircraft 

Certification Office, FAA, has the authority to 

approve AMOCs for this AD, if requested 

using the procedures found in 14 CFR 39.19. 

Send information to ATTN: Fabio Buttitta, 

Aerospace Engineer, Systems and Flight Test 

Branch, ANE–172, FAA, New York Aircraft 

Certification Office, 1600 Stewart Avenue, 

Suite 410, Westbury, New York 11590; 

telephone (516) 228–7303; fax (516) 794–

5531. Before using any approved AMOC on 

any airplane to which the AMOC applies, 

notify your appropriate principal inspector 

(PI) in the FAA Flight Standards District 

Office (FSDO), or lacking a PI, your local 

FSDO. 

(2) Airworthy Product: For any requirement 

in this AD to obtain corrective actions from 

a manufacturer or other source, use these 

actions if they are FAA-approved. Corrective 

actions are considered FAA-approved if they 

are approved by the State of Design Authority 

(or their delegated agent). You are required 

to assure the product is airworthy before it 

is returned to service. 

(3) Reporting Requirements: For any 

reporting requirement in this AD, under the 

provisions of the Paperwork Reduction Act, 

the Office of Management and Budget (OMB) 

has approved the information collection 

requirements and has assigned OMB Control 

Number 2120–0056. 

Related Information 

(h) Refer to MCAI Canadian Airworthiness 

Directive CF–2008–09, dated February 5, 

2008, and Bombardier Service Bulletin 601R–

24–113, Revision A, dated August 11, 2005, 

for related information. 

Issued in Renton, Washington, on April 25, 

2008. 

Ali Bahrami, 

Manager, Transport Airplane Directorate, 

Aircraft Certification Service. 

[FR Doc. E8–10097 Filed 5–6–08; 8:45 am] 

BILLING CODE 4910–13–P 

FEDERAL TRADE COMMISSION 

16 CFR Part 317 

[Project No. P082900] 

RIN 3084-AB12 

Prohibitions On Market Manipulation 

and False Information in Subtitle B of 

the Energy Independence and Security 

Act of 2007 

AGENCY: Federal Trade Commission. 

ACTION: Advance notice of proposed 

rulemaking; request for public 

comment. 

SUMMARY: The Federal Trade 

Commission (FTC or Commission) is 

requesting comment on the manner in 

which it should carry out its rulemaking 

responsibilities under Section 811 of 

Subtitle B of Title VIII of The Energy 

Independence and Security Act of 2007 

(EISA). 

DATES: Comments must be received on 

or before June 6, 2008. 

ADDRESSES: Interested parties are 

invited to submit written comments 

electronically or in paper form. 

Comments should refer to ‘‘Market 

Manipulation Rulemaking, P082900’’ to 

facilitate the organization of comments. 

Comments containing material for 

which confidential treatment is 

requested must be filed in paper form, 

must be clearly labeled ‘‘Confidential,’’

and must comply with Commission 

Rule 4.9(c).1

Because paper mail in the 

Washington-area, and specifically to the 

FTC, is subject to delay due to 

heightened security screening, please 

consider submitting your comments in 

electronic form. Comments filed in 

electronic form should be submitted by 

using the following weblink: https:// 

secure.commentworks.com/ftcmarketmanipulationANPR/ (and 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 25615 

2 Pub. L. 110-140, 121 Stat. 1723 (December 19, 

2007), Title VIII, Subtitle B, to be codified at 42 

U.S.C. 17301-17305. 

3 Section 811 and Section 812 of Subtitle B 

expressly cover ‘‘any person.’’ The Administrative 

Procedure Act, 5 U.S.C. 551(2), defines ‘‘person’’ as 

including ‘‘an individual, partnership, corporation, 

association, or public or private organization other 

than an agency.’’ Similarly, the FTC’s jurisdiction 

under the FTC Act covers ‘‘persons, partnerships, 

or corporations.’’ 15 U.S.C. 45(a)(2). While the FTC 

Act applies broadly, certain entities are wholly or 

partly exempt from Commission authority under 

that Act. These include banks, savings and loan 

institutions, federal credit unions, transportation 

and communications common carriers, air carriers, 

and livestock firms. 15 U.S.C. 45(a)(2). In addition, 

the term ‘‘corporation,’’ as defined in Section 4 of 

the FTC Act, does not extend to entities not 

organized to carry on business for their own profit 

or that of their members. 15 U.S.C. 44. 

4 See EISA Section 811 (defining acts or practices 

that shall be unlawful under ‘‘rules and regulations 

as the Federal Trade Commission may prescribe as 

necessary or appropriate in the public interest or for 

the protection of United States citizens’’). Because 

the rulemaking procedures for the issuance of trade 

regulation rules are limited to rules promulgated 

‘‘under’’ Section 18(a)(1)(B) of the FTC Act (see 15 

U.S.C. 57a(a)(1)(B)), the issuance of rules and 

regulations under EISA Section 811 is instead 

governed by the notice-and-comment requirements 

of the Administrative Procedure Act, 5 U.S.C. 553, 

and Part 1, Subpart C, of the Commission Rules of 

Practice for the adoption of non-Section 18 rules. 

See 16 CFR 1.21-1.26. 

5 15 U.S.C. 57b(a)(1). 

6 15 U.S.C. 57b(b). 

7 This amount has been adjusted upward from the 

original statutory amount of $10,000 pursuant to the 

Federal Civil Penalties Inflation Adjustment Act of 

1990, as amended by the Debt Collection 

Improvement Act of 1996. 28 U.S.C. 2461. 

following the instructions on the webbased form). To ensure that the 

Commission considers an electronic 

comment, you must file it on the webbased form at the weblink (https:// 

secure.commentworks.com/ftcmarketmanipulationANPR/). If this 

notice appears at http:// 

www.regulations.gov, you may also file 

an electronic comment through that 

Web site. The Commission will consider 

all comments that regulations.gov 

forwards to it. You may also visit the 

FTC website at (http://www.ftc.gov/opa/ 

index.shtml) to read the Advance Notice 

of Proposed Rulemaking and the news 

release describing it. 

A comment filed in paper form 

should include the ‘‘Market 

Manipulation Rulemaking, P082900’’

reference both in the text and on the 

envelope, and should be mailed to the 

following address: Federal Trade 

Commission, Market Manipulation 

Rulemaking, P.O. Box 2846, Fairfax, VA 

22031-0846. This address does not 

accept courier or overnight deliveries. 

Courier or overnight deliveries should 

be delivered to: Federal Trade 

Commission/Office of the Secretary, 

Room H-135 (Annex G), 600 

Pennsylvania Avenue, NW, Washington, 

DC 20580. 

The FTC Act and other laws the 

Commission administers permit the 

collection of public comments to 

consider and use in this proceeding as 

appropriate. The Commission will 

consider all timely and responsive 

public comments that it receives, 

whether filed in paper or electronic 

form. Comments received will be 

available to the public on the FTC 

website, to the extent practicable, at 

http://www.ftc.gov. As a matter of 

discretion, the FTC makes every effort to 

remove home contact information for 

individuals from the public comments it 

receives before placing those comments 

on the FTC website. More information, 

including routine uses permitted by the 

Privacy Act, may be found in the FTC’s 

privacy policy, at (http://www.ftc.gov/ 

ftc/privacy.htm). 

FOR FURTHER INFORMATION CONTACT: John 

H. Seesel, Associate General Counsel for 

Energy, Federal Trade Commission, 

Market Manipulation Rulemaking, P.O. 

Box 2846, Fairfax, VA 22031-0846, (202) 

326-3772. 

SUPPLEMENTARY INFORMATION: 

I. Statutory Framework 

Subtitle B of EISA, which became 

effective on December 19, 2007,2

includes two substantive sections 

respectively entitled ‘‘Prohibition On 

Market Manipulation’’ (Section 811) and 

‘‘Prohibition On False Information’’

(Section 812). Section 811 prohibits 

‘‘any person’’ from directly or indirectly 

(1) using or employing ‘‘any 

manipulative or deceptive device or 

contrivance,’’ (2) ‘‘in connection with 

the purchase or sale of crude oil 

gasoline or petroleum distillates at 

wholesale,’’ (3) that violates a rule or 

regulation that the Federal Trade 

Commission ‘‘may prescribe as 

necessary or appropriate in the public 

interest or for the protection of United 

States citizens.’’ Section 812 prohibits 

‘‘any person’’ from reporting 

information that is ‘‘required by law to 

be reported’’ — and that is ‘‘related to 

the wholesale price of crude oil gasoline 

or petroleum distillates’’ — to a Federal 

department or agency if the person (1) 

‘‘knew, or reasonably should have 

known, [that] the information [was] 

false or misleading;’’ and (2) intended 

such false or misleading information ‘‘to 

affect data compiled by the department 

or agency for statistical or analytical 

purposes with respect to the market for 

crude oil, gasoline, or petroleum 

distillates.’’

Section 813 provides that Subtitle B 

‘‘shall be enforced by the Federal Trade 

Commission in the same manner, by the 

same means, and with the same 

jurisdiction’’ as though ‘‘all applicable 

terms’’ of the Federal Trade Commission 

Act (FTC Act) were incorporated into 

and made a part of Subtitle B. 

Consequently, any entity subject to 

Commission jurisdiction under the FTC 

Act is subject to the Commission’s 

enforcement of Subtitle B, and must 

comply with Section 812 and any rule 

promulgated under Section 811 of 

Subtitle B.3 Section 813 further provides 

that the violation of any provision of 

Subtitle B ‘‘shall be treated as an unfair 

or deceptive act or practice proscribed 

under a rule issued under section 

18(a)(1)(B) of the Federal Trade 

Commission Act (15 U.S.C. 

