Document ID: FERC-2005-0347-0003
Agency: ferc
Document Type: Rule
Title: Prohibition of Energy Market Manipulation
Posted Date: 2006-01-26T05:00Z

[Federal Register: January 26, 2006 (Volume 71, Number 17)]
[Rules and Regulations]               
[Page 4244-4258]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ja06-9]                         

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 1c

[Docket No. RM06-3-000; Order No. 670]

 
Prohibition of Energy Market Manipulation

Issued January 19, 2006.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: In this Final Rule, pursuant to Title III, Subtitle B, and 
Title XII, Subtitle G of the Energy Policy Act of 2005, the Federal 
Energy Regulatory Commission (Commission) is amending its regulations 
to implement new section 4A of the Natural Gas Act and new section 222 
of the Federal Power

[[Page 4245]]

Act, prohibiting the employment of manipulative or deceptive devices or 
contrivances.

DATES: Effective Date: January 26, 2006.

FOR FURTHER INFORMATION CONTACT: 
Mark Higgins, Office of Market Oversight and Investigations, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426. (202) 502-8273. Mark.Higgins@ferc.gov.
Frank Karabetsos, Office of General Counsel, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426. (202) 502-
8133. Frank.Karabetsos@ferc.gov.

SUPPLEMENTARY INFORMATION: 

Table of Contents

                                                               Paragraph
                                                                  No.

I. Introduction.............................................          1.
II. Background                                                        6.
III. Discussion.............................................          8.
    A. Scope of Application of Regulations..................          9.
        1. Comments.........................................          9.
        2. Commission Determination.........................         16.
    B. General Applicability of Securities Law Concepts.....         26.
        1. Comments.........................................         26.
        2. Commission Determination.........................         30.
    C. Disclosure...........................................         33.
        1. Duty of Disclosure...............................         34.
            a. Comments.....................................         34.
            b. Commission Determination.....................         35.
        2. Sections 1c.1(a)(2) and 1c.2(a)(2) and Omissions          38.
         of Material Fact...................................
            a. Comments.....................................         38.
            b. Commission Determination.....................         41.
    D. Sections 1c.1(a)(3) and 1c.2(a)(3) and Intent........         43.
        1. Comments.........................................         43.
        2. Commission Determination.........................         45.
    E. Elements of a Manipulation Claim.....................         46.
        1. Comments.........................................         46.
        2. Commission Determination.........................         48.
    F. Interplay with Market Behavior Rules.................         55.
        1. Comments.........................................         55.
        2. Commission Determination.........................         58.
    G. Statute of Limitations...............................         61.
        1. Comments.........................................         61.
        2. Commission Determination.........................         62.
    H. Safe Harbors and Affirmative Defenses................         64.
        1. Comments.........................................         64.
        2. Commission Determination.........................         66.
    I. Procedures for Handling Manipulation Claims..........         68.
        1. Comments.........................................         68.
        2. Commission Determination.........................         70.
    J. Miscellaneous Issues.................................         75.
        1. Use of ``Entity'' in place of ``Person'' in               75.
         sections 1c.1(a)(3) and 1c.2(a)(3).................
            a. Comments.....................................         75.
            b. Commission Determination.....................         76.
        2. Impact of New Regulations on the Policy Statement         77.
         on Natural Gas and Electric Price Indices..........
            a. Comments.....................................         77.
            b. Commission Determination.....................         78.
        3. Special Pleading.................................         79.
            a. Comments.....................................         79.
            b. Commission Determination.....................         80.
IV. Regulatory Flexibility Act Certification................         81.
V. Information Collection Statement.........................         83.
VI. Environmental Statement.................................         84.
VII. Document Availability..................................         85.
VIII. Effective Date and Congressional Notification.........         88.
Regulatory Text.............................................
Appendix: Parties Filing Initial and Reply Comments and
 Acronyms...................................................

Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead 
Brownell, and Suedeen G. Kelly.

I. Introduction

    1. On October 20, 2005, the Commission issued a Notice of Proposed 
Rulemaking (NOPR) to prohibit energy market manipulation.\1\ Pursuant 
to section 4A of the Natural Gas Act (NGA) \2\ and section 222 of the 
Federal Power Act (FPA),\3\ as added to the statutes by the Energy 
Policy Act of 2005 (EPAct 2005),\4\ the Commission proposed to add a 
Part 159 under Subchapter E and a Part 47 under Subchapter B to Title 
18 of the Code of Federal Regulations. Under the proposed regulations, 
it would be

[[Page 4246]]

unlawful for any entity, directly or indirectly, in connection with the 
purchase or sale of natural gas or the purchase or sale of 
transportation services subject to the jurisdiction of the Commission, 
or in connection with the purchase or sale of electric energy or the 
purchase or sale of transmission services subject to the jurisdiction 
of the Commission, (1) to use or employ any device, scheme, or artifice 
to defraud, (2) 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 (3) to engage in any act, practice, or course of 
business that operates or would operate as a fraud or deceit upon any 
person.
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    \1\ Prohibition of Energy Market Manipulation, 113 FERC ] 61,067 
(2005); 70 FR 61930, October 27, 2005.
    \2\ 15 U.S.C. 717 et al. (2000).
    \3\ 16 U.S.C. 791a et al. (2000).
    \4\ Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 
(2005), 315 and 1283, respectively.
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    2. In the NOPR, the Commission stated that sections 315 and 1283 of 
EPAct 2005 ``apply to the conduct of `any entity,' not just 
jurisdictional market-based rate sellers, natural gas pipelines, or 
holders of blanket certificate authority,'' and ``includes not only 
regulated utilities but also governmental utilities and other market 
participants.'' \5\ Furthermore, we stated in the NOPR that sections 
1c.1(a)(1)-(3) and 1c.2(a)(1)-(3) of the proposed regulations were 
patterned after the Securities and Exchange Commission's (SEC) Rule 
10b-5,\6\ and were ``intended to be interpreted consistent with 
analogous SEC precedent that is appropriate under the circumstances.'' 
\7\ Sections 1c.1(b) and 1c.2(b) of the proposed regulations stated 
that nothing in these provisions should be construed to create a 
private right of action. The Commission further noted, however, that 
sections 1c.1(b) and 1c.2(b) were not intended to take away any other 
right that may otherwise exist.
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    \5\ NOPR at 70 FR 61931.
    \6\ 17 CFR 240.10b-5 (2005).
    \7\ NOPR at 70 FR 61931. As explained in P 5, supra, the 
regulations proposed to be placed in new sections 159.1 and 47.1 
will be new sections 1c.1 and 1c.2, respectively.
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    3. Thirty parties filed comments and nine parties filed reply 
comments.\8\ In response to the comments, and as discussed more fully 
below, the Commission, among other things: clarifies the scope of 
application of the final rule; addresses comments pertaining to 
disclosure and sections 1c.1(a)(2)-(3) and 1c.2(a)(2)-(3) of the final 
rule; discusses the elements of a violation of the final rule; notes 
the relationship of the final rule to the Market Behavior Rules \9\ ; 
and deals with a number of implementation issues, such as the 
applicable statute of limitations, affirmative defenses and safe harbor 
provisions, and procedural matters.
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    \8\ Entities filing intervening and reply comments are listed in 
the Appendix to this final rule. The abbreviations for such 
commenters are noted in the Appendix. The Commission has accepted 
and considered all comments filed, including late-filed comments.
    \9\ Investigation of Terms and Conditions of Public Utility 
Market-Based Rate Authorizations, 105 FERC ] 61,218 (2003), reh'g 
denied, 107 FERC ] 61,175 (2004); Order No. 644, Amendment to 
Blanket Sales Certificates, 68 FR 66323 (2003), FERC Stats. & Regs. 
] 31,153 (2003), reh'g denied, 107 FERC ] 61,174 (2004). The Market 
Behavior Rules are currently on appeal. Cinergy Marketing & Trading, 
L.P. v. FERC, Nos. 04-1168 et al. (DC Cir., appeal filed April 28, 
2004).
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    4. For the most part, the Commission finds it unnecessary to change 
the wording of the proposed regulatory text, except in one respect: 
substituting ``entity'' for ``person'' in sections 1c.1(a)(3) and 
1c.2(a)(3) of the final rule. However, we do provide certain 
clarifications requested by several commenters. In addition, we find 
that some of the recommendations made by commenters are more 
appropriately addressed in the proceeding initiated in Docket No. RM06-
5-000, proposing to repeal the codes of conduct for unbundled sales 
service and for persons holding blanket marketing certificates, and in 
Docket No. EL06-16-000, proposing to repeal the Market Behavior Rules, 
which are currently included in all public utility sellers' market-
based rate tariffs and authorizations.\10\
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    \10\ Amendments to Codes of Conduct for Unbundled Sales Service 
and for Persons Holding Blanket Marketing Certificates, 70 FR 72090 
(2005), 113 FERC ] 61,189 (2005); Investigation of Terms and 
Conditions of Public Utility Market-Based Rate Authorizations, 70 FR 
71484 (2005), 113 FERC ] 61,190 (2005).
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    5. Without a rule prohibiting manipulative or deceptive conduct, 
the language of EPAct 2005 sections 315 and 1283 does not, by itself, 
make any particular act unlawful. As a result, this final rule serves 
as the implementing provision designed to prohibit manipulation and 
fraud in the markets the Commission is charged with regulating. The 
final rule is not intended to regulate negligent practices or corporate 
mismanagement, but rather to deter or punish fraud in wholesale energy 
markets. In addition, to ease references to the final rule, we have 
determined to place the new regulations in a new Part 1c of the 
Commission's general regulations, rather than separately in new Parts 
159 and 47 as proposed in the NOPR. The regulatory text of proposed 
sections 159.1 and 47.1 as identified herein will be new sections 1c.1 
and 1c.2, respectively.