57a(a)(1)(B)),’’ even though rules and 

regulations that the Commission may 

prescribe are to be issued under Subtitle 

B.4

The Commission could seek a number 

of different types of relief against a 

person who violated Subtitle B. In 

particular, Section 13(b) of the FTC Act 

permits the Commission to file a federal 

court civil action seeking a temporary 

restraining order or a preliminary 

injunction to prevent any ‘‘person, 

partnership, or corporation’’ from 

violating a rule promulgated under EISA 

Section 811 or from violating EISA 

Section 812, and to secure a permanent 

injunction ‘‘in proper cases.’’ In such a 

proceeding, the Commission would also 

be able to secure corollary equitable 

relief, such as an asset freeze, 

disgorgement, and/or the appointment 

of a receiver. 15 U.S.C. 53(b). Moreover, 

Section 19 of the FTC Act permits the 

Commission to file a federal court civil 

action in its own name against any 

person, partnership, or corporation that 

‘‘violates any rule . . . respecting unfair 

or deceptive acts or practices . . . ,’’5

and permits the court to grant relief 

needed: 

to redress injury to consumers or 

other persons, partnerships, and 

corporations resulting from the rule 

violation . . . [including but not 

limited to] rescission or reformation 

of contracts, the refund of money or 

return of property, the payment of 

damages, and public notification 

respecting the rule violation....6

Furthermore, Section 5(m)(1)(A) of the 

FTC Act permits the Commission, by 

referral to the Department of Justice, to 

file a federal court civil action to recover 

civil penalties of up to $11,0007 per 

violation from: 

any person, partnership, or 

corporation which violates any rule 

under [the FTC Act] respecting unfair 

or deceptive acts or practices . . . 


rwilkins on PROD1PC63 with PROPOSALS
25616 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

8 15 U.S.C. 45(m)(1)(A). Section 16(a)(1) of the 

FTC Act requires the Commission to refer such 

actions to the United States Attorney General in the 

first instance, and permits the Commission to file 

such actions in its own name if ‘‘the Attorney 

General fails within 45 days after receipt of such 

notification to commence . . . such action.’’ 15 

U.S.C. 56(a)(1). 

9 It is not clear whether the use of the term 

‘‘supplier’’ in Section 814 is intended to limit use 

of the remedy available under that section to 

violations committed by suppliers through sales of 

crude oil, gasoline, or petroleum distillates, or was 

intended to extend to violations committed by 

suppliers through purchases of such products as 

well. Commenters are encouraged to discuss this 

point. 

10 The prohibitions embodied in Section 812 of 

EISA became effective with enactment of EISA on 

December 19, 2007. These prohibitions therefore 

already apply to any person subject to the 

jurisdiction granted to the Commission by the FTC 

Act, and the Commission may seek legal and 

equitable relief to remedy violations of Section 812 

in the manner described above, through civil 

actions in federal court. 

11 The term ‘‘manipulative or deceptive’’ arguably 

can be read as a single adjective. That is the 

approach the Federal Energy Regulatory 

Commission followed in promulgating the Final 

Rule discussed infra, in reliance on the fact that, 

with respect to Securities Rule 10b-5 cases, the 

Supreme Court had ‘‘concluded that both 

[manipulative and deceptive] require 

‘misrepresentation.’’’ Federal Energy Regulatory 

Commission, 18 CFR Part 1c: Prohibition of Energy 

Market Manipulation: Final Rule, 71 FR 4244, 4253 

n. 107 (January 26, 2006). By contrast, however, the 

FTC has for many years vigorously enforced the 

separate prohibition of ‘‘deceptive acts or practices’’

embodied in Section 5 of the FTC Act, 15 U.S.C. 

45. 

12 See generally Federal Trade Commission 

Policy Statement on Deception, appended to 

Cliffdale Assocs., 103 F.T.C. 110, 174-83 (1984). 

13 15 U.S.C. 45(n); see generally Federal Trade 

Commission Policy Statement on Unfairness, 

appended to International Harvester, Co., 104 

F.T.C. 949, 1070-76 (1984). Neither deception nor 

unfairness requires a showing of scienter. 

14 For the reasons discussed supra, the term 

‘‘person’’ is used in this document to refer to 

‘‘person, partnership, or corporation,’’ consistent 

with the jurisdictional reach of the FTC Act. 

with actual knowledge or knowledge 

fairly implied on the basis of objective 

circumstances that such act is unfair 

or deceptive and is prohibited by such 

rule.8

Because Section 813 of the EISA 

provides that a violation of Subtitle B 

shall be treated as a violation of such a 

rule, any person that violates Subtitle B 

is subject to these civil penalties. 

Section 814(a) of Subtitle B further 

provides that — ‘‘[i]n addition to any 

penalty applicable’’ under the FTC Act 

— ‘‘any supplier that violates section 

811 or 812 shall be punishable by a civil 

penalty of not more than $1,000,000.’’9

Both Section 5(m)(1)(C) of the FTC Act, 

15 U.S.C. 45(m)(1)(C), and Section 

814(c)(1) of the EISA provide that each 

day of a continuing violation shall be 

considered a separate violation. 

Section 815(a) provides that nothing 

in Subtitle B ‘‘limits or affects’’

Commission authority ‘‘to bring an 

enforcement action or take any other 

measure’’ under the FTC Act or ‘‘any 

other provision of law.’’ Section 815(b) 

provides that ‘‘[n]othing in [Subtitle B] 

shall be construed to modify, impair, or 

supersede the operation’’ (1) of any of 

the antitrust laws (as defined in Section 

1(a) of the Clayton Act, 15 U.S.C. 12(a)) 

or (2) of Section 5 of the FTC Act ‘‘to 

the extent that . . . [S]ection 5 applies 

to unfair methods of competition.’’

Section 815(c) provides that nothing in 

Subtitle B ‘‘preempts any State law.’’

II. Overview of the Advance Notice of 

Proposed Rulemaking 

Section 811 applies to violations of 

‘‘such rules and regulations as the 

Federal Trade Commission may 

prescribe as necessary or appropriate in 

the public interest or for the protection 

of United States citizens.’’ This Advance 

Notice of Proposed Rulemaking seeks 

public comment from interested parties, 

including other federal agencies and the 

States, on whether, and if so in what 

manner, the Commission should 

promulgate a rule pursuant to Section 

811 in order to ensure that the rule, on 

balance, carries out the objectives of the 

statute by prohibiting practices that 

constitute manipulative or deceptive 

devices or contrivances to the benefit of 

the public interest.10

The Commission has devoted 

substantial resources to enforcing the 

antitrust laws in various parts of the 

petroleum industry, including in the 

refining and distribution of crude oil, 

gasoline, and petroleum distillates. The 

Commission has also expended 

significant research efforts in this same 

space. As a consequence, the 

Commission and its staff have 

experience with many parts of the 

petroleum industry. The Commission 

will draw upon this foundation in 

conducting this Rulemaking proceeding. 

The Commission’s consumer 

protection efforts provide a second 

important foundation for conducting 

this Rulemaking proceeding, and in 

particular for determining the extent to 

which the law of unfairness and 

deception can inform the Commission’s 

interpretation of a ‘‘manipulative or 

deceptive device or contrivance.’’11 In 

interpreting Section 5 of the FTC Act, 

the Commission has determined that a 

representation, omission, or practice is 

deceptive if (1) it is likely to mislead 

consumers acting reasonably under the 

circumstances; and (2) it is material, 

that is, likely to affect consumers’

conduct or decisions with respect to the 

product at issue.12 Section 5 also 

provides that an act or practice is unfair 

if the injury to consumers it causes or 

is likely to cause (1) is substantial; (2) 

is not outweighed by countervailing 

benefits to consumers or to competition; 

and (3) is not reasonably avoidable by 

consumers themselves.13

As a consequence of the foregoing law 

enforcement, research, and related 

efforts — through both its competition 

mission and its consumer protection 

mission — the Commission and its staff 

have gained an understanding of the 

domestic petroleum industry; of how 

participants in the industry compete; of 

how prices of gasoline and other refined 

petroleum products are determined; and 

of how particular practices may, in 

specific circumstances, constitute either 

unfair methods of competition or unfair 

or deceptive acts or practices, in 

violation of Section 5 of the FTC Act. 

The Commission expects to use this 

experience and understanding to 

effectuate the objectives of Subtitle B. 

Through this Advance Notice of 

Proposed Rulemaking, the Commission 

expects to secure new and valuable 

information concerning how best to 

achieve those objectives. Commenters 

are encouraged to review this document 

in its entirety and offer comments 

concerning any of the points or 

questions raised, as well as any other 

relevant issue. 

III. The Antecedents of Section 811 and 

Relevant Legal Precedent 

The manner in which the courts and 

regulatory agencies have interpreted 

provisions similar to those comprising 

Section 811 is relevant both to 

formulating a rule under Section 811 

and to determining how the resultant 

formulation will fare in the courts. 

Public comment will provide critical 

information in that regard. While there 

are substantial similarities among prior 

interpretations and their contexts, there 

are substantial differences as well. In 

order to provide a framework within 

which commenters can develop and 

provide their own assessments for 

purposes of considering a rule under 

Section 811, we offer a brief discussion 

of the statutory and regulatory 

antecedents of Section 811, and court 

interpretations of similar statutes and 

regulations. The Commission 

encourages comment on these or any 

other aspects of precedent that may help 

to guide the Commission’s approach in 

this Rulemaking. 

Establishing a violation of Section 811 

first requires a showing that a person14

directly or indirectly used or employed 

a ‘‘manipulative or deceptive device or 

contrivance.’’ In determining the 

contours of this requirement —


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 25617 

15 15 U.S.C. 78j(b) (emphasis added). Section 9 

of the Exchange Act more specifically addresses 

‘‘Manipulation of security prices,’’ and prohibits or 

limits the use of certain practices with respect to 

‘‘[t]ransactions relating to purchase or sale of 

security;’’ ‘‘[t]ransactions relating to puts, calls, 

straddles, or options;’’ ‘‘[e]ndorsement or guarantee 

of puts, calls, straddles, or options;’’ and ‘‘practices 

that affect market volatility.’’ 15 U.S.C. 