II. Background

    6. On August 8, 2005, EPAct 2005 became law. Sections 315 and 1283 
of EPAct 2005, amending the NGA and the FPA, respectively, are 
virtually identical, and prohibit the use or employment of manipulative 
or deceptive devices or contrivances in connection with the purchase or 
sale of natural gas, electric energy, or transportation or transmission 
services subject to the jurisdiction of the Commission. These anti-
manipulation sections of EPAct 2005 closely track the prohibited 
conduct language in section 10(b) of the Securities Exchange Act of 
1934,\11\ and specifically dictate that the terms ``manipulative or 
deceptive device or contrivance'' are to be used ``as those terms are 
used in section 10(b) of the Securities Exchange Act of 1934.''
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    \11\ Securities Exchange Act of 1934, 15 U.S.C. 78j(b) (2000) 
(Exchange Act).
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    7. The SEC adopted Rule 10b-5,\12\ which implemented section 10(b) 
of the Exchange Act. Since their promulgation, a significant body of 
legal precedent concerning section 10(b) of the Exchange Act and Rule 
10b-5 has developed. Consistent with the mandate that certain aspects 
of the Commission's new authority be exercised in a manner consistent 
with section 10(b) of the Exchange Act, consistent with Congress' 
modeling sections 315 and 1283 of EPAct 2005 on section 10(b) of the 
Exchange Act, and as proposed in the NOPR, the Commission has modeled 
the final rule on Rule 10b-5. This approach will benefit entities 
subject to the new rule because there is a substantial body of 
precedent applying the comparable language of Rule 10b-5. In the course 
of responding to various comments, we will discuss the appropriate 
application of analogous securities law precedent that will inform the 
interpretation of the final rule in the context of the NGA and FPA.
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    \12\ 17 CFR 240.10b-5 (2005).
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III. Discussion

    8. The 30 initial comments and nine reply comments on the NOPR are 
from a diverse group of industry stakeholders. Overwhelmingly, 
commenters are supportive of our efforts to implement well-developed, 
clear and fair rules aimed at eliminating the potential for fraud in 
wholesale energy transactions. The comments identify a number of 
issues: (1) The scope of application of the Final Rule; (2) the 
usefulness of securities law precedents to the energy industry; (3) the 
disclosure implications of the Final Rule; (4) the elements that 
comprise a violation of the Final Rule; (5) how the Final Rule will 
interact with the Market Behavior Rules; and (6) a variety of 
procedural matters, including the appropriate

[[Page 4247]]

statute of limitations to apply to the Final Rule. These issues and 
others that were raised in comments are addressed in the sections that 
follow.

A. Scope of Application of Regulations

1. Comments
    9. Several commenters express views on the appropriate scope of the 
proposed anti-manipulation regulations.\13\ Commenters ask the 
Commission to clarify the meaning of ``any entity'' and ``subject to 
the jurisdiction of the Commission'' as these statutory terms apply to 
the proposed regulations. For example, the Midwest ISO supports broad 
application of the proposed regulations to any entity as opposed to 
``limiting the application of the regulations to FERC jurisdictional 
parties.'' \14\ Likewise, NASUCA reads the proposed regulations as 
applying to all entities, ``not just jurisdictional market-based rate 
sellers, natural gas pipelines, or holders of blanket certificate 
authority.'' \15\ AGA asks the Commission to clarify that ``any 
entity'' means that the proposed regulations extend beyond Order No. 
644 regulation of jurisdictional market-based rate sellers, natural gas 
pipelines, or holders of blanket certificate authority. This is 
necessary, AGA asserts, to ensure the rules will have the ``intended 
effective impact on the market place for natural gas sales.'' \16\
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    \13\ See, e.g., AGA at 4-5; APGA at 10; APPA at 3-4; AOPL at 2; 
BP at 1-2; Cinergy at 8; EEI at 25-26; Indicated Market Participants 
at 8; Midwest ISO at 4; NARUC Reply at 3-5; SCANA at 3; SUEZ at 6-
11.
    \14\ Midwest ISO at 4.
    \15\ NASUCA at 3.
    \16\ AGA at 4.
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    10. Two commenters specifically address whether the proposed 
regulations apply to ``first sales'' \17\ of natural gas. APGA, noting 
that first sales represent a substantial part of the wholesale natural 
gas market, argues that the phrase ``subject to the jurisdiction of the 
Commission'' in NGA section 4A must be read to apply only to ``the 
purchase or sale of transportation services'' and not to the preceding 
clause ``purchase or sale of natural gas.'' \18\ SUEZ, however, argues 
that ``subject to the jurisdiction of the Commission'' applies to 
purchases and sales as well as to transportation services. SUEZ 
maintains that ``any entity'' does not include entities engaged in non-
jurisdictional transactions such as first sales, sales of LNG, or 
retail sales, but is intended only to bring certain governmental 
entities otherwise excluded from FPA jurisdiction under the umbrella of 
the proposed regulations.\19\
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    \17\ ``First sales'' are certain wholesale sales of natural gas 
removed from the Commission's jurisdiction by the Natural Gas Policy 
Act of 1978 (NGPA) and the Wellhead Decontrol Act of 1989. 
Accordingly, the only sales of natural gas that the Commission 
currently has jurisdiction to regulate are sales for resale of 
domestic gas by pipelines, local distribution companies (LDCs), or 
their affiliates so long as they do not produce the gas that they 
sell, and sales for resale of natural gas previously purchased and 
sold by an interstate pipeline, LDC or retail customer. See Dan 
Diego Gas and Electric Company, 101 FERC ] 61,161 at P 10 (2002); 
Reporting of Natural Gas Sales to the California Market, 96 FERC & 
61,119 at 61,463, reh'g denied, 97 FERC ] 61,029 (2001).
    \18\ APGA at 3-10.
    \19\ SUEZ at 10, referring to FPA section 201(f) entities.
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    11. APPA and NARUC also urge the Commission to construe the phrase 
``subject to the Commission's jurisdiction'' to modify both the 
purchase or sale of electric energy and the purchase or sale of 
transmission services. By doing so, APPA and NARUC argue, the 
Commission will make clear the regulation does not apply to retail 
sales or purchases and thus will avoid overlap with state and local 
jurisdiction.\20\ In reply comments, Cinergy argues that regardless of 
the parsing of the statutory language, the manipulation authority falls 
within the existing scope of the FPA and NGA, and that nothing in the 
scope of these statutes suggests that retail sales are in any way 
subject to the Commission's authority.\21\ Likewise, EEI argues that 
the FPA is limited to wholesale markets, and that matters subject to 
state regulation are excluded from the reach of the Commission.\22\
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    \20\ APPA at 4; NARUC Reply at 3.5.
    \21\ Cinergy Reply at 2-4.
    \22\ EEI Reply at 6.
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    12. NGSA asserts that EPAct 2005 does not open the door to 
regulation of non-jurisdictional sales even if they are subject to the 
anti-manipulation rules. NGSA acknowledges that the statutory 
provisions expand the Commission's authority to prevent market 
manipulation, but cautions that nothing in the statute grants the 
Commission any rate or certificate jurisdiction over deregulated first 
sales of natural gas.\23\
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    \23\ NGSA at 3.
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    13. Other commenters address the meaning of ``any entity'' in the 
context of FPA sections 201(f) and 211A. PG&E argues that it is crucial 
that the Commission's authority to prohibit manipulation extend to all 
entities involved in the market. Noting the specific reference to 
entities described in FPA section 201(f), PG&E states that the proposed 
regulations should apply to all municipalities and other governmental 
agencies.\24\ EEI also states that the proposed regulations must reach 
entities described in FPA section 201(f), including unregulated 
transmitting utilities under FPA section 211A. This is so, EEI argues, 
because the authority to require comparable open access transmission 
under FPA section 211A makes all transmission service provided by FPA 
section 201(f) entities subject to the jurisdiction of the Commission 
and thus subject to the proposed anti-manipulation rules.\25\ APPA 
responds that under section 211A(c) certain entities are not subject to 
the transmission service requirements (those selling less than 
4,000,000 MWhs per year, or that do not own facilities necessary to 
operate an interconnected transmission system, or that meet other 
criteria that the Commission may adopt in the future). These entities, 
APPA argues, are not subject to the jurisdiction of the Commission and 
thus not subject to the proposed regulations.\26\ NRECA goes further, 
asserting that while FPA section 201(f) governmental entities are 
``potentially'' subject to the proposed anti-manipulation regulations, 
the regulations can only apply to transactions that are otherwise 
subject to the Commission's jurisdiction. Thus, NRECA argues that 
neither party to a retail sale, to transmission service in intrastate 
commerce, or to a sale of electricity or transmission service by a FPA 
section 201(f) entity are subject to the proposed regulations.\27\
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    \24\ PG&E at 6.
    \25\ EEI at 25.
    \26\ APPA Reply at 5-6.
    \27\ NRECA Reply at 2-5.
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    14. AOPL seeks clarification that ``subject to the jurisdiction of 
the Commission'' does not mean the Commission would subject oil 
pipelines to claims of market manipulation in connection with 
transportation and transmission services subject to the Commission's 
jurisdiction under the Interstate Commerce Act (ICA).\28\
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    \28\ AOPL at 1-3.
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    15. Finally, Cinergy asks that the text of the proposed regulations 
be modified to make explicit that the regulations pertain only to 
market manipulation, noting that SEC Rule 10b-5 applies to a wide range 
of activities beyond market manipulation.\29\
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    \29\ Cinergy at 8.
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2. Commission Determination
    16. As an initial matter, this Final Rule does not, and is not 
intended to, expand the types of transactions subject to the 
Commission's jurisdiction under the FPA, NGA, NGPA, or ICA. As now 
explained, however, the new regulations do apply to ``any entity'' as 
that is the scope of the final rule as directed by sections 315 and 
1283 of EPAct 2005. If

[[Page 4248]]

any entity engages in manipulation and the conduct is found to be ``in 
connection with'' a jurisdictional transaction, the entity is subject 
to the Commission's anti-manipulation authority. Absent such nexus to a 
jurisdictional transaction, however, fraud and manipulation in a non-
jurisdictional transaction (such as a first or retail sale) is not 
subject to the new regulations.
    17. NGA section 4A and FPA section 222 make it unlawful for ``any 
entity'' to use a manipulative or deceptive device or contrivance ``in 
connection with'' the purchase or sale of natural gas or electric 
energy or the purchase or sale of transportation or transmission 
services ``subject to the jurisdiction of the Commission.'' \30\ The 
answer to the scope of application of the final rule lies in a 
reasonable reading of these terms in relation to each other.
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    \30\ The text of EPAct 2005 section 315, adding section 4A to 
the NGA, is:
    It shall be unlawful for any entity, directly or indirectly, to 
use or employ, in connection with the purchase or sale of natural 
gas or the purchase or sale of transportation services subject to 
the jurisdiction of the Commission, any manipulative or deceptive 
device or contrivance (as those terms are used in section 10(b) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78j(b))) in 
contravention of such rules and regulations as the Commission may 
prescribe as necessary in the public interest or for the protection 
of natural gas ratepayers. Nothing in this section shall be 
construed to create a private right of action.
    The corresponding text of EPAct 2005 section 1283, adding 
section 222 to the FPA, is:
    (a) In general.--It shall be unlawful for any entity (including 
an entity described in section 201(f)), directly or indirectly, to 
use or employ, in connection with the purchase or sale of electric 
energy or the purchase or sale of transmission services subject to 
the jurisdiction of the Commission, any manipulative or deceptive 
device or contrivance (as those terms are used in section 10(b) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78j(b))), in 
contravention of such rules and regulations as the Commission may 
prescribe as necessary or appropriate in the public interest or for 
the protection of electric ratepayers.
    (b) No Private Right of Action.--Nothing in this section shall 
be construed to create a private right of action.
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    18. ``Any entity'' is a deliberately inclusive term. Congress could 
have used the existing defined terms in the NGA and FPA of ``person,'' 
``natural-gas company,'' or ``electric utility,'' but instead chose to 
use a broader term without providing a specific definition.\31\ Thus, 
the Commission interprets ``any entity'' to include any person or form 
of organization, regardless of its legal status, function or 
activities.\32\
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    \31\ See NGA sections 2(1) and 2(6); FPA sections 3(4) and 
3(22). Congress did note that entities described in FPA section 
201(f) are included in the meaning of entity. See FPA section 
222(a).
    \32\ Because many entities that are engaged in wholesale natural 
gas or electricity transactions or in interstate transportation or 
transmission services, engage in both jurisdictional and non-
jurisdictional transactions, it is not enough to say, as SUEZ 
suggests, that entities engaging in non-jurisdictional transactions 
are not covered.
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    19. The second aspect of the analysis focuses on the transaction 
involved. A transaction under NGA section 4A is ``the purchase or sale 
of natural gas or the purchase or sale of transportation services 
subject to the jurisdiction of the Commission.'' A transaction under 
FPA section 222 is ``the purchase or sale of electric energy or the 
purchase or sale of transmission services subject to the jurisdiction 
of the Commission.'' The critical issue is whether the limiting phrase 
of ``subject to the jurisdiction of the Commission'' applies to both 
preceding phrases, that is, (1) the purchase or sale of the energy 
commodity and (2) transportation services or transmission services, or 
just to the transportation or transmission services. APGA argues that 
the ``rule of the last antecedent'' means that it should only modify 
the last phrase, that is, transportation services or transmission 
services. But in the absence of definitive punctuation or other clearer 
expression of intent to limit the jurisdiction requirement only to 
transportation or transmission, the Commission must look for the 
meaning which is the most reasonable under the circumstances.\33\
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    \33\ APGA at 4 (citing 2a N. Singer, Sutherland on Statutory 
Construction Sec.  47:33 at 369 (6th rev. ed. 2000) and Barnhart v. 
Thomas, 540 U.S. 20, 26 (1993)). The general rule is that a 
qualifying phrase will normally apply to the provision or clause 
immediately preceding it. However, ``where the sense of the entire 
act requires that a qualifying word or phrase apply to several 
preceding * * * sections, the word or phrase will not be restricted 
to its immediate antecedent.'' Sutherland Sec.  47:33 at 372. The 
case referred to by APGA also notes that the rule is ``not an 
absolute'' and ``can assuredly be overcome by other indicia of 
meaning.'' Barnhart v. Thomas, 540 U.S. at 26.
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    20. The Commission concludes that the phrase ``subject to the 
jurisdiction of the Commission'' should be read as modifying both 
preceding phrases, that is, ``the purchase or sale'' as well as 
``transportation services'' (NGA) and ``transmission services'' (FPA). 
Had Congress intended to expand the Commission's jurisdiction so 
significantly as to give it anti-manipulation authority over such 
transactions as first sales of imported natural gas, intrastate sales 
of electric energy, retail sales of electric energy or energy sales by 
governmental entities, we believe it would have done so explicitly.\34\ 
Further, in light of the close link between transportation or 
transmission services and natural gas and electric commodity sales, we 
do not believe that Congress would have expanded the Commission's 
authority to cover all natural gas and electric commodity sales but not 
all gas transportation and electric transmission. Accordingly, we 
conclude that the most reasonable interpretation is that Congress did 
not expand the Commission's traditional NGA and FPA subject matter 
jurisdiction in sections 315 or 1283 of EPAct, but rather gave the 
Commission broad jurisdiction over the entities that engage in certain 
conduct affecting our subject matter jurisdiction.
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    \34\ Transactions not subject to the Commission's jurisdiction 
include first sales, sales of imported natural gas, sales of 
imported LNG, sales and transportation by NGA section 1(b)-(d) 
entities (i.e., activities including production and gathering, local 
distribution, ``Hinshaw'' pipelines, and vehicular natural gas), or 
by NGA section 7(f) companies, retail sales of electric energy, 
sales of electric energy in intrastate commerce, sales of electric 
energy by governmental entities and certain electric power 
cooperatives, and certain interstate transmission by governmental 
entities.
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    21. Third, the phrase ``in connection with'' must be given meaning. 
APGA says that interpreting ``subject to the jurisdiction of the 
Commission'' as applying to sales effectively would exclude producers 
and marketers from the reach of the final rule as these are the 
dominant sellers of natural gas in wholesale markets. APGA argues this 
interpretation implies that enactment of NGA section 4A serves no 
purpose, as it does not increase the Commission's reach beyond the 
rules already promulgated by Order No. 644.\35\ This is not the case, 
however. As discussed below, any entity may be subject to the final 
rule if its fraudulent or manipulative conduct is ``in connection 
with'' a purchase or sale of natural gas, electric energy, 
transportation service, or transmission service that is subject to the 
Commission's jurisdiction.\36\ Thus,

[[Page 4249]]

the third aspect of the analysis is to consider whether the fraud is 
``in connection with'' a jurisdictional transaction.
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    \35\ APGA at 6-8. APGA also points to EPAct 2005 section 318, 
which adds a new section (d) to NGA section 20. Section 20(d) 
authorizes the Commission to seek a court order barring an 
individual found to have engaged in manipulation from future energy 
transactions; there is a similar new provision in FPA section 
314(d). Here, APGA argues, Congress used subparts to separate sales 
from transportation service, and applied the ``subject to the 
jurisdiction of the Commission'' only to the latter. This is not 
dispositive. First, this is a separate section of the statute. 
Second, the use of subparts does not conclusively mean that 
``subject to the jurisdiction of the Commission'' cannot also modify 
the first subpart. Third, the reading APGA urges still presents the 
troublesome prospect that parties could assert that the anti-
manipulation authority now applies to retail sales or other 
transactions otherwise expressly excluded from the Commission's 
jurisdiction.
    \36\ AEP urges that the final rule identify the modalities 
through which an entity is prohibited from manipulating a market, 
noting that SEC Rule 10b-5 specifies that fraud or manipulation must 
involve the ``use of any means or instrumentality of interstate 
commerce or of the mails, of any facility of any national securities 
exchange.'' AEP at 2. This is not necessary, as manipulation must be 
in connection with jurisdictional transactions which, by definitions 
in NGA section 1(b) and FPA section 201(b), are in interstate 
commerce.
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    22. Section 10(b)'s ``in connection with'' requirement has been 
construed broadly by the Supreme Court to encompass many circumstances 
where securities transactions ``coincide'' with the overall scheme to 
defraud.\37\ However, the Supreme Court was careful to state that 
section 10(b) ``must not be construed so broadly as to convert every 
common law fraud that happens to involve securities into a violation'' 
of section 10(b) and Rule 10b-5.\38\ Guided by this precedent, the 
Commission views the ``in connection with'' element in the energy 
context as encompassing situations in which there is a nexus between 
the fraudulent conduct of an entity and a jurisdictional transaction. 
We note that, unlike the SEC, which has broad jurisdiction over 
securities transactions, our jurisdiction is limited to certain 
wholesale transactions that remain within the ambit of the NGA, NGPA, 
and FPA. At the same time, energy markets are made up of both 
jurisdictional and non-jurisdictional transactions. We do not intend to 
construe the Final Rule so broadly as to convert every common-law fraud 
that happens to touch a jurisdictional transaction into a violation of 
the final rule. Rather, in committing fraud, the entity must have 
intended to affect, or have acted recklessly to affect, a 
jurisdictional transaction.\39\ For example, any entity engaging in a 
non-jurisdictional transaction through a Commission-regulated RTO/ISO 
market, that acts with intent or with recklessness to affect the single 
price auction clearing price (which sets the price of both non-
jurisdictional and jurisdictional transactions), would be engaging in 
fraudulent conduct in connection with a jurisdictional transaction and, 
therefore, would be in violation of the final rule.
---------------------------------------------------------------------------

    \37\ SEC v. Zandford, 535 U.S. 813, 825 (2002) (``[T]he SEC 
complaint describes a fraudulent scheme in which the securities 
transaction and breaches of fiduciary duty coincide. Those breaches 
were therefore `in connection with' securities sales within the 
meaning of [section] 10(b).''). See also Superintendent of Insurance 
v. Bankers Life & Casualty Co., 404 U.S. 6, 12-13 (1971) (previously 
the Supreme Court had stated that the requirement was met when there 
was an ``injury as a result of deceptive practices touching [the] 
sale of securities''); Head v. Head, 759 F.2d 1172, 1175 (4th Cir. 
1985) (the nexus must be more than a de minimis ``touch,'' yet is 
applied flexibly where there is fraud affecting securities 
transactions).
    \38\ SEC v. Zandford, 535 U.S. at 820.
    \39\ See PP 52-53 infra for a discussion of the intent required 
for a violation of the final rule.
---------------------------------------------------------------------------

    23. Turning to the comments that address the applicability of the 
proposed regulations to FPA sections 201(f) and 211A,\40\ here too the 
focus must be on the transaction and the entity's conduct to determine 
whether a violation of the final rule occurred. Again, the Commission 
emphasizes that if any entity engages in fraudulent conduct and that 
conduct is in connection with a jurisdictional transaction, then the 
final rule is applicable to that entity. It is, therefore, not 
necessary for the Commission to determine in this context how sections 
201(f) and 211A are to be applied generally.\41\
---------------------------------------------------------------------------