78i(a),(b),(c),(h). 

16 17 CFR 240.10b-5(a)-(c) (2008). In addition, the 

SEC’s rules under Section 10(b) prohibit a number 

of specific practices in specific circumstances. See 

17 CFR 240.10b-1 through 240.10b-18. 

17 Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 

(1976); accord, e.g., Tellabs, Inc. v. Makor Issues & 

Rights, Ltd., 551 U.S. ___ (June 21, 2007), slip op. 

at 1-2, 7; In re Worlds of Wonder Securities 

Litigation, 35 F.3d 1407, 1424 (9th Cir. 1994), cert. 

denied, 116 S. Ct. 185 (1995); Loveridge v. 

Dreagoux, 678 F.2d 870, 875 (10th Cir. 1982). 

18 Ernst & Ernst, 425 U.S. at 197. The Court 

concluded that the terms ‘‘manipulative,’’ ‘‘device,’’

and ‘‘contrivance’’ . . . make unmistakable a 

congressional intent to proscribe a type of conduct 

quite different from negligence. Use of the word 

‘‘manipulative’’ is especially significant. It is and 

was virtually a term of art when used in connection 

with securities markets. It connotes intentional or 

willful conduct designed to deceive or defraud 

investors by controlling or artificially affecting the 

price of securities. 

Id. at 199 (internal citations omitted). See also 

Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 

6-7 (1985); Santa Fe Industries, Inc. v. Green, 430 

U.S. 462, 476 (1977) (the term ‘‘manipulation’’

‘‘refers generally to practices, such as wash sales, 

matched orders, or rigged prices, that are intended 

to mislead investors by artificially affecting market 

activity.’’). 

19 Id. at 199 n. 20. 

20 Id. at 201, citing United States v. Oregon, 366 

U.S. 643, 648 (1961); Packard Motor Car Co. v. 

NLRB, 330 U.S. 485, 492 (1947); accord, e.g., Aaron 

v. Securities and Exchange Commission, 446 U.S. 

680, 690 (1980). 

21 Aaron v. SEC, 446 U.S. at 701-702. 

22 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 

U.S. ___ (June 21, 2007), slip op. at 7 n. 3, citing 

Ernst & Ernst v. Hochfelder, 425 U.S. at 194 n. 12; 

Ottman v. Hanger Orthopedic Group, Inc., 353 F.3d 

338, 343 (collecting Court of Appeals cases). 

23 SEC v. Monarch Funding Corp., 192 F.3d 295, 

308 (2d Cir. 1999). 

24 Compare Section 4A of the Natural Gas Act, 

15 U.S.C. 717c-1, with Section 222 of the Federal 

Power Act, 16 U.S.C. 824v. 

25 18 CFR 1c.1, 1c.2 (2008). 

26 Federal Energy Regulatory Commission, 18 

CFR Part 1c: Prohibition of Energy Market 

Manipulation: Final Rule, 71 FR 4244, 4246 

(January 26, 2006). 

27 Id. at 4246. 

28 Id. at 4252; accord, id. at 4253, citing Ernst & 

Ernst v. Hochfelder, 425 U.S. at 197; Aaron v. SEC, 

446 U.S. at 690. 

29 Id. at 4253-54 and n. 109 (‘‘Courts of appeal 

are in general agreement that recklessness in some 

form satisfies the scienter requirement of SEC Rule 

10b-5.’’) (citations omitted). 

30 Id. at 4253. 

including determining the state of mind 

that is required — commenters are 

encouraged to address the extent to 

which the Commission can or should 

rely on four separate sets of existing 

statutory and regulatory constructs, 

discussed below. 

A. The Securities Laws 

The phrase ‘‘manipulative or 

deceptive device or contrivance’’

derives from the Securities Exchange 

Act of 1934 (Exchange Act). Section 

10(b) of that statute prohibits the use or 

employment of: 

any manipulative or deceptive device 

or contrivance in contravention of 

such rules as the [Securities and 

Exchange] Commission may prescribe 

as necessary or appropriate in the 

public interest or for the protection of 

investors.15

The Securities and Exchange 

Commission (SEC) relied on Section 

10(b) of the Exchange Act to promulgate 

Rule 10b-5, which makes it unlawful for 

any person: 

(a) To employ any device, scheme, or 

artifice to defraud; 

(b) To make any untrue statement of a 

material fact or to omit to state a material 

fact necessary in order to make the 

statements made, in the light of the 

circumstances under which they were 

made, not misleading . . .; or 

(c) To engage in any act, practice, or 

course of business which operates or 

would operate as a fraud or deceit upon 

any person. . . . 

in connection with the purchase or 

sale of any security.16

In 1976, the Supreme Court 

determined that a private cause of 

action for damages would not lie under 

Section 10(b) or Rule 10b-5 without 

proof that the defendant possessed 

scienter; that is, the ‘‘intent to deceive, 

manipulate, or defraud.’’17 In particular, 

the Court noted: 

Section 10(b) makes unlawful the use or 

employment of ‘‘any manipulative device 

or contrivance’’ in contravention of 

[Securities and Exchange] Commission 

rules. The words ‘‘manipulative or 

deceptive’’ used in conjunction with 

‘‘device or contrivance’’ strongly suggest 

that [Section] 10(b) was intended to 

proscribe knowing or intentional 

misconduct.18

Moreover, the Court found that use of 

the terms ‘‘[t]o use or employ’’

supported ‘‘the view that Congress did 

not intend [Section] 10(b) to embrace 

negligent conduct.’’19 The Court 

concluded that ‘‘the language of 

[Section] 10(b) . . . clearly connotes 

intentional misconduct....’’20 Soon 

thereafter, the Court determined that the 

SEC, as well as private plaintiffs, must: 

establish scienter as an element of a civil 

enforcement action to enjoin violations of 

. . . [Section] 10(b) of the [Securities 

Exchange Act of 1934], and Rule 10b-5 

promulgated under that section of the 1934 

Act.21

While the Supreme Court has reserved 

the question 

whether reckless behavior is sufficient for 

civil liability under Section 10(b) and Rule 

10b-5, . . . [e]very Court of Appeals that 

has considered the issue has held that a 

plaintiff may meet the scienter requirement 

by showing that the defendant acted 

intentionally or recklessly, though the 

Circuits differ on the degree of recklessness 

required.22

More generally, the Court of Appeals for 

the Second Circuit has elaborated that, 

in order to establish a Rule 10b-5 

violation, the SEC must establish that 

the defendant: 

(1) [m]ade a material misrepresentation or 

a material omission as to which he had a 

duty to speak, or used a fraudulent device; 

(2) with scienter; and (3) in connection 

with the purchase or sale of securities.23

B. The Natural Gas Act and the Federal 

Power Act 

The Energy Policy Act of 2005 

amended the Natural Gas Act and the 

Federal Power Act, respectively, to 

prohibit the same type of conduct that 

Section 10(b) of the Exchange Act 

targets — that is, the use or employment 

of ‘‘any manipulative or deceptive 

device or contrivance (as those terms are 

used in [Section 10(b) of the Securities 

Exchange Act of 1934] . . . ).’’24 In 

2006, the Federal Energy Regulatory 

Commission (FERC) relied on those 

prohibitions to promulgate two rules —

respectively prohibiting natural gas 

market manipulation and electric energy 

market manipulation (collectively 

referred to as the Final Rule). The FERC 

Final Rule is identical in many respects 

to SEC Rule 10b-5.25 FERC also 

determined to interpret the Final Rule 

in a manner ‘‘consistent with analogous 

SEC precedent that is appropriate under 

the circumstances.’’26 In particular, 

FERC included a scienter requirement, 

noting that ‘‘[t]he final rule is not 

intended to regulate negligent practices 

or corporate mismanagement, but rather 

to deter or punish fraud in wholesale 

energy markets,’’27 and that ‘‘there can 

be no violation of the final rule, or any 

of its sections, absent a showing of the 

requisite scienter.’’28 FERC determined 

that a showing of recklessness would be 

sufficient to satisfy the scienter 

requirement under the FERC Final 

Rule.29 FERC expressly declined to 

incorporate ‘‘a specific intent standard’’

into the Final Rule.30

FERC relied on the foregoing analysis 

to determine that it will take action 

pursuant to the Final Rule in cases 

where an entity: 

(1) [u]ses a fraudulent device, scheme or 

artifice, or makes a material 

misrepresentation or a material omission as 

to which there is a duty to speak under a 

Commission-filed tariff, Commission order, 


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31 Id. at 4253. 

32 Id., citing Dennis v. United States, 384 U.S. 

855, 861 (1966). 

33 Id. at 4254. 

34 Id. at 4255. Thus, for example, FERC will 

presume that a market participant that ‘‘undertakes 

an action or transaction that is explicitly 

contemplated in Commission-approved rules and 

regulations’’ does not violate the Final Rule. 

Moreover, if a market participant takes an action or 

engages in a transaction — at the direction of an 

Independent System Operator or a Regional 

Transmission Organization, but not approved by 

FERC — it can assert that as a defense for the action 

taken. 

35 Id. at 4250, citing United States v. Persky, 520 

F.2d 283 (2d Cir. 1975); Todd & Co. v. SEC, 557 

F.2d 1008, 1013 (3d Cir. 1977). 

36 Id. at 4249. 

37 Commission Takes Preliminary Action in Two 

Major Market Manipulation Cases, Federal Energy 

Regulatory Commission News (July 26, 2007), 

available at http://www.ferc.gov/news/newsreleases/2007/2007-3/07-26-07.pdf. 

38 On July 25, 2007, the Commodity Futures 

Trading Commission (CFTC) filed a civil 

enforcement action in federal district court against 

Amaranth challenging many of the same actions at 

issue in the FERC proceeding described above. The 

CFTC is seeking permanent injunctive relief, an 

award of civil penalties, and other remedial and 

ancillary relief. The CFTC and FERC both noted 

that they had coordinated their respective 

investigations, pursuant to the agencies’

Memorandum of Understanding. The ultimate 

resolution of the CFTC and FERC cases will provide 

important guidance concerning the interaction 

between their respective statutes and rules with 

respect to manipulation. See U.S. Commodity 

Futures Trading Commission Charges Hedge Fund 

Amaranth and its Former Head Energy Trader, 

Brian Hunter, with Attempted Manipulation of the 

Price of Natural Gas Futures, Commodity Futures 

Trading Commission News (July 25, 2007), 

available at (http://www.cftc.gov/newsroom/ 

enforcementpressreleases/2007/pr5359-07.html.) 

39 The CEA provides that the CFTC possesses, 

inter alia, ‘‘exclusive jurisdiction’’ for ‘‘transactions 

involving contracts of sale of a commodity for 

future delivery, traded or executed on a contract 

market . . . or derivatives transaction execution 

facility . . . or any other board of trade, exchange, 

or market....’’ 7 U.S.C. 2(a)(1)(A). It further 

provides for non-exclusive CFTC anti-manipulation 

authority over cash and physical transactions, as 

well as certain derivatives transactions relating to 

securities. 7 U.S.C. 2(a)(1)(A), (C), (D). 

40 7 U.S.C. 9, 13b; see 7 U.S.C. 15. The statute 

defines a ‘‘registered entity’’ as including certain 

boards of trade designated as contract markets; 

derivatives transaction execution facilities; and 

‘‘derivatives clearing organizations.’’ 7 U.S.C. 

1a(29). 

41 7 U.S.C. 13(a)(2). 

42 7 U.S.C. 1a(2). 

43 7 U.S.C. 7(d). 

44 Merrill Lynch, Pierce, Fenner, & Smith, Inc. v. 

Curran, 456 U.S. 353 (1982). 

45 Id. at 372, n. 50. Subsequently, the Commodity 

Futures Modernization Act of 2000 identified the 

purposes of the CEA as including, inter alia, ‘‘to 

deter and prevent price manipulation or any other 

disruptions to market integrity. . .’’ 7 U.S.C. 5(b). 

See also Frey v. Commodity Futures Trading 

Commission, 931 F.2d 1171, 1175 (7th Cir. 1991). 

rule or regulation, or engages in any act, 

practice, or course of business that operates 

or would operate as a fraud or deceit upon 

any entity; (2) with the requisite scienter; 

(3) in connection with the purchase or sale 

of natural gas or electric energy or 

transportation of natural gas or 

transmission of electric energy subject to 

the jurisdiction of the Commission.31

FERC defined fraud ‘‘generally . . . to 

include any action, transaction, or 

conspiracy for the purpose of impairing, 

obstructing, or defeating a wellfunctioning market.’’32 FERC also 

provided examples of practices that 

would violate the Final Rule because 

the practices constituted ‘‘manipulative 

or deceptive devices or contrivances.’’

FERC’s cited practices were already 

prohibited by its Market Behavior Rule 

2 (since-repealed), but included in 

particular: 

wash trades, transactions predicated on 

submitting false information, transactions 

creating and relieving artificial congestion, 

and collusion for the purpose of market 

manipulation.33

FERC also determined to incorporate the 

‘‘safe harbor presumptions of 

compliance and affirmative defenses’’

available under its Market Behavior 

Rules into its enforcement of the Final 

Rule.34 FERC rejected the argument 

registered by some commenters that its 

rule was ‘‘vague and overly broad,’’

noting that it was modeled after SEC 

Rule 10b-5, and that the courts have 

determined that the latter rule is neither 

vague nor overly broad.35

FERC’s statute specifically limited its 

application to actions ‘‘in connection 

with a jurisdictional transaction.’’

Relying on cases addressing Section 

10(b) of the SEC, in its Final Rule, FERC 

defined ‘‘in connection with’’ to mean 

that ‘‘in committing fraud, the entity 

must have intended to affect, or have 

acted recklessly to affect, a 

jurisdictional transaction.’’36

FERC’s first litigated case under the 

Final Rule provides a helpful 

illustration of how it intends to enforce 

the Final Rule in practice. In that case, 

FERC issued an Order to Show Cause 

and Notice of Proposed Penalties against 

hedge fund Amaranth LLC, and two 

traders, alleging that they had illegally 

manipulated the price of transactions 

subject to FERC jurisdiction by trading 

in the New York Mercantile Exchange 

(NYMEX) Natural Gas Futures Contracts 

for February, March, and April of 2006. 

In particular, the Order alleged that the 

respondents intentionally manipulated 

the final, or ‘‘settlement,’’ price of the 

NYMEX Natural Gas Futures Contract —

on three occasions in 2006 — by selling 

an extraordinary quantity of these 

contracts during the last 30 minutes of 

trading before they expired, with the 

purpose and effect of driving down the 

settlement price. The settlement price is 

explicitly used to determine the price 

for a substantial volume of physical 

natural gas transactions subject to FERC 

jurisdiction, and Amaranth had 

previously taken positions in various 

financial derivatives that were several 

times larger — and whose values 

increased — as a direct result of the fall 

in the settlement price of each natural 

gas futures contract. As a consequence, 

for every dollar Amaranth lost on its 

sales of the futures contracts, Amaranth 

gained several dollars on its derivative 

financial positions.37 The Order gave 

Amaranth 30-days to show cause why it 

should not be assessed $200 million in 

civil penalties and be required to 

disgorge profits totaling $59 million, 

plus interest. The case remains in 

litigation.38

C. The Commodity Exchange Act 

Interpretation of the first component 

of Section 811 can also be informed by 

the manner in which the concept of 

‘‘manipulation’’ has been defined in 

cases arising under the Commodity 

Exchange Act (CEA).39 That statute 

empowers the CFTC, inter alia, to bring 

an administrative enforcement action, or 

a civil injunctive action in federal 

district court against: 

any person (other than a registered entity) 

[who] is manipulating or attempting to 

manipulate or has manipulated or 

attempted to manipulate the market price 

of any commodity, in interstate commerce, 

or for future delivery on or subject to the 

rules of any registered entity....40

In addition, Section 9(a)(2) of the CEA 

makes it a felony for: 

[a]ny person to manipulate or attempt to 

manipulate the price of any commodity in 

interstate commerce, or for future delivery 

on or subject to the rules of any registered 

entity, or to corner or attempt to corner any 

such commodity ....41

The CEA also requires any board of 

trade (defined as any organized 

exchange or other trading facility42 ) 

that wishes to be designated as a 

contract market, inter alia, to comply 

with a variety of statutory ‘‘Core 

Principles.’’43

The Supreme Court decision in 

Merrill Lynch v. Curran provides an 

extensive discussion of the origins of 

futures trading and the CEA, and of how 

the foregoing statutory proscriptions of 

manipulation should be interpreted.44

In particular, the Court held that the 

primary purpose of the 1974 

amendments to the CEA was to protect 

‘‘against manipulation of markets and to 

protect any individual who desires to 

participate in futures market trading.’’45

D. The Sherman Act, the Clayton Act, 

and the Federal Trade Commission Act 

The enactment of Subtitle B raises the 

important question of the extent to 

which the Commission should rely 


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46 United States v. Socony-Vacuum Oil Co., Inc., 

et al., 310 U.S. 150, 181-90 (1940). 

47 For example, in the Mid-Continent oil field, 17 

independent refiners did not have regular outlets 

for their gasoline, and because they had to keep 

their refineries running, they had to sell 

approximately 600 to 700 tank cars of gasoline each 

month at ‘‘distress’’ prices. Id. at 178-79. For similar 

reasons, a number of independent refiners in the 

East Texas oil field had to sell a substantial number 

of tank cars of gasoline at ‘‘distress’’ prices. See id. 

at 185-90. 

48 Id. at 182. The East Texas Buying Program 

followed a similar approach with respect to 

independent refiners in the East Texas oil field. Id. 

at 185-90. 

49 Id. at 220. 

50 Id. at 223. 

51 Id. at 251. The Court rejected as irrelevant the 

defendants’ arguments that the prices at issue were 

reasonable, and that their activities ‘‘merely 

removed from the market the depressive effect of 

distress gasoline....’’ Id. at 229. 

52 Id. at 223. 

53 Other cases that may be of interest include 

Verizon Communications Inc. v. Law Offices of 

Curtis v. Trinko, LLP, 540 U.S. 398 (2004); Eastman 

Kodak v. Image Technical Services, 504 U.S. 451, 

455-56 (1992); Aspen Skiing Co. v. Aspen Highlands 

Skiing Corp., 472 U.S. 585, 601 (1985); and Virtual 

Maintenance Inc. v. Prime Computer Inc., 11 F.3d 

660, 662 (6th Cir. 1993). This list is not intended 

to be exhaustive, but merely illustrative. 

54 See supra for the criteria the Commission uses 

under the FTC Act. 

55 Please note that nothing in connection with 

this Section 811 Rulemaking, any subsequently 

enacted rules, or related efforts should be construed 

to alter the standards associated with establishing 

a deceptive practice or an unfair practice in a case 

brought by the Commission. 

56 The Commission notes that neither knowledge 

nor intent need be shown to prove a deceptive 

practice or an unfair practice under Section 5 of the 

FTC Act. See, e.g., FTC v. Bay Area Business 

Council, Inc., 423 F.3d 627, 635 (7th Cir. 2005); FTC 

v. Freecom Communications, Inc., 401 F.3d 1192, 

1202 (10th Cir. 2005); FTC v. Amy Travel Serv., Inc., 

875 F.2d 564, 573-74 (7th Cir. 1989). 

57 Federal Trade Commission Report to Congress, 

Investigation of Gasoline Price Manipulation and 

Post-Katrina Gasoline Price Increases (Spring 2006). 