    \40\ See, e.g., APPA Reply at 5-6; EEI at 25; PG&E at 6; NRECA 
Reply at 2-5.
    \41\ Section 211A permits the Commission to issue regulations to 
implement the provisions of FPA section 211A. At this time, the 
Commission has not proposed such regulations, but has included this 
issue in the Notice of Inquiry issued in Preventing Undue 
Discrimination and Preference in Transmission Service, 70 FR 55796 
(2005), FERC Stats. & Regs. ] 35,553 (2005). Full delineation of the 
scope of FPA section 211A should be developed through that 
proceeding, not in the context of the anti-manipulation regulations.
---------------------------------------------------------------------------

    24. With respect to the request by AOPL for clarification on 
whether ``subject to the jurisdiction of the Commission'' would cause 
oil pipelines to be subject to claims of market manipulation in 
connection with transportation services subject to the Commission's 
jurisdiction under the ICA, the Commission points out that EPAct 2005 
did not amend the ICA to include anti-manipulation provisions, and 
therefore we do not read the authority granted under the NGA and FPA to 
proscribe and penalize fraud or deceit as applying to oil pipeline 
transportation under the ICA.
    25. As to Cinergy's request that the text of the final rule be 
modified to make explicit that the regulations apply only to market 
manipulation, we decline to do so. Cinergy's request would unduly 
narrow the broad authority Congress granted in EPAct 2005. The language 
of EPAct 2005 sections 315 and 1283 is modeled after section 10(b) of 
the Exchange Act, which has been interpreted as a broad anti-fraud 
``catch-all clause.'' \42\ SEC Rule 10b-5, on which the final rule is 
patterned, does not expressly limit itself to manipulation, but uses 
terms such as ``device, scheme, or artifice to defraud'' and ``fraud or 
deceit.'' \43\ We will retain similar language in our final rule, which 
will permit the Commission to police all forms of fraud and 
manipulation that affect natural gas and electric energy transactions 
and activities the Commission is charged with protecting.
---------------------------------------------------------------------------

    \42\ See Aaron v. SEC, 446 U.S. 680, 690 (1980); see also 
Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 6-7 (1985) 
(describing section 10(b) as a ``general prohibition of practices * 
* * artificially affecting market activity in order to mislead 
investors * * *.''); Affiliated Ute Citizens of Utah v. United 
States, 406 U.S. 128, 151-53 (1972) (noting that the repeated use of 
the word ``any'' in section 10(b) and SEC Rule 10b-5 denotes a 
congressional intent to have the provisions apply to a wide range of 
practices).
    \43\ 17 CFR 240.10b-5 (2005). SEC Rule 10b-5 is titled 
``Employment of manipulative and deceptive devices.''
---------------------------------------------------------------------------

B. General Applicability of Securities Law Concepts

1. Comments
    26. Commenters are divided as to whether we should model the 
proposed anti-manipulation regulations after SEC Rule 10b-5. Ameren, 
Cinergy, EPSA, Indicated Market Participants, EEI, LG&E, NGSA, PNM and 
Xcel argue that adoption of a rule patterned on SEC Rule 10b-5 is 
problematic because the securities model is one of disclosure, designed 
in large part to protect novice investors by eliminating disparities in 
access to information, whereas the purpose of the FPA and NGA is to 
ensure ``just and reasonable'' rates in wholesale energy markets. Many 
of the commenters also argue that the participants in energy markets 
are largely sophisticated, and unlike less-sophisticated participants 
in the securities markets, do not need the protections of a disclosure 
regime.\44\
---------------------------------------------------------------------------

    \44\ Ameren at 3-4; Cinergy at 6-7; EPSA at 5-8; Indicated 
Market Participants at 10-13; EEI at 6-8; LG&E at 3-7; NGSA at 4-5; 
PNM Reply at 4-5; Xcel at 3-6.
---------------------------------------------------------------------------

    27. AGA comments that it is unclear how the SEC's model of 
disclosure will apply to natural gas market transactions, and ISDA and 
PNM argue that the Commission should refrain from a wholesale adoption 
of SEC case law as such an action would create uncertainty as to the 
duties, standards and obligations owed by market participants because 
of the different regulatory frameworks for energy and securities 
markets.\45\ EPSA, PG&E and SUEZ call for further study and tailoring 
of Rule 10b-5 to the energy industry because of the differences between 
the operations of the securities markets and the energy markets.\46\ 
FirstEnergy argues that the

[[Page 4250]]

rules proposed in the NOPR are vague and overly broad.\47\
---------------------------------------------------------------------------

    \45\ AGA at 4; ISDA at 3-5; PNM Reply at 4-6. But not everyone 
dismisses the importance of the regulations to sophisticated 
parties. APPA shares SCE's observation that the degree of 
``protection'' implied by relative levels of counterparty 
sophistication must not be overstated, noting that even 
sophisticated market participants may need protection against market 
manipulations. APPA Reply at 3-4; SCE at 3-4.
    \46\ EPSA at 11; PG&E at 12; SUEZ at 14.
    \47\ FirstEnergy at 4-6.
---------------------------------------------------------------------------

    28. On the other hand, APGA, NARUC, NASCUA, NJBPU, and the States 
support the Commission's decision to model the proposed regulations on 
SEC Rule 10b-5.\48\ APPA, NARUC and NJBPU argue that Rule 10b-5 case 
law will provide useful guidance as the Commission develops its own 
body of precedent to follow.\49\ TDUS argues that the Commission's 
proposed rule prohibiting market manipulation plainly implements, in a 
straightforward manner, the express intent of EPAct 2005.\50\ TDUS 
finds the arguments of Ameren and Xcel unpersuasive because parties as 
sophisticated as they purport to be ought to have no problem complying 
with a straightforward prohibition against making fraudulent 
representations in their transactions.\51\ TDUS also argues that the 
level of sophistication of the parties to a bilateral negotiation is 
irrelevant because the Commission's anti-manipulation rules are not to 
protect the contracting parties from each other, but to protect the 
consumers who rely on the market for their energy supplies.\52\
---------------------------------------------------------------------------

    \48\ APGA at 4-5; NARUC at 4-5; NASCUA at 2-3; NJBPU at 2-3; 
States at 2. APGA, NARUC, and the States argue that modeling the 
final rule on SEC Rule 10b-5 is consistent with the express 
congressional dictates of EPAct 2005.
    \49\ APPA Reply at 1-2; NARUC at 5; NJPBU at 3.
    \50\ TDUS at 2-3.
    \51\ Id. at 3.
    \52\ Id. at 3-4.
---------------------------------------------------------------------------

    29. APPA and INGAA support the Commission's reliance on section 
10(b) of the Exchange Act and SEC Rule 10b-5, and the case law 
interpreting the statute and rule, as providing guidance to the 
Commission in administering its new EPAct 2005 anti-manipulation 
authority.\53\ APPA and INGAA also recommend that the Commission take 
into account pertinent differences between the regulatory regimes of 
the Exchange Act and the NGA and NGPA, and depart from securities law 
precedent when industry structure and common sense so dictate.\54\
---------------------------------------------------------------------------

    \53\ APPA Reply at 1-3; INGAA at 7.
    \54\ APPA Reply at 1; INGAA at 5.
---------------------------------------------------------------------------

2. Commission Determination
    30. As a general matter, the Commission does not believe that 
modeling the Final Rule on SEC Rule 10b-5 is problematic or will create 
uncertainty. This is not to say that commenters did not raise valid 
concerns about how securities precedent will be applied in the energy 
industry context. We intend to adapt analogous securities precedents as 
appropriate to specific facts, circumstances, and situations that arise 
in the energy industry. This is consistent with Congress' modeling of 
EPAct 2005 sections 315 and 1283 on section 10(b) of the Exchange Act 
and explicit references to section 10(b) in EPAct 2005 sections 315 and 
1283, and will provide a level of substantial certainty with respect to 
how the regulations will operate that the Commission is not typically 
able to provide where a preexisting body of law and precedent is not 
readily available. The Commission likewise finds that modeling the 
final rule on SEC Rule 10b-5 provides clarity to affected parties 
similar to the clarity provided by Congress. Thus, the Commission 
rejects FirstEnergy's argument that the proposed regulations are vague 
and overly broad. As previously stated, the Final Rule is modeled on 
SEC Rule 10b-5, which is not vague or overly broad.\55\
---------------------------------------------------------------------------

    \55\ See, e.g., United States v. Persky, 520 F.2d 283 (2d Cir. 
1975); accord Todd & Co. v. SEC, 557 F.2d 1008, 1013 (3d Cir. 1977).
---------------------------------------------------------------------------

    31. The Commission rejects EPSA's, PG&E's and SUEZ's calls for 
further study and tailoring of Rule 10b-5 to the industry the 
Commission regulates. Further study and tailoring would not improve the 
final rule or industry understanding of its scope and applicability. 
While the Commission generally agrees with commenters that a wholesale 
overlay of the securities laws onto energy markets is overly 
simplistic, we also believe it would be illogical to simply ignore 
decades of useful guidance that securities law precedent can offer, 
especially considering that Congress deliberately modeled EPAct 2005 
sections 315 and 1283 on section 10(b) of the Exchange Act. Therefore, 
the Commission intends to recognize, on a case-by-case basis, that the 
roles of the Commission and the SEC are not identical in determining 
whether it is appropriate to adopt securities precedents to specific 
energy industry facts, circumstances, or situations.\56\
---------------------------------------------------------------------------

    \56\ For example, as explained in paragraph 36 supra, the 
Commission is not adopting the disclosure regime of the SEC, and as 
explained in paragraphs 52-53 infra, the element of scienter will 
apply in the Final Rule just as it applies to SEC Rule 10b-5.
---------------------------------------------------------------------------

    32. The Commission recognizes that the SEC does not have a duty to 
assure that the price of a security is just and reasonable, and that 
our duty is not to protect purchasers through a regime of disclosure. 
Despite these differences in mission, however, wholesale natural gas 
and power markets, like securities markets, are susceptible to fraud 
and market manipulation, regardless of the level of sophistication of 
the market participants. Therefore, it is appropriate to model the 
final rule on SEC Rule 10b-5 in an effort to prevent (and where 
appropriate remedy) fraud and manipulation affecting the markets the 
Commission is entrusted to protect, while providing a level of 
certainty to market participants that is beyond that which the 
Commission would be otherwise required to provide. However, as 
discussed below, we provide several of the clarifications requested by 
the commenters to address the differences between the SEC's regulation 
of securities markets and our regulation of markets for natural gas and 
electricity.