Commenters may consider this report a useful 

primer on the industry. 

upon antitrust and consumer protection 

precedent as a frame of reference for this 

Rulemaking proceeding. The legislation 

gave the Commission new law 

enforcement tools to prevent both 

market manipulation and the reporting 

of false information. However, the 

extent to which law enforcement 

agencies have been able to prevent 

manipulation or deception in the past 

may provide useful lessons as 

commenters offer their input as to how 

best to effectuate EISA Section 811 and 

the statutory objectives it represents. 

In the context of antitrust law, the 

term ‘‘manipulative or deceptive device 

or contrivance’’ is not a term of art. But, 

practices that potentially fall within the 

definition of those terms have been 

analyzed in the past through the prism 

of the Sherman Act Section 1 

prohibition against certain unreasonable 

contracts, combinations and 

conspiracies in restraint of trade; 

through the Sherman Act Section 2 

prohibition against monopolization, 

attempts to monopolize, and 

conspiracies to monopolize; and 

through the FTC Act prohibition against 

unfair methods of competition. 

For example, 60 years ago, the 

Supreme Court addressed the concept of 

manipulation in the petroleum industry 

in United States v. Socony-Vacuum Oil 

Co. In that case, 12 oil companies and 

five individuals violated Section 1 of 

the Sherman Act by operating the ‘‘MidContinent Buying Program’’ and the 

‘‘East Texas Buying Program.’’46 The 

defendant participants in these two 

programs agreed that they would 

purchase tank cars of ‘‘distress gasoline’’

from independent oil refiners.47

Thereafter, the participants in the MidContinent Buying Program held 

monthly meetings at which each 

participant would advise the others of 

‘‘how much his company would buy 

and from whom.’’48

The Supreme Court determined that 

the: 

whole scheme was carefully planned and 

executed to the end that distress gasoline 

would not overhang the markets and 

depress them at any time. And as a result 

of the payment of fair going market prices 

a floor was placed and kept under the spot 

markets. Prices rose and jobbers and 

consumers in the Mid-Western area paid 

more for their gasoline than they would 

have paid but for the conspiracy. 

Competition was not eliminated from the 

markets; but it was clearly curtailed, since 

restriction of the supply of gasoline, the 

timing and placement of the purchases 

under the buying programs and the placing 

of a floor under the spot markets obviously 

reduced the play of the forces of supply 

and demand.49

The Court determined that the 

purchases ‘‘at or under the market are 

one species of price-fixing,’’50 and that 

‘‘there was substantial competent 

evidence that the buying programs 

resulted in an increase of spot market 

prices, of prices to jobbers and of retail 

prices in the Mid-Western area.’’51 The 

Court concluded that the buying 

programs, by stabilizing market prices, 

constituted ‘‘one form of manipulation,’’

and defined ‘‘market manipulation in its 

various manifestations’’ as: 

an artificial stimulus applied to (or at times 

a brake on) market prices, a force which 

distorts those prices, a factor which 

prevents the determination of those prices 

by free competition alone.52

The Socony-Vacuum decision is 

among many in antitrust and consumer 

protection law that may provide useful 

guidance to the Commission in 

determining the metes and bounds of 

manipulative conduct under Subtitle 

B.53 To the extent commenters believe 

the Commission should be aware of 

particular antitrust or consumer 

protection law decisions, commenters 

are encouraged to discuss the cases and 

provide an explanation of the lessons to 

be incorporated from those opinions. 

In addition, unlike the SEC, CFTC, 

and FERC, the Commission has long had 

authority to prevent ‘‘unfair or 

deceptive acts or practices.’’54 That 

prohibition is not limited to ‘‘devices or 

contrivances,’’ and violations do not 

require proof of actual fraud or intent to 

deceive. The Commission seeks 

comments on any guidance its 

experience with unfair or deceptive acts 

or practices should or could provide in 

implementing its new authority.55

E. Reflecting on the Legal Framework — 

Questions for Commenters 

The conduct component of Section 

811 derives from a similar prohibition 

in Section 10(b) of the Securities 

Exchange Act of 1934 — as 

implemented by the SEC through its 

promulgation and enforcement of Rule 

10b-5 — and from the 2005 amendments 

to the Natural Gas Act and the Federal 

Power Act, as implemented through 

regulations promulgated and enforced 

by FERC. The Commodity Exchange 

Act, as enforced by the CFTC, and the 

antitrust laws provide additional 

guidance as to the manner in which the 

Supreme Court and lower courts have 

interpreted the manipulation concept. 

Commenters are encouraged to assess 

whether, and if so to what extent, a 

Section 811 rule should incorporate or 

otherwise reflect any other aspects of 

these statutory and federal court 

precedents. Commenters are encouraged 

to assess whether these statutory and 

federal court precedents indicate that a 

Section 811 rule should prohibit a 

person from using or employing ‘‘any 

manipulative or deceptive device or 

contrivance’’ only if that person 

possesses the scienter — to execute the 

allegedly manipulative strategy at issue 

— that is analogous to the general intent 

to injure competition component of the 

monopolization offense under Section 2 

of the Sherman Act and Section 5 of the 

Federal Trade Commission Act. In 

addition, commenters are encouraged to 

assess whether, and if so to what extent, 

a Section 811 rule should incorporate or 

otherwise reflect the FTC Act 

prohibition of unfair or deceptive acts or 

practices.56

In addition, in the Commission’s 2006 

Investigation of Gasoline Price 

Manipulation and Post-Katrina Gasoline 

Price Increases Report to Congress,57 the 

Commission described and looked for a 


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58 The Commission examined: ‘‘(1) all 

transactions and practices that are prohibited by the 

antitrust laws, including the Federal Trade 

Commission Act, and (2) all other transactions and 

practices, irrespective of their legality under the 

antitrust laws, that tend to increase prices relative 

to costs and to reduce output.’’ Id. at ii (emphasis 

added). The Commission made clear, however, that 

this definition for purpose of the report represented 

neither existing legal prohibitions nor, in its view, 

an identification of practices that should be 

prohibited. 

number of types of practices and 

circumstances in various components of 

the petroleum refining and distribution 

system that might be viewed as 

manipulative.58 Commenters are 

encouraged to discuss whether a Section 

811 rule should limit or prohibit any of 

these types of practices and, if so, in 

what circumstances, including 

discussing the direct and indirect 

benefits and costs of doing so. 

Commenters are also encouraged to 

discuss conduct in connection with the 

purchase and sale of crude oil, which, 

though outside the scope of the 2006 

report, is within the reach of Section 

811. 

IV. Particular Questions For 

Commenters 

Below is a general framework within 

which commenters are encouraged to 

discuss what they believe the contours 

of a Section 811 rule should be. The 

Commission encourages commenters to 

answer specific questions, and to focus 

in particular on defining manipulative 

or deceptive behavior, in order to help 

the Commission formulate a workable 

rule that on balance benefits consumers. 

A. Defining Market Manipulation 

The Commission is considering 

various possible definitions of market 

manipulation for the purpose of this 

Rulemaking under Section 811. One 

possible definition is the following: 

Market manipulation shall mean 

knowingly using or employing, 

directly or indirectly, a manipulative 

or deceptive device or contrivance —

in connection with the purchase or 

sale of crude oil, gasoline, or 

petroleum distillates at wholesale —

for the purpose or with the effect of 

increasing the market price thereof 

relative to costs. 

The Commission seeks comment on 

whether this proposed definition of 

market manipulation is one under 

which a rule may be adopted that is 

‘‘necessary and appropriate in the 

public interest or for the protection of 

United States citizens,’’ as required by 

Section 811. The Commission also seeks 

comment on whether an effect on prices 

should be a necessary element of proof 

under either a charge of market 

manipulation or a charge of attempted 

market manipulation. In addition, the 

Commission encourages commenters to 

suggest any other definitions that, in 

their view, may better address the 

public policy concern enunciated 

through the Commission’s new 

rulemaking authority. 

B. Manipulative or Deceptive Device or 

Contrivance 

As discussed above, Section 811 is 

modeled on authority previously 

granted to the SEC, FERC, and the 

CFTC. The Commission encourages 

commenters to address how Section 

811’s rulemaking authority should be 

exercised in light of the similar 

authority granted to the SEC and to 

FERC. In particular, the Commission 

seeks comments on how legal precedent 

established for violations of rules 

addressing manipulation or deceit in 

regulated behavior (such as securities 

trading or the execution of transactions 

carried out by regulated entities) should 

apply to unregulated behavior, such as 

the purchase and sale at wholesale of 

crude oil, gasoline, or petroleum 

distillates. To what extent (or in what 

particulars) should the jurisprudence 

under the other laws addressing 

manipulation apply under the 

Commission’s new authority? What 

should not apply? The Commission 

encourages commenters to identify both 

general criteria and specific applications 

of the other laws, and to explain why 

each should or should not apply under 

a Section 811 rule, with a specific 

discussion of the costs and benefits of 

application 

The Commission also seeks comment 

on the potential costs or benefits of an 

FTC rule that simply mirrors the 

language of SEC Rule 10b-5 or the 

language of the FERC Final Rule. In 

particular, could a Section 811 rule, that 

is similar to the rules adopted by the 

SEC and FERC for their specific 

purposes, provide sufficient clarity as to 

prohibited practices in the different 

context of crude oil, gasoline, and 

petroleum distillates transactions? In 

addition, commenters are asked to 

consider whether a rule that provides 

more specificity would be adequately 

broad and flexible to allow the 

Commission to address new and varied 

types of manipulation and deception. If 

the Commission develops a rule with 

more specific guidance and standards, 

what should those standards be? 

In the larger context discussed above, 

the Commission also seeks comment on 

the regulatory authority granted to the 

other federal agencies, and the potential 

or actual impact on consumer prices 

from the exercise of this authority. In 

addition, the Commission encourages 

commenters to address whether an antimanipulation rule promulgated under 

Section 811 could be a mechanism for 

abuse by customers, competitors, or 

others. 