C. Disclosure

    33. Several commenters expressed concern over what they consider to 
be disclosure implications of the proposed regulations.\57\ In 
particular, commenters focused on two disclosure-related areas: Whether 
the proposed anti-manipulation regulations create a new duty of 
disclosure; and whether sections 1c.1(a)(2) and 1c.2(a)(2), and 
particularly the references to ``omissions of material fact,'' impose 
an undue burden on bilateral, arm's-length negotiations.
---------------------------------------------------------------------------

    \57\ See, e.g., Ameren at 4-6; AGA at 4; AEP at 2; Cinergy at 8-
9; Indicated Market Participants at 10-13, 23-28; EEI at 14-16; EPSA 
at 5-11; FirstEnergy at 10-13; ISDA at 3-8; INGAA at 5-7, 10; LG&E 
at 9; NGSA at 2, 5-6; PG&E at 7; Progress at 2-4; SCE at 3-4; SUEZ 
at 12-14; Xcel at 2, 4-6.
---------------------------------------------------------------------------

1. Duty of Disclosure
a. Comments
    34. Commenters' view is that the proposed regulations should not 
create an affirmative duty to disclose strategic or proprietary 
information not otherwise required under the FPA, NGA, or Commission 
orders, rules, or regulations.\58\ Ameren argues that there is no 
evidence in EPAct 2005 that Congress intended to impose a general 
obligation of disclosure in the energy markets.\59\ Ameren and LG&E 
provide examples of a company purchasing power as a result of a forced 
outage, and question whether, under the regulations, a party would have 
to disclose information detrimental to its bargaining position.\60\ AEP 
expresses similar concern that the regulations should not require 
companies to disclose trade secrets, sensitive information, or forward 
looking information developed by the company.\61\ AEP argues that the 
proposed rules be clarified to

[[Page 4251]]

encompass only those instances where there is an affirmative duty to 
disclose, such as a Commission-imposed disclosure or reporting 
requirement.\62\ EPSA and Progress argue that the regulations should be 
clarified so as not to result in broad disclosure obligations that 
would be incompatible with the arm's-length transactions that the 
Commission oversees.\63\ Similarly, INGAA and EEI argue that the 
regulations should be revised to delete or limit any affirmative 
obligation to disclose information to a counterparty, or to educate 
another party in bilateral negotiations.\64\ In support of its 
argument, INGAA cites SEC Regulation D, which exempts certain 
securities offerings from the registration and disclosure requirements 
of the securities laws because the investors in such offerings are 
sophisticated.\65\ NGSA also states that the Commission should clarify 
that it does not intend to incorporate by reference the disclosure 
obligations applicable to issuers of securities.\66\
---------------------------------------------------------------------------

    \58\ See, e.g., Ameren at 4; EEI at 16; Indicated Market 
Participants at 27.
    \59\ Ameren at 4.
    \60\ Id. at 5; LG&E at 8.
    \61\ AEP at 2.
    \62\ Id. at 3.
    \63\ EPSA at 1; Progress at 2-4.
    \64\ INGAA at 7; EEI at 16. See also ISDA Supplemental Reply at 
2.
    \65\ INGAA at 5.
    \66\ NGSA at 2, 5-6.
---------------------------------------------------------------------------

b. Commission Determination
    35. The Commission declines to modify the proposed regulations in 
this final rule. To avoid uncertainty, however, we clarify that the 
final rule creates no new affirmative duty of disclosure. Commenters 
are mistaken to the extent they believe section 10(b) of the Exchange 
Act or SEC Rule 10b-5 imposes an independent affirmative obligation to 
disclose. Well-settled case law interpreting section 10(b) and Rule 
10b-5 makes clear that section 10(b) and Rule 10b-5 do not, by 
themselves, create an affirmative duty to disclose absent a 
relationship of trust and confidence (i.e., a fiduciary relationship) 
or some other duty imposed elsewhere in the securities laws.\67\ 
Therefore, in the arm's-length, bilateral negotiations that are typical 
in wholesale energy markets, absent some tariff requirement or 
Commission directive mandating disclosure, the final rule imposes no 
new affirmative duty of disclosure.
---------------------------------------------------------------------------

    \67\ See Basic Inc. v. Levinson, 485 U.S. 224, 239, n.17 (1988) 
(``Silence, absent a duty to disclose, is not misleading under Rule 
10b-5.'') citing Chiarella v. United States, 445 U.S. 222, 234 
(1980) (``* * * a duty to disclose under [section] 10(b) does not 
arise from the mere possession of nonpublic market information. 
[T]he duty to disclose arises when [there exists] a relationship of 
trust and confidence * * * .''); see also Gross v. Summa Four, 93 
F.3d 987, 992 (1st Cir. 1996) (citing Chiarella, the court holds 
that ``[b]y itself * * * Rule 10b-5[] does not create an affirmative 
duty of disclosure. Indeed, a corporation does not commit securities 
fraud merely by failing to disclose all nonpublic material 
information in its possession.''); accord Castellano v. Young & 
Rubicam, Inc., 257 F.3d 171, 179 (2d Cir. 2002); Ackerman v. 
Schwartz, 947 F.2d 841, 848 (7th Cir. 1991).
---------------------------------------------------------------------------

    36. As there is no new affirmative duty of disclosure under the 
final rule, commenters' concern over the disclosure implications of the 
proposed regulations is misplaced. The final rule operates within the 
regulatory framework of the FPA and NGA; the Commission is not adopting 
the disclosure provisions of the securities laws \68\ or the purpose of 
the securities laws, which is ``to protect investors by promoting full 
disclosure of information thought necessary to informed investment 
decisions.'' \69\ Rather, the final rule, like section 10(b) of the 
Exchange Act and SEC Rule 10b-5, is an anti-fraud provision, not a 
disclosure provision.\70\ Nothing in the final rule requires disclosure 
of sensitive information that would only function to weaken an entity's 
bargaining position in arm's-length, bilateral negotiations. Absent a 
tariff requirement or Commission directive mandating disclosure, there 
is no violation of the final rule simply because an entity chooses not 
to disclose all non-public information in its possession.\71\
---------------------------------------------------------------------------

    \68\ See, e.g., 15 U.S.C. 78m (2000).
    \69\ SEC v. Ralston Purina Co., 346 U.S. 119, 123-5 (1953).
    \70\ See, e.g., International Brotherhood of Teamsters v. 
Daniel, 439 U.S. 551, 565 n.18 (1979) (distinguishing between the 
disclosure and antifraud provisions of the securities laws, the 
court states that a waiver from disclosure requirements because an 
investor is sophisticated does ``not provide shelter from the 
criminal anti-fraud protection of Rule 10b-5 or other civil anti-
fraud provisions); Sonnenfeld v. City of Denver, 100 F.3d 744, 746 
n.1 (10th Cir. 1996) (noting that securities exempted from 
regulatory burdens are still subject to civil fraud causes of 
action).
    \71\ See supra note 67.
---------------------------------------------------------------------------

    37. Similarly, the Commission clarifies that nothing in the final 
rule changes the Commission's precedent on contract law. Private 
contracts are fundamental to the functioning of the energy industry, 
and the Commission expects parties to continue to rely on the contracts 
they enter into. The Commission expects parties to continue to resolve 
most contract disputes, including those based on claims of fraud in the 
inducement, without the involvement of the Commission, relying on State 
and Federal courts to apply contract law as appropriate.
2. Sections 1c.1(a)(2) and 1c.2(a)(2) and Omissions of Material Fact
a. Comments
    38. Commenters are divided as to whether the Commission should 
modify or delete sections 1c.1(a)(2) and 1c.2(a)(2) of the final rule, 
particularly with regard to sections 1c.1(a)(2) and 1c.2(a)(2)'s 
references to omissions.\72\ Ameren, Cinergy, and Indicated Market 
Participants argue that sections 1c.1(a)(2) and 1c.2(a)(2) should not 
be adopted because the definition of market manipulation should not 
include any general duty to disclose.\73\ More specifically, EEI and 
EPSA argue that reference in sections 1c.1(a)(2) and 1c.2(a)(2) to 
``omissions of material fact'' should be deleted as it would require 
market participants to disclose sensitive information that would not 
otherwise be exchanged among wholesale energy market participants 
engaged in bilateral negotiations, which could result in harm to the 
market participant's bargaining position.\74\ EEI also argues that 
sections 1c.1(a)(2) and 1c.2(a)(2) should be modified to incorporate a 
knowledge and intent standard.\75\
---------------------------------------------------------------------------

    \72\ Sections 1c.1(a)(2) and 1c.2(a)(2) read: ``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 * * * 
.''
    \73\ Ameren at 6; Cinergy at 8; Indicated Market Participants at 
28.
    \74\ EEI at 16; EPSA at 8.
    \75\ EEI at 16.
---------------------------------------------------------------------------

    39. FirstEnergy argues that sections 1c.1(a)(2) and 1c.2(a)(2) are 
overly broad, and unnecessary to protect electric ratepayers because 
participants in wholesale power sales transactions are sophisticated 
and have the ability to evaluate the veracity of any information that 
may be conveyed by other participants.\76\ Indicated Market 
Participants argue that since the disclosure concepts of the securities 
laws are not generally applicable to electric and gas markets, sections 
1c.1(a)(2) and 1c.2(a)(2) should be deleted.\77\ Likewise, Xcel argues 
that there is no need to require SEC-like disclosure in wholesale 
energy markets, and it argues that the Commission should modify or 
delete sections 1c.1(a)(2) and 1c.2(a)(2).\78\ While not asking for a 
change in the regulations, INGAA requests that we clarify that ``mere 
puffery'' is not actionable under the regulations.\79\
---------------------------------------------------------------------------

    \76\ FirstEnergy at 11.
    \77\ Indicated Market Participants at 27-28.
    \78\ Xcel at 2, 4-6.
    \79\ INGAA at 9.
---------------------------------------------------------------------------

    40. On the other hand, APGA, PNM and TDUS support the inclusion of

[[Page 4252]]

sections 1c.1(a)(2) and 1c.2(a)(2) without modification.\80\ APGA urges 
the Commission to reject calls for the deletion or modification of 
sections 1c.1(a)(2) and 1c.2(a)(2) because the vast bulk of natural gas 
sales are not negotiated by sophisticated market participants, but are 
determined by price indices that rely on full and accurate 
reporting.\81\ PNM supports the inclusion of sections 1c.1(a)(2) and 
1c.2(a)(2) noting that there may be rare instances where an omission of 
material fact amounts to market manipulation, but also notes that the 
Commission should make clear that the sections create no new duty of 
disclosure.\82\
---------------------------------------------------------------------------

    \80\ APGA at 5; PNM at 9; TDUS at 3-4.
    \81\ APGA at 5.
    \82\ PNM at 9. As discussed above in paragraph 28, TDUS argues 
that no dilution or alteration of the proposed rules is warranted, 
regardless of the sophistication of the parties to a transaction. 
TDUS at 3-4.
---------------------------------------------------------------------------

b. Commission Determination
    41. The Commission rejects proposals to modify or delete sections 
1c.1(a)(2) and 1c.2(a)(2) of the regulations. As just discussed, the 
final rule does not create an affirmative duty to disclose beyond any 
existing requirements. It is important to note, however, that where an 
entity voluntarily provides information or where the entity is required 
by a tariff or a Commission statute, order, rule or regulation to 
provide information, and the entity then misrepresents or omits a 
material fact such that the information provided is materially 
misleading, there can be a violation of the final rule if all of the 
other elements of a violation are present.\83\ This does not mean, 
however, that a material misrepresentation or omission that affects 
only negotiations between two sophisticated parties will necessarily 
result in an enforcement action by the Commission. Instead, the 
Commission will decide whether to pursue enforcement action in such a 
situation on a case-by-case basis, with due consideration of whether 
such material misrepresentations or omissions occur in or have an 
effect on jurisdictional transactions. Absent such an effect, as we 
noted earlier, we generally will not apply the final rule to bilateral 
contract negotiations.
---------------------------------------------------------------------------

    \83\ These include the requisite scienter, discussed infra, and 
the conduct being in connection with a jurisdictional purchase or 
sale or jurisdictional transportation or transmission, discussed 
supra.
---------------------------------------------------------------------------

    42. With respect to other comments related to the application of 
specific securities law precedent, as discussed earlier, the Commission 
intends, on a case-by-case basis, to be guided by analogous securities 
law precedent that is appropriate under the specific facts, 
circumstances, and situations in the energy industry. For example, even 
if some duty to provide information exists, the Commission agrees with 
INGAA that ``mere puffery'' is not violation of sections 1c.1(a)(2) and 
1c.2(a)(2).\84\
---------------------------------------------------------------------------

    \84\ See In re Advanta Corp. Sec. Litig., 180 F.3d 525, 538 (3rd 
Cir. 1999) (noting that general expressions of optimism for the 
future are immaterial and not actionable); Eisenstadt v. Centel 
Corp., 113 F.3d 738, 745 (7th Cir. 1997) (``Everybody knows that 
someone trying to sell something is going to look and talk on the 
bright side. You don't sell a product by bad-mouthing it. And 
everybody knows that auctions can be disappointing.'') (emphasis in 
original); Raab v. General Physics Corp., 4 F.3d 286, 287 (4th Cir. 
1996) (holding that predictions of future business prospects were 
not specific guarantees necessary to make them material within the 
meaning of section 10b); see also In re Northern Telecom Ltd. 
Securities Litig., 116 F. Supp. 2d 446, 466 (S.D.N.Y 2000) (stating 
that under section 10b and Rule 10b-5, actionable statements must be 
sufficiently ``concrete'' or ``specific'' to be material, as opposed 
to ``single, vague statement[s] that are essentially mere 
puffery'').
---------------------------------------------------------------------------

D. Sections 1c.1(a)(3) and 1c.2(a)(3) and Intent

1. Comments
    43. Some commenters suggested the Commission delete sections 
1c.1(a)(3) and 1c.2(a)(3) of the proposed regulations or revise them 
explicitly to include the element of intent. For example, Ameren argues 
that sections 1c.1(a)(3) and 1c.2(a)(3) are unnecessary in light of 
sections 1c.1(a)(1) and 1c.2(a)(1).\85\ EEI argues that sections 
1c.1(a)(3) and 1c.2(a)(3) should be deleted because the ``operates as a 
fraud'' language could prohibit any deceptive act regardless of whether 
scienter is present.\86\ Alternatively, EEI and FirstEnergy suggest 
that sections 1c.1(a)(3) and 1c.2(a)(3) be revised. EEI urges that 
sections 1c.1(a)(3) and 1c.2(a)(3) include elements of knowledge and 
intent; FirstEnergy also asks that the phrase ``or would operate'' be 
removed so it would be clear that actions not intended to defraud from 
being subject to the regulations.\87\
---------------------------------------------------------------------------

    \85\ Ameren at 6-7.
    \86\ EEI at 13-14.
    \87\ Id. 14; FirstEnergy at 15.
---------------------------------------------------------------------------

    44. In contrast, TDUS argues that the Commission should reject 
attempts to modify or delete sections 1c.1(a)(3) and 1c.2(a)(3) noting 
that SEC Rule 10b-5 has remained intact since 1951, and no court or SEC 
action has resulted in any change to Rule 10b-5.\88\ APGA also opposes 
modification or deletion of sections 1c.1(a)(3) and 1c.2(a)(3), arguing 
that intent is already an element of a violation of the proposed 
regulations, and any elimination of sections 1c.1(a)(3) and 1c.2(a)(3) 
could create uncertainty by distinguishing the final rule from SEC Rule 
10b-5 so as to render analogous securities law precedent 
inapplicable.\89\
---------------------------------------------------------------------------

    \88\ TDUS Reply at 8-9.
    \89\ APGA Reply at 5.
---------------------------------------------------------------------------

2. Commission Determination
    45. The Commission rejects proposals to modify or delete sections 
1c.1(a)(3) and 1c.2(a)(3) beyond the substitution of ``entity'' in 
place of ``person'' as discussed below in paragraph 76. Sections 
1c.1(a)(3) and 1c.2(a)(3) are necessary; and as discussed below, there 
can be no violation of the final rule, or any of its sections, absent a 
showing of the requisite scienter. SEC Rule 10b-5 has an analogous 
section that has remained unchanged since it was adopted in 1942, and 
there is abundant securities law precedent that highlights the ongoing 
relevance of that section.\90\ Therefore, as the final rule is modeled 
on SEC Rule 10b-5 and the Commission intends to be guided, on a case-
by-case basis, by analogous securities law precedent that is 
appropriate under the facts, circumstances, and situations presented in 
the energy industry, it is prudent to retain sections 1c.1(a)(3) and 
1c.2(a)(3) without modification.
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    \90\ One measure of the paragraph's importance is the frequency 
of use. There are numerous cases citing the ``operate as a fraud'' 
language of SEC Rule 10b-5, which suggest that it is not nugatory as 
EEI argues in its comments. See, e.g., SEC v. Zandford, 535 U.S. at 
819; SEC v. George, 426 F.3d 786, 792 (2005).
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E. Elements of a Manipulation Claim

1. Comments
    46. Several commenters asked the Commission to clarify the elements 
of manipulation under the Final Rule.\91\ INGAA recommends that the 
Commission explicitly reference the essential elements of the SEC's 
Rule 10b-5 cause of action that have been developed in the case law and 
provide greater guidance as to their application in the context of the 
natural gas markets.\92\ Specifically, INGAA argues the Commission 
should clarify the definition of materiality, the requirement of 
scienter, the requirement of deception, the existence of a pre-existing 
duty to speak in a nondisclosure case, the absence of liability for 
mere puffery and other limitations.\93\ Indicated Market Participants 
and NGSA state that the Commission should set forth the following as 
elements of a manipulation claim: Misrepresentation or omission of

[[Page 4253]]

a material fact; scienter, causation, reliance, and damages.\94\
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    \91\ See, e.g., Ameren at 6-7; AEP at 3; Cinergy at 7-8; 
Indicated Market Participants at 9-10, 18; EEI at 12-14; FirstEnergy 
at 7-10; INGAA at 7-11; LG&E at 3; NGSA at 2, 5-8; NiSource at 3, 5-
8; Progress at 2-3; SCE at 4.
    \92\ INGAA at 7-8.
    \93\ Id. at 11.
    \94\ Indicated Market Participants at 18; NGSA at 2, 5-7.
---------------------------------------------------------------------------

    47. EEI seeks clarification that fraud is a required element of the 
final rule and its sections.\95\ AEP and EEI suggest that the 
Commission should explicitly identify the intent standard based on the 
scienter standard used in section 10(b), which is satisfied by a 
showing of recklessness.\96\ EEI seeks clarification that liability 
under the market manipulation rule requires a showing of ``extreme 
recklessness'' or ``egregious disregard.'' \97\ Progress believes that 
the final rule should be revised to exclude ``indirectly'' from 
sections 1c.1(a) and 1c.2(a), and if the Commission is unwilling to do 
so, it should explicitly incorporate an intent standard.\98\ In 
contrast, TDUS argues that the Commission should not modify the 
regulations to incorporate a specific standard of intent into the final 
rule.\99\
---------------------------------------------------------------------------

    \95\ EEI at 4.
    \96\ Id. at 12; AEP at 3.
    \97\ EEI at 12.
    \98\ Progress at 2-3.
    \99\ TDUS at 5.
---------------------------------------------------------------------------