C. Effect on the Market 

As indicated in a number of the cases 

discussed above, as well as the FERC 

rulemaking, the primary focus of the 

prohibition on manipulation appears to 

be on practices that are not a reaction 

to market forces. Instead, the focus is on 

practices that intentionally, willfully, or 

recklessly cause distortions in the 

market, such as artificially raising or 

depressing prices. Commenters are 

encouraged to consider whether this 

should be a focus of a potential Section 

811 rule. 

D. Scienter/State of Mind 

In determining whether particular 

conduct violates any of the statutory 

and regulatory proscriptions, the federal 

courts have required a showing that the 

defendants or respondents were not 

simply negligent, but rather possessed at 

least the requisite scienter to execute the 

manipulative practice in question. 

For example, the courts have 

interpreted Section 10(b) of the SEA to 

require a showing of scienter — that is, 

of intentional, willful, or reckless 

conduct designed to deceive or defraud 

by controlling or artificially affecting 

market prices or market activity. FERC 

relied on that precedent to incorporate 

a scienter requirement into its Final 

Rule. By contrast, the courts and the 

CFTC have interpreted the CEA and its 

implementing regulations as requiring a 

showing of a specific intent to injure a 

futures market through the execution of 

an intentionally manipulative strategy. 

The Commission seeks comment on the 

appropriate nature and level of scienter 

for a violation, and on whether that 

determination should depend on the 

nature of the practice at issue (and, if so, 

in what way). An additional question 

for consideration includes whether the 

Commission should incorporate either 

of the above scienter standards into a 

Section 811 rule. Commenters are 

encouraged to provide a specific 

discussion of the costs and benefits of 

the standard they recommend. 

E. In Connection With 

Establishing a violation of Section 811 

also requires establishing that the 

conduct at issue was used or employed 

‘‘in connection with the purchase or 

sale of crude oil[,] gasoline[,] or 


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59 The phrase ‘‘crude oil gasoline or petroleum 

distillates,’’ without commas, is used in Section 811 

(as well as in the first clause of Section 812), while 

the phrase ‘‘crude oil, gasoline, or petroleum 

distillates’’ (with commas) is used in Section 

812(3). This is presumably a non-substantive 

typographical error; therefore, all parts of both 

Sections should be read to cover all three types of 

products (that is, crude oil, gasoline, and petroleum 

distillates). 

60 71 FR 4249, quoting SEC v. Zandford, 535 U.S. 

813, 825 (2002) (the Supreme Court has construed 

the ‘‘in connection with’’ requirement broadly, ‘‘to 

encompass many circumstances where securities 

transactions ‘coincide’ with the overall scheme to 

defraud’’). 

61 The Supreme Court has defined market power 

as the power ‘‘‘to force a purchaser to do something 

that he would not do in a competitive market,’’’ and 

as ‘‘‘the ability of a single seller to raise price and 

restrict output.’’’ Eastman Kodak Co. v. Image 

Technical Services, 504 U.S. 451, 464 (1992), citing 

Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 

U.S. 2, 14 (1984); accord, e.g., United States v. 

Dentsply Int’l, Inc., 399 F.3d 181, 187 (3d Cir. 2005); 

United States v. Microsoft Corp., 253 F.3d 34, 51 

(D.C. Cir.), cert. denied, 534 U.S. 952 (2001). 

Consistent with that determination, the Horizontal 

Merger Guidelines define market power as to a 

seller as ‘‘the ability profitably to maintain prices 

above competitive levels for a significant period of 

time.’’ U.S. Dep’t of Justice & Federal Trade 

Comm’n, Horizontal Merger Guidelines (1992), 

Section 0.1, at 4; accord, Tops Markets, Inc. v. 

Quality Markets, Inc., 142 F.3d 90, 99 (2d Cir. 

1998); United States v. Syufy Enters., 903 F.2d 659, 

665-66 (9th Cir. 1990). As the Commission has 

noted, although the terms ‘‘market power’’ and 

‘‘monopoly power’’ are often treated as synonymous 

from an economic perspective, market power can be 

thought of as a continuum along which the power 

to control prices varies, beginning with the 

complete absence of market power at one end and 

ending with monopoly power at the other. 

International Telephone & Telegraph Co., 104 

F.T.C. 280, 411 n. 60 (1984). 

petroleum distillates at wholesale.’’59 As 

a consequence, Section 811 does not 

extend to retail sales of gasoline. 

Instead, it arguably covers sales and 

purchases starting at the point at which 

crude oil, gasoline, or a petroleum 

distillate is sold by the producer or 

importer, and ending at the point at 

which it is purchased by a retailer. 

Commenters are encouraged to discuss 

how the phrase ‘‘in connection with the 

sale or purchase of crude oil, gasoline, 

or petroleum distillates at wholesale’’

should be interpreted. In relying on 

cases addressing Section 10(b) of the 

SEA to promulgate its Final Rule, FERC 

defined ‘‘in connection with’’ to mean 

that ‘‘in committing fraud, the entity 

must have intended to affect, or have 

acted recklessly to affect, a 

jurisdictional transaction.’’60 The 

Commission specifically seeks guidance 

as to whether the FERC model is 

appropriate for adoption by the 

Commission. 

F. In the Public Interest or For the 

Protection of United States Citizens 

Establishing a violation of Section 811 

also requires a showing that the 

practices ‘‘used or employed’’ violate a 

rule that the Commission has prescribed 

‘‘as necessary or appropriate in the 

public interest or for the protection of 

United States citizens.’’ Commenters are 

encouraged to address how the 

Commission may best ensure that a 

Section 811 rule satisfies this standard. 

Commenters are also encouraged to 

discuss whether antitrust or consumer 

protection principles should or should 

not be incorporated at all into a Section 

811 rule. For example, the Commission 

seeks comment on whether a Section 

811 rule should conform to traditional 

antitrust analysis by requiring (1) the 

use or employment of ‘‘any 

manipulative or deceptive device or 

contrivance’’ to satisfy the 

anticompetitive conduct component of 

the offenses of monopolization and 

attempted monopolization prohibited by 

Section 2 of the Sherman Act and (2) the 

intent and market power components of 

those offenses to be satisfied under the 

standards explained throughout 

antitrust case law.61 Commentors are 

asked to explain whether such a 

construction is necessary or appropriate 

in the context of this Rulemaking. 

G. Penalties 

Section 814 provides civil penalty 

authority of up to $1,000,000, which can 

be assessed against ‘‘suppliers’’ for each 

violation for each day, taking into 

consideration the seriousness of the 

violation and any attempts by the 

violator to mitigate the harm. The 

Commission seeks comment on whether 

any potential chilling effect of these 

penalties on legitimate business 

behavior should affect the interpretation 

of, or required state of mind for, a 

‘‘manipulative deceptive device or 

contrivance.’’ The Commission also 

seeks comment on whether the Section 

814 civil penalty authority extends only 

to violations committed by suppliers 

through sales of crude oil, gasoline, or 

petroleum distillates, or is intended to 

extend to violations committed by 

suppliers through purchases of such 

products as well. 

H. Overlapping Jurisdiction 

As noted above, Congress has 

provided anti-manipulation authority to 

FERC and the CFTC to reach behavior 

previously not regulated by those 

agencies. In some cases, this authority 

may lead to a shared jurisdiction over 

the same behavior. The manipulation 

authority provided by Section 811 may 

subject market participants to similar 

overlapping agency oversight, and 

create the potential for market 

participants to be subject to differing 

standards of conduct and multiple 

levels of liability. The Commission 

seeks comment on the possible effects of 

this type of overlapping jurisdiction. 

The Commission also seeks comment on 

the usefulness of inter-agency 

information sharing on market 

manipulation regulation law 

enforcement; on reducing costs; on 

speeding enforcement actions; on other 

potential benefits or costs for consumers 

and businesses; and, on how it can best 

harmonize its enforcement efforts with 

those of FERC and the CFTC. 

I. Potential Practices 

The Commission requests comment 

on the following topic list, but 

encourages commenters to present any 

other proposals for formal rule 

provisions that they may wish to 

suggest. This list is not to be perceived 

as a formal proposal to address any of 

the practices described pursuant to 

Section 811; rather, it is intended to be 

illustrative, and to encourage further 

thinking. 

• Certain refiners have made public 

announcements of planned reductions 

in the overall utilization of their refinery 

plant(s). The Commission seeks 

comment on: (1) whether such practices 

should be viewed as manipulative; (2) 

the perceived harm from such actions, 

if any; (3) whether such practices 

should or would manifest the intent 

necessary to violate Section 811; and (4) 

whether any business justifications 

balance the perceived harm. 

• Refiners engage in periodic 

scheduled maintenance and refinery 

downtime in order to prevent 

breakdowns or to change equipment. On 

the one hand, such maintenance and 

scheduled downtime are necessary for 

the safe and efficient operation of 

petroleum refineries; on the other hand, 

public announcements of downtime 

may enable competitors to collude 

inappropriately. The Commission 

therefore seeks comment on both the 

costs and the benefits of a rule 

restricting public pre-announcements of 

such downtime. 

• Wholesale petroleum market 

participants frequently rely on 

independent published data for market 

prices in effecting purchase and sale 

contracts and other supply 

arrangements. In the past, Commission 

staff have received allegations of false or 

misleading physical sales reports 

furnished to private reporting entities by 

market participants in thinly traded 

petroleum commodity markets. The 

Commission seeks comment on 

experiences with this practice, the 

likelihood the practice could drive false 

or misleading market prices, the ability 

of a market manipulation rule 


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25622 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

62 In the Matter of BP Amoco p.l.c. and Atlantic 

Richfield Company, FTC File No. 9910192, Docket 

No. C-3938 (August 25, 2000) (hereinafter BP 

Amoco/ARCO). 

effectively to police such activities, and 

the potential benefits or harm to public 

data sources or private data compilation 

services. 