2. Commission Determination
    48. The Commission generally agrees that clarification of the 
elements of a violation under the final rule would reduce regulatory 
uncertainty and thereby assure greater compliance. It is unnecessary, 
however, to modify the text of the final rule. Rather, we will clarify 
the general requirements of a violation, guided by applicable 
securities law precedent, specifically the precedent setting out the 
elements the SEC must prove when it brings an enforcement action, as 
INGAA noted in its comments.\100\ In enforcement actions under Rule 
10b-5, the SEC must show that the defendant: (1) Made 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.\101\ The SEC does 
not need to show reliance, loss causation or damages because ``the 
Commission's duty is to enforce the remedial and preventive terms of 
the statute in the public interest, and not merely to police those 
whose plain violations have already caused demonstrable loss or 
injury.'' \102\
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    \100\ INGAA at 10-11. See, e.g., SEC v. Monarch Funding Corp., 
192 F.3d 295, 308 (2d Cir. 1999) (setting out the elements of an 
enforcement action under SEC Rule 10b-5). We reject the comments of 
Indicated Market Participants and NGSA, which set forth the elements 
of a private right of action under section 10(b) and Rule 10b-5. 
While cases arising in the context of private litigation may be 
instructive on certain points, the elements needed for a private 
right of action are not the same as those required for 
administrative enforcement applicable here.
    \101\ SEC v. Monarch Funding Corp., 192 F.3d at 308.
    \102\ See, e.g., SEC v. Credit Bancorp, Ltd., 195 F. Supp. 2d 
475, 491 (S.D.N.Y. 2002) quoting Berko v. SEC, 316 F.2d 137, 143 (2d 
Cir. 1963) citing SEC v. North American Research & Dev. Corp., 424 
F.2d 63, 84 (2d Cir. 1970) (reliance not an element of a Rule 10b-5 
claim in the context of an SEC proceeding). Similarly, in a criminal 
prosecution for securities fraud, the government need not 
demonstrate specific reliance by the investor in a securities fraud 
prosecution. See United States v. Ashdown, 509 F.2d 793, 799 (5th 
Cir. 1975). However, the government must show ``impact of the scheme 
on the investor.'' See United States v. Schaefer, 299 F.2d 625, 629 
(7th Cir. 1962). While reliance, loss causation and damages are not 
necessary for a violation of the final rule, these elements will 
inform the Commission's assessment of any disgorgement or civil 
penalties that may be appropriate under the circumstances.
---------------------------------------------------------------------------

    49. These elements offer useful guidance as to how the Commission 
will apply the final rule. The Commission will act in cases where an 
entity: (1) Uses 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, 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. In the paragraphs that follow, the Commission offers 
clarification on each element.
    50. The final rule prohibits the use or employment of any device, 
scheme, or artifice to defraud. The Commission defines fraud generally, 
that is, to include any action, transaction, or conspiracy for the 
purpose of impairing, obstructing or defeating a well-functioning 
market.\103\ Fraud is a question of fact that is to be determined by 
all the circumstances of a case.
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    \103\ See e.g., Dennis v. United States, 384 U.S. 855, 861 
(1966) (noting that fraud within the meaning of a statute need not 
be confined to the common law definition of fraud: any false 
statement, misrepresentation or deceit).
---------------------------------------------------------------------------

    51. If there is a duty to disclose under a Commission-filed tariff 
or Commission directive, material misrepresentations and, under certain 
conditions, material omissions, may violate the final rule. Guided by 
securities law precedent, the Commission finds that a fact is material 
if there is a substantial likelihood that a reasonable market 
participant would consider it in making its decision to transact 
because the material fact significantly altered the total mix of 
information available.\104\ Of course, not every fact about a 
transaction is material and, therefore, the materiality of a 
misrepresented or omitted fact will be determined on a case-by-case 
basis.\105\
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    \104\ TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 
(1976) sets forth the ``total mix'' or ``substantial likelihood'' 
test of materiality: a substantial likelihood that the disclosure of 
the omitted fact would have been viewed by a reasonable investor as 
having significantly altered the total mix of information made 
available. Accord Basic, Inc. v. Levinson, 485 U.S. 224, 231-2 
(1988).
    \105\ Based on securities law precedent, the relevant time 
period for determining materiality is at the time of the statement 
or omission, and not in hindsight. See Ganino v. Citizens Utils. 
Co., 228 F.3d 154, 165 (2d Cir. 2000).
---------------------------------------------------------------------------

    52. The Commission rejects as unnecessary commenters' requests to 
incorporate a specific intent standard into the final rule. Congress 
directed that the terms ``manipulative or deceptive device or 
contrivance'' as they appear in sections 1283 and 315 of EPAct 2005 be 
interpreted in accordance with section 10(b) of the Exchange Act. 
According to the Supreme Court, ``[t]he words `manipulative or 
deceptive' used in conjunction with `device or contrivance' strongly 
suggest that Sec.  10 (b) was intended to proscribe knowing or 
intentional misconduct * * * conduct designed to deceive or defraud 
investors by controlling or artificially affecting the price of 
securities.'' \106\ Based on the foregoing, any violation of the final 
rule requires a showing of scienter.\107\
---------------------------------------------------------------------------

    \106\ Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197 (1976) 
(Hochfelder); accord Aaron v. SEC, 446 U.S. 680, 690 (1980) (Aaron).
    \107\ See Aaron, 446 U.S. at 690, 705 (stating that the words 
``manipulative,'' ``device,'' and ``contrivance'' whether given 
``their commonly accepted meaning or read as terms of art'' clearly 
refers to ``knowing or intentional misconduct.'' In addition, the 
Court said that ``Section 10(b) is described as a catchall 
provision, but what it catches must be fraud.''); Hochfelder, 425 
U.S. at 199 (noting that the words ``manipulative,'' ``device,'' and 
``contrivance'' are ``terms that make unmistakable a congressional 
intent to proscribe a type of conduct quite different from 
negligence''). Despite section 10(b)'s use of the disjunctive ``or'' 
in ``manipulative or deceptive device or contrivance,'' the Supreme 
Court has concluded that both require ``misrepresentation.''
---------------------------------------------------------------------------

    53. Commenters sought clarification on whether recklessness 
satisfies the scienter element. The Supreme Court has not addressed 
whether recklessness satisfies the scienter requirement it read into 
section 10(b),\108\ but the Courts of

[[Page 4254]]

Appeals that have addressed the issue agree that recklessness satisfies 
the section 10(b) scienter requirement.\109\ Similarly, the Commission 
concludes that recklessness satisfies the scienter element of the final 
rule.
---------------------------------------------------------------------------

    \108\ Hochfelder, 425 U.S. at 194 n.12 (``In certain areas of 
the law recklessness is considered to be a form of intentional 
conduct for purposes of imposing liability for some act. We need not 
address here the question whether, in some circumstances, reckless 
behavior is sufficient for civil liability under [section] 10(b) and 
Rule 10b-5.''). Although the scienter requirement was first read 
into section 10(b) in the context of a private right of action, in 
Aaron the Supreme Court decided that a showing of scienter is also 
required in SEC civil enforcement actions arising under section 
10(b). Aaron, 446 U.S. at 695.
    \109\ Courts of appeal are in general agreement that that 
recklessness in some form satisfies the scienter requirement of SEC 
Rule 10b-5. For example, motive and opportunity to commit fraud or 
conscious behavior sufficient to raise a strong inference of 
recklessness is sufficient in the Second, Third, and Eighth 
Circuits. See, e.g., Florida State Board of Administration v. Green 
Tree Fin. Corp., 270 F.3d 645 (8th Cir. 2001); Novak v. Kasaks, 216 
F.3d 300 (2d Cir. 2000); In re Advanta Corp. Securities Litig., 180 
F.3d 525 (3d Cir. 1999). The First, Fifth, Sixth, Tenth and Eleventh 
Circuits apply a ``severely reckless'' or action with ``conscious 
disregard'' of the problem or risk standard. See, e.g., Nathenson v. 
Zonagen, Inc., 267 F.3d 400 (5th Cir. 2001); City of Philadelphia v. 
Fleming Companies, Inc., 264 F.3d 1245 (10th Cir. 2001); Grebel v. 
FTP Software, Inc., 194 F.3d 185 (1st Cir. 1999); In re Comshare, 
Inc. Securities Litig., 183 F.3d 543 (6th Cir. 1999); Bryant v. 
Avardo Brands, Inc., 187 F.3d 1271 (11th Cir. 1999). In the Ninth 
Circuit, a plaintiff must plead ``in great detail facts that 
constitute strong circumstantial evidence of deliberately reckless 
or conscious misconduct.'' See, e.g., In re Silicon Graphics 
Securities Litig., 183 F.3d 970 (9th Cir. 1999) (adopting the 
definition of recklessness as it appears in Sundstrand Corp. v. Sun 
Chemical Corp., 553 F.2d 1033 (7th Cir. 1977), cert. denied, 434 
U.S. 875 (1977)).
---------------------------------------------------------------------------

    54. For our discussion of the ``in connection with'' requirement, 
see paragraphs 21 and 22, supra.

F. Interplay With Market Behavior Rules

1. Comments
    55. Several commenters raise concerns over the interplay between 
the proposed regulations and the Market Behavior Rules.\110\ Some 
commenters advocate that the Commission retain Market Behavior Rules, 
either as they are currently written or with modification.\111\ Several 
industry commenters request deletion of the foreseeability standard and 
``legitimate business purpose'' criteria of Market Behavior Rule 2, and 
incorporation of the scienter standard of the proposed regulations. 
Certain commenters also find the specific prohibitions of Market 
Behavior Rules 2(a) (wash trades), 2(b) (false information), 2(c) 
(artificial congestion/relief), and 2(d) (collusion) useful because 
those rules offer guidance and specificity about the prohibition of 
certain defined transactions.
---------------------------------------------------------------------------

    \110\ See, e.g., Ameren at 8-9; AGA at 5; Cinergy at 5, 9; EEI 
at 17-19; LG&E at 9; NARUC at 6; NASUCA at 4-5 (arguing for an 
expansion of the Market Behavior Rules to reach all market 
participants); PG&E at 4, 12-13; APPA Reply at 5; PNM Reply at 7-8; 
EEI Reply at 4-6.
    \111\ We note that, as a result of the timing of the comment due 
date in this proceeding, these comments were filed the same day as 
the Commission issued its orders proposing repeal of the Market 
Behavior Rules. See Amendments to Codes of Conduct for Unbundled 
Sales Service and for Persons Holding Blanket Marketing 
Certificates, 113 FERC ] 61,189 (2005); Investigation of Terms and 
Conditions of Public Utility Market-Based Rate Authorizations, 113 
FERC ] 61,190 (2005).
---------------------------------------------------------------------------

    56. APPA argues that the Commission should deal with the future of 
the Market Behavior Rules in the Commission's separate FPA 206 
proceeding and not as part of this proceeding.\112\ PNM, in contrast, 
contends that adopting rules based on SEC Rule 10b-5 will be confusing, 
and instead urges the Commission to amend the existing Market Behavior 
Rules to incorporate the terms of EPAct 2005 sections 315 and 1283, and 
not adopt the proposed regulations.\113\
---------------------------------------------------------------------------

    \112\ APPA Reply at 5.
    \113\ PNM Reply at 7-8.
---------------------------------------------------------------------------