• The Commission seeks comment on 

the circumstances, if any, under which 

a firm’s decision regarding supplying a 

market (including whether to reduce, 

increase, or maintain unchanged the 

amount it supplies) should be 

considered manipulative or deceptive. 

Commenters are encouraged to address 

both the immediate and the long-term 

costs and benefits to consumers of 

permitting, prohibiting, or restricting 

such actions, as well as the effects such 

decisions would have during a time of 

national emergency or natural disaster. 

• Some have argued that market 

participants with terminal or other 

storage inventory should be under an 

affirmative obligation to release 

inventory during price spikes when the 

participant knows, or should know, that 

the release of the product will be 

profitable. The Commission seeks 

comment on when such an obligation 

should be imposed; what possible intent 

standard should be used as a test for 

liability; how one should measure 

profitability in such a circumstance; 

and, the costs and benefits to consumers 

of placing such an obligation on 

potential market suppliers. 

• FERC and state regulations govern 

open access to common carrier 

pipelines. In some circumstances, 

prospective shippers on a given 

common carrier pipeline may lack the 

ability to access that pipeline due to an 

inability to place product in a terminal 

from which to enter the pipeline system, 

or because those shippers lack a 

terminal from which to exit the pipeline 

system. The Commission seeks 

comment on whether a denial of access 

to a non-regulated terminal may be an 

act of market manipulation subject to 

Section 811, and on whether applying 

the rule to this behavior is likely to 

result in benefits that outweigh the 

costs. 

• Regulated petroleum pipelines may 

not allow new shippers a share of a 

pipeline’s capacity when historical 

shippers seek to transport more 

petroleum products than the pipeline is 

capable of transporting. The 

Commission seeks comment on whether 

pre-announcements that pipelines are 

approaching capacity constraints may 

be a conduit for market manipulation or 

deceit under Section 811, and on 

whether applying the rule to this 

behavior is likely to result in benefits 

that outweigh the costs. 

• Accurate cost and volume data for 

wholesale transactions at all levels of 

trade, refinery or pipeline outage data, 

and import and inventory volumes are 

frequently difficult to construct or are 

unavailable. The Commission seeks 

comment on whether it possesses the 

authority to promulgate a rule under 

Section 811 requiring a covered person 

to maintain and submit such 

information to the Commission or any 

other government entity, and, if so, 

whether it should do so, and what 

particular data it should require. 

• The Commission seeks comment on 

how to determine an artificial price. For 

example, if an entity with market power 

that was not obtained by improper 

means, sets its prices above what would 

have been a competitive level, and as a 

result, prices in the market are higher 

than competitive prices, is this an 

artificial price? Commenters are 

encouraged to explain how the 

competitive price should be determined, 

including during a period in which 

capacity has declined unexpectedly 

because of a disaster. Commenters are 

encouraged to assess, in particular, 

whether setting the prices above a 

competitive level should be considered 

a manipulative device or contrivance; 

whether that answer would depend on 

other factors or circumstances, and, if 

so, on which ones; and what the direct 

and indirect, short- and long-term 

effects of treating this as a manipulative 

device or contrivance would be. 

• The Commission seeks comment as 

to what extent or in what circumstances 

should the distinction between 

forbidden and permitted business 

behavior be primarily a function of the 

intent, purpose, or knowledge of the 

actor? For example, if a firm holds back 

inventory during a supply shortage with 

the intent to raise or expectation of 

raising immediate prices, but the effect 

is that the inventory is sold later, when 

the shortage is more severe, and thus 

mitigates the more severe shortage, 

should that be a violation? If a firm 

decreases the amount of product sold in 

a tight market in order to grow its 

business elsewhere, regardless of 

whether prices in the tight market will 

rise, should that be a violation? 

• The Commission encourages 

commenters, in addressing any of the 

foregoing practices, to discuss whether, 

and if so how, a Section 811 rule should 

account for the fact that the practice is 

used prior to, during, or in the aftermath 

of a natural disaster, such as an 

earthquake or a hurricane. 

V. Questions Arising From Two Case 

Studies 

This part of the Advance Notice of 

Proposed Rulemaking focuses on two 

separate series of events that are 

frequently cited as examples of possible 

manipulation in energy markets. 

A. BP Amoco/Atlantic Richfield, FTC 

Docket No. C-3938 

In BP Amoco/Atlantic Richfield, the 

Commission issued a consent order that 

remedied the anticompetitive effects of 

the proposed $27 billion merger 

between BP Amoco p.l.c. (BP) and 

Atlantic Richfield Company (ARCO).62

Under the terms of the settlement, BP 

was required to divest, among other 

things, all of ARCO’s assets relating to 

oil production on Alaska’s North Slope 

(ANS) to Phillips Petroleum Company 

(Phillips). The divestitures required by 

the consent order fully resolved the 

competitive concerns that initially led 

the Commission to seek a preliminary 

injunction to block the transaction. By 

requiring the divestiture of all of 

ARCO’s operations in Alaska, the 

Commission ensured that BP’s market 

share in the exploration, production and 

transportation of ANS crude oil would 

remain unchanged, and that the number 

of players would remain the same. 

The divestiture itself is not 

remarkable for purposes of this 

Rulemaking. However, the Commission 

had reason to believe that BP 

occasionally had exported ANS crude 

oil to the Far East in order to increase 

spot prices for ANS crude oil on the 

West Coast, and that BP benefitted from 

those higher spot prices because of its 

status as a merchant marketer. 

Commenters are encouraged to discuss 

this scenario, whether this type of 

conduct is likely to recur, whether this 

type of conduct still occurs (and if so, 

how frequently), and whether this type 

of practice can be characterized as a 

manipulative or deceptive device or 

contrivance — in connection with the 

purchase or sale of crude oil, gasoline, 

or petroleum distillates at wholesale —

that should be prohibited by a Section 

811 rule. Commenters are also 

encouraged to address scenarios such 

as, for example, when a person or entity 

determines to hold a supply of crude oil 

or petroleum product off the coast of the 

United States for five days — waiting for 

the price to go up, and thereby shorting 

the U.S. supply of crude oil or 

petroleum product — and then sells the 

crude oil or petroleum product after the 

price has risen, thereby securing greater 

revenues than it would have secured if 

it had simply sold the supply on the 

first day rather than the fifth. 


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Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 25623 

63 Final Report On Price Manipulation In Western 

Markets: Fact-Finding Investigation of Potential 

Manipulation of Electric and Natural Gas Prices, 

Docket No. PA02-2-000, Prepared by the Staff of the 

Federal Energy Regulatory Commission (March 

2003), at ES-1 (hereinafter FERC Staff Report), 

available at (http://www.ferc.gov/industries/electric/ 

indus-act/wec/enron/info-release.asp) 

64 FERC Staff Report at ES-1. 

65 Thereafter, in June 2007, an Administrative 

Law Judge issued a decision revoking Enron’s 

market-based rate authorization as of January 1997 

and ordering it to disgorge $1.6 billion of unjust 

profits. See the initial decision in the Gaming and 

Partnership Proceedings 119 FERC ¶ 63013 (2007), 

Docket No. EL03-180-000, available at (http:// 

www.ferc.gov/industries/electric/indus-act/wec/ 

enron/info-release.asp) (hereafter Initial Decision). 

66 Id. at ES-6. 

67 Id. 

68 Id. 

69 Id. at ES-11-12. 

70 Id. at ES-12. 

B. Enron 

The substantial disruptions in 

Western electricity and natural gas 

markets in 2000 and 2001 are often cited 

as the product of market manipulation 

by Enron Corp. and other energy traders, 

and the Commission is interested in 

securing comments on the extent to 

which those disruptions may provide 

guidance as to what may constitute the 

use of a manipulative or deceptive 

device or contrivance, in connection 

with the purchase or sale of crude oil, 

gasoline, or petroleum distillates at 

wholesale. In May 2001, FERC initiated 

a staff investigation to determine 

whether Enron or any other sellers 

manipulated electricity and natural gas 

markets in California and other Western 

states in 2000 and 2001. In a Final Staff 

Report issued in March 2003, the FERC 

staff found ‘‘significant market 

manipulation,’’ but also determined that 

significant supply shortfalls and a fatally 

flawed market design were the root causes 

of the California market meltdown. The 

underlying supply-demand imbalance and 

flawed market design greatly facilitated the 

ability of certain market participants to 

engage in manipulation.63

The staff found in particular that 

markets for natural gas and electricity in 

California were inextricably linked; that 

dysfunctions in each market fed off the 

other during the crisis; that spot gas 

prices rose to extraordinary levels, 

facilitating the unprecedented price 

increase in the electricity market; and 

that the dysfunctions in the natural gas 

market appeared to stem, at least in part, 

from efforts to manipulate price indices 

compiled by trade publications.64 The 

FERC Staff Report concluded, inter alia, 

that Enron manipulated natural gas 

markets to the detriment of California 

electricity consumers.65

The FERC Staff Report provides an 

extensive discussion of a number of 

manipulative trading strategies that 

energy traders used, including two of 

particular relevance to this Rulemaking 

proceeding. First, a number of market 

participants provided false reports of 

natural gas prices and trade volumes to 

industry publications, including in 

particular Gas Daily and Inside FERC, 

which the staff characterized as ‘‘the 

most influential and relied-upon 

compilers of natural gas price 

indices.’’66 The staff found that ‘‘the 

false reporting included fabricating 

trades, inflating the volume of trades, 

omitting trades, and adjusting the price 

of trades.’’67 The staff further found that: 

[t]he predominant motives for reporting 

false information were to influence 

reported gas prices, to enhance the value 

of financial positions or purchase 

obligations, and to increase reported 

volumes to attract participants by creating 

the impression of more liquid markets. 

Market participants that sold power in 

California, or that were affiliated with such 

sellers, also had incentives to manipulate 

reported prices because the clearing price 

set for power was based, in part, on natural 

gas spot prices.68

Second, the staff found that Enron 

used its subsidiary, EnronOnline (EOL), 

to carry out several different types of 

manipulation. The staff found that 

certain characteristics — including in 

particular the fact that Enron served as 

the counterparty to every trade on EOL 

— made the system ripe for abuse, and 

permitted Enron to use EOL to effect a 

number of different types of 

manipulation. In particular, the staff 

found that wash trades — in which two 

parties would prearrange a pair of sales 

of the same product with no net change 

in ownership — were common on EOL. 

The parties effected such ‘‘trades’’ in 

order artificially to influence the closing 

price on EOL, and/or to increase the 

apparent volume of trading in order 

deceptively to make the market for that 

product appear to be more liquid than 

was actually the case. The staff further 

found that EOL itself ‘‘often posted its 

willingness to buy and sell at the same 

price;’’ that Enron also manipulated 

prices on EOL ‘‘by having affiliates on 

both sides of certain wash-like trades;’’

and that these practices both created a 

false sense of liquidity and raised or 

otherwise distorted prices.69 The staff 

also found that EOL gave Enron a huge 

information advantage — derived from 

its central position in the physical 

markets — which enabled it to earn 

more than $500 million in 2000 and 

2001 from its financial products, while 

sustaining trading losses at a much 

lower level in the ‘‘thinner physical 

markets.’’70

Four important characteristics of the 

markets for the physical products —

that is, for electricity and natural gas —

facilitated execution of the foregoing 

strategies. First, electricity cannot 

economically be stored more than a few 

seconds. As a result, electricity 

generation and transmission are 

necessarily ‘‘just-in-time’’ activities. 

Because storing electricity is 

prohibitively expensive, electricity 

suppliers must essentially anticipate 

demand on a minute-by-minute basis, 

and errant forecasts can cause the 

system to become unstable and lead to 

blackouts. Moreover, the absence of 

storage capability may make physical 

withholding more attractive to a 

supplier — because closing a plant or 

generation unit will then result in the 

immediate withdrawal of output from 

the market — and unless such a 

reduction is offset by a competing 

supplier, this output reduction might be 

sufficient to produce an increase in 

price levels. 

Second, electricity suppliers may be 

able to increase profits by withholding 

capacity during peak demand periods 

because other rival facilities are already 

committed to production and cannot 

respond. Third, the regulation of 

wholesale electricity markets generates 

an enormous amount of publicly 

available information. In particular, the 

cost structure of electricity generators is 

publicly available, and this information 

may potentially support the exercise of 

market power. And fourth, electric 

utilities — including in particular those 

in the California market — have relied 

upon purchasing electricity on spot 

markets, rather than through the 

negotiation of long-term contracts, and 

that type of reliance may facilitate the 

exercise of market power by placing 

electricity suppliers in a repetitive 

situation that supports signaling. 

The Commission encourages 

commenters to consider the foregoing 

discussion, and to address in particular 

whether any of the types of 

manipulative strategies used in the 

electricity and natural gas markets 

might be used in the markets for crude 

oil, gasoline, and petroleum distillates. 

C. Questions For Commenters Relating 

to Case Studies 

• Prior to 1995, Congress had 

imposed a ban on exports of Alaska 

North Slope crude oil. In 1995, Congress 

repealed that ban, but also granted the 

President the power to reimpose the 

export ban in certain circumstances. 

The Commission seeks comment on the 

effects of the export ban and of its 

repeal; on the residual authority of the 

President to reimpose the ban; and on 


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25624 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Proposed Rules 

any implications these circumstances 

may have for a Section 811 rule. 

• Consider the following scenario: a 

supplier provides a particular type or 

formulation of product that cannot be 

obtained from other suppliers (not due 

to monopolization by the supplier). This 

particular product is needed in certain 

areas, and is not easily substituted for 

by other suppliers’ products. The 

Commission seeks comment on whether 

the following practice would constitute 

a manipulative device or contrivance: if 

the supplier sold some of its product to 

certain areas but not to other areas, at 

a loss or for a profit that is not as great 

as it would likely have made in the area 

where it did not sell. In answering this 

question, commenters are encouraged to 

address whether their answers depend 

on the supplier’s knowledge or 

motivation(s), such as that the supplier 

(1) might have had contractual 

arrangements elsewhere; (2) might have 

anticipated developing more business 

elsewhere; (3) might have anticipated 

that prices in the particular areas might 

go up, making the rest of its supply sold 

in those areas more profitable; or (4) 

might have taken the foregoing steps for 

the express purpose of causing the 

prices in those areas to go up. 

Commenters are also encouraged to 

address whether their answers depend 

on how difficult it is to substitute for or 

do without the product, and, if so, what 

constitutes an unreasonable degree of 

difficulty. 

• As noted above, market 

manipulation by certain firms (Enron 

and others) is often cited as a significant 

cause of the substantial disruptions in 

Western electricity and natural gas 

markets in 2000 and 2001. The 

Commission seeks comment on the 

extent to which such activities, 

including but not limited to the 

activities described above, may provide 

guidance as to what may constitute the 

use of a manipulative or deceptive 

device or contrivance, in connection 

with the purchase or sale of crude oil, 

gasoline, or petroleum distillates at 

wholesale. 

• In light of the electricity market 

characteristics identified by the FERC 

Staff Report, and the physical 

peculiarities of electricity storage and 

distribution, the Commission seeks 

comment on how relevant this 

experience may be to wholesale 

petroleum markets, and on whether 

(and if so to what extent) this 

experience can inform the 

Commission’s approach to 

distinguishing manipulative or 

deceptive devices or contrivances from 

legitimate business practices. 

VI. Regulatory Flexibility Act 

• Does Subtitle B of the EISA impose 

any disparate impact on small 

businesses? If so, how may this 

disparate impact be minimized? 

• Describe and, where feasible, 

estimate the number of small entities to 

which Subtitle B applies. 

VII. Conclusion 

The Commission will proceed from 

this ANPR to a Notice of Proposed 

Rulemaking. The evaluation of 

comments submitted in response to this 

ANPR will comprise part of the 

Commission’s rulemaking process. 

By direction of the Commission. 

Donald S. Clark, 

Secretary. 

[FR Doc. E8–10102 Filed 5–6–08: 8:45 am] 

BILLING CODE 6750–01–S 

COAST GUARD 

33 CFR Part 165 

[Docket No. USCG–2008–0314] 

RIN 1625–AA00 

Safety Zone; Red Bull Air Race, Detroit 

River, Detroit, MI 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Coast Guard proposes 

establishing a temporary safety zone on 

the Detroit River, Detroit, Michigan. 

This Zone is intended to restrict vessels 

from portions of the Detroit River during 

the Red Bull Air Race. This temporary 

safety zone is necessary to protect 

spectators and vessels from the hazards 

associated with air races. 

DATES: Comments and related material 

must reach the Coast Guard on or before 

May 22, 2008. 

ADDRESSES: You may submit comments 

identified by Coast Guard docket 

number USCG–2008–0314 to the Docket 

Management Facility at the U.S. 

Department of Transportation. To avoid 

duplication, please use only one of the 

following methods: 

(1) Online: http://www.regulation.gov. 

(2) Mail: Docket Management Facility 

(M–30), U.S. Department of 

Transportation, West Building Ground 

Floor, Room W12–140, 1200 New Jersey 

Avenue, SE., Washington, DC 20590–

0001. 

(3) Hand delivery: Room W12–140 on 

the Ground Floor of the West Building, 

1200 New Jersey Avenue, SE., 

Washington, DC 20590, between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. The telephone 

number is 202–366–9329. 

(4) Fax: 202–493–2251. 

FOR FURTHER INFORMATION CONTACT: LT 

Jeff Ahlgren, Waterways Management, 

U.S. Coast Guard Sector Detroit, 110 

Mount Elliot Ave., Detroit, MI 48207, 

(313) 568–9580. 

SUPPLEMENTARY INFORMATION: 

I. Public Participation and Request for 

Comments 

We encourage you to participate in 

this rulemaking by submitting 

comments and related materials. All 

comments received will be posted, 

without change, to http:// 

www.regulations.gov and will include 

any personal information you have 

provided. We have an agreement with 

the Department of Transportation (DOT) 

to use the Docket Management Facility. 

Please see DOT’s ‘‘Privacy Act’’

paragraph below. 

A. Submitting Comments 

If you submit a comment, please 

include the docket number for this 

rulemaking (USCG–2008–0314), 

indicate the specific section of this 

document to which each comment 

applies, and give the reason for each 

comment. We recommend that you 

include your name, mailing address, 

and an e-mail address or other contact 

information in the body of your 

document to ensure that you can be 

identified as the submitter. This also 

allows us to contact you in the event 

further information is needed or if there 

are questions. For example, if we cannot 

read your submission due to technical 

difficulties and you cannot be 

contacted; your submission may not be 

considered. You may submit your 

comments and material by electronic 

means, mail, fax, or delivery to the 

Docket Management Facility at the 

address under ADDRESSES; but please 

submit your comments and material by 

only one means. If you submit them by 

mail or delivery, submit them in an 

unbound format, no larger than 81⁄2 by 

11 inches, suitable for copying and 

electronic filing. If you submit them by 

mail and would like to know that they 

reached the Facility, please enclose a 

stamped, self-addressed postcard or 

envelope. We will consider all 

comments and material received during 

the comment period. We may change 

this proposed rule in view of them. 

B. Viewing Comments and Documents 

To view comments, as well as 

documents mentioned in this preamble 

as being available in the docket, go to 

http://www.regulations.gov at any time, 

click on ‘‘Search for Dockets,’’ and enter 

the docket number for this rulemaking 

(USCG–2008–0218) in the Docket ID 


rwilkins on PROD1PC63 with PROPOSALS