    57. EEI urges the Commission to retain the time limits and specific 
acts set forth in the Market Behavior Rules, and to state that 
compliance with the behavior rules guidelines constitutes compliance 
with the new rules.\114\ Similarly, EEI argues that whatever the 
interaction between the Market Behavior Rules and the Final Rule, the 
Commission should clarify that there will be no ``double jeopardy.'' 
\115\
---------------------------------------------------------------------------

    \114\ EEI Reply at 4-6.
    \115\ EEI at 21.
---------------------------------------------------------------------------

2. Commission Determination
    58. Both Market Behavior Rules 2 and 3 \116\ and this final rule 
prohibit fraud and manipulative conduct. The Market Behavior Rules are 
still in effect, although the Commission has indicated in the Market 
Behavior Rules proceeding (Docket Nos. EL06-16-000 and RM06-5-000) that 
the Market Behavior Rules may be revised or repealed after the anti-
manipulation regulations are made effective.\117\ If they are repealed, 
the Commission intends to have a smooth transition from the Market 
Behavior Rules to the final rule on manipulation, and there will be no 
gap in our prohibition of manipulation as we complete the transition.
---------------------------------------------------------------------------

    \116\ The following analysis with regard to the Market Behavior 
Rules also applies to sections 284.288(a) and 284.403(a) of the 
Commission's codes of conduct with respect to certain sales of 
natural gas. 18 CFR 284.288(a) and 284.403(a) (2005).
    \117\ See Investigation of Terms and Conditions of Public 
Utility Market-Based Rate Authorizations, 70 FR 71484 (2005), 113 
FERC ] 61,190 at P 13 (2005); Amendments to Codes of Conduct for 
Unbundled Sales Service and for Persons Holding Blanket Marketing 
Certificates, 70 FR 72090 (2005), 113 FERC ] 61,189 at P 11 (2005).
---------------------------------------------------------------------------

    59. As stated in the NOPR, the Commission will not seek duplicative 
sanctions for the same conduct in the event that conduct violates both 
the Market Behavior Rules and this final rule.\118\ With respect to the 
specific prohibitions of Market Behavior Rule 2 (wash trades, 
transactions predicated on submitting false information, transactions 
creating and relieving artificial congestion, and collusion for the 
purpose of market manipulation), these are examples of prohibited 
manipulation, all of which are manipulative or deceptive devices or 
contrivances, and are therefore prohibited activities under this Final 
Rule, subject to punitive and remedial action.\119\ Further, as 
discussed further below, the specific provision set forth in the Market 
Behavior Rules for actions taken in conformity with the Commission-
approved market rules adopted by an ISO or RTO identify behaviors that 
are presumptively not fraudulent and hence would not be violations of 
this final rule.
---------------------------------------------------------------------------

    \118\ See Prohibition of Energy Market Manipulation, 113 FERC ] 
61,067 at P 15 (2005).
    \119\ See 113 FERC ] 61,190 at P 18 (2005); 113 FERC ] 61,189 at 
P 15 (2005).
---------------------------------------------------------------------------

    60. The issue of applying the time limits set forth in the Market 
Behavior Rules to this final rule will be dealt with below.

G. Statute of Limitations

1. Comments
    61. Some commenters urged the Commission to adopt an explicit 
statute of limitations period for the proposed rules.\120\ For example, 
NiSource cites the Sarbanes-Oxley Act in support of its argument that 
the Commission require actions under the final rule be commenced within 
two years of discovery of a violation, but in no event more than five 
years after occurrence of a violation.\121\ AEP cites a private rights 
of action under SEC Rule 10b-5 in support of its argument for three-
year limitations period, and EEI argues the Commission should follow 
the five-year statute of limitations contained in 28 U.S.C. 2462 and 
adopt the 90-day provision of the Market Behavior Rules to require that 
an action must be filed within 90 days after the end of the calendar 
quarter in which the alleged violation of the final rule occurred or, 
if later, 90 days after the complainant knew or should have known that 
the alleged violation of the final rule occurred.\122\
---------------------------------------------------------------------------

    \120\ See, e.g., AEP at 3; EEI at 19-21; NGSA at 2, 5, 8; 
NiSource at 9.
    \121\ NiSource at 3.
    \122\ AEP at 3; EEI at 19-20.
---------------------------------------------------------------------------

2. Commission Determination
    62. There is no explicit statute of limitations set forth in NGA 
section 4A or in FPA section 222, and no statute of

[[Page 4255]]

limitations of general applicability appears in the NGA or FPA. The 
Commission declines to designate a statute of limitations or otherwise 
adopt an arbitrary time limitation on complaints or enforcement actions 
that may arise under NGA section 4A and FPA section 222. We note, 
however, that when a statutory provision under which civil penalties 
may be imposed lacks its own statute of limitations, the general 
statute of limitations for collection of civil penalties, 28 U.S.C. 
2462, applies.\123\ Section 2462 in 28 U.S.C. imposes a five-year 
limitations period on any ``action, suit, or proceeding for the 
enforcement of any civil fine, penalty, or forfeiture, pecuniary or 
otherwise.''\124\
---------------------------------------------------------------------------

    \123\ See, e.g., United States v. Godbout-Bandal, 232 F.3d 637, 
639 (8th Cir. 2000).
    \124\ 28 U.S.C. 2462 (2000). The five-year limitation runs 
``from the date the claim first accrued.'' Id. We intend that any 
administrative action for violation of the final rule be commenced 
within five years of the date of the fraudulent or deceptive 
conduct.
---------------------------------------------------------------------------

    63. The Commission, therefore, rejects AEP's call for a three-year 
limitations period because that period applies only in the context of 
private rights of action under the securities laws, not to SEC 
enforcement actions. For the same reason, we reject NiSource's argument 
that a limitations period under the Sarbanes-Oxley Act should apply to 
actions we may bring under our enforcement authority, and EEI's request 
that the Commission apply to the final rule the 90-day action 
limitation of the existing Market Behavior Rules. We will exercise 
prosecutorial discretion in determining whether to pursue an alleged 
violation based on all the facts presented, including the time elapsed 
since the violation is alleged to have occurred, and will adhere to the 
five-year statute of limitations where we seek civil penalties.

H. Safe Harbors and Affirmative Defenses

1. Comments
    64. Several commenters suggest that the Commission make explicit in 
the language of proposed regulations certain safe harbors. For example, 
they argue that the following should be deemed acceptable behavior: 
Actions or transactions taken at the direction of an RTO or ISO 
(similar to the affirmative defense in Market Behavior Rule 2), 
compliance with Midwest ISO's market monitoring program, actions or 
transactions with a ``legitimate business purpose,'' and legitimate 
hedging activity.\125\
---------------------------------------------------------------------------

    \125\ See, e.g., AEP at 2; AGA at 5-6 (advocating a safe harbor 
for ``inadvertent'' errors); Ameren at 7; DTE at 2-4; INGAA at 11; 
LG&E at 3; NGSA at 2, 5, 8-9 (seeking clarification that the 
proposed regulations do not modify or supersede the Commission's 
policy statement on price reporting or the related safe harbor 
provisions of that policy); NiSource at 7; and SCANA at 3-4.
---------------------------------------------------------------------------

    65. Some commenters urge the Commission to provide specific 
examples of what would or would not constitute market 
manipulation.\126\ NiSource argues that aiding and abetting, as opposed 
to primary violations, and actions taken pursuant to Commission-
approved tariffs, state law, and Supreme Court precedent, as well as 
minor errors, would not violate the proposed rules.\127\ Furthermore, 
some commenters request a mechanism for obtaining guidance on whether 
proposed conduct violates the anti-manipulation rules through a 
procedure similar to the SEC's No-Action Letter process.\128\
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    \126\ See, e.g., SCANA at 3-5 (arguing for an explicit safe 
harbor for hedging transactions, and that any violation of the 
``shipper must have title'' rule is a per se violation); NiSource at 
7; and Indicated Market Participants at 20-22 (requesting specific 
guidance, including a non-exclusive list, of what would and would 
not be considered manipulative conduct, to aid in internal training 
and compliance programs).
    \127\ NiSource at 6-9.
    \128\ See, e.g., First Energy at 15-16; INGAA at 11.
---------------------------------------------------------------------------

2. Commission Determination
    66. The Commission will address issues relating to the Market 
Behavior Rules, and the affirmative defenses or safe harbors therein, 
in the FPA section 206 proceeding and NGA NOPR related to the Market 
Behavior Rules in Docket Nos. EL06-16-000 and RM06-5-000. As noted in 
that proceeding, it is the Commission's intent to have a smooth 
transition to the new anti-manipulation regulations but not to leave 
gaps between the adoption of the final rule and any repeal or revision 
of the Market Behavior Rules.
    67. In all events, however, it is not necessary to change the 
wording of the final rule. The availability of safe harbor presumptions 
of compliance and affirmative defenses will be the same as is currently 
the case under the Market Behavior Rules. Thus, if a market participant 
undertakes an action or transaction that is explicitly contemplated in 
Commission-approved rules and regulations, we will presume that the 
market participant is not in violation of the final rule. If a market 
participant undertakes an action or transaction at the direction of an 
ISO or RTO that is not approved by the Commission, the market 
participant can assert this as a defense for the action taken.

I. Procedures for Handling Manipulation Claims

1. Comments
    68. Some commenters seek clarification on how claims of market 
manipulation will be processed by the Commission. PG&E asks for 
procedures that will permit involvement of affected market participants 
in manipulation complaints, including intervention and full 
participation by affected parties, and availability of all remedies, 
including disgorgement or returning consumers to the condition they 
would have been in, absent manipulation. Doing so, PG&E asserts, would 
provide due process for those damaged by manipulation and would assure 
that the Commission considers all relevant factors in resolving the 
complaint.\129\ Cinergy, on the other hand, states that it expects that 
complaints would be filed pursuant to NGA section 5 or FPA section 206, 
and that the Commission should incorporate in the final rule procedural 
requirements for filing complaints. Cinergy also seeks clarification on 
whether the Commission intends to apply the proposed regulations 
retroactively in any manner.\130\ At the same time, however, Cinergy 
also argues that the Commission should explicitly urge parties first to 
take concerns and potential complaints to the Office of Market 
Oversight and Investigations Enforcement Hotline (Hotline). This, 
Cinergy explains, would permit entities accused of manipulation to 
present facts and evidence without suffering the potential harm within 
industry and the investment community that could result from an 
accusation of manipulation, and could lead to faster settlement 
resolutions of manipulation claims.\131\
---------------------------------------------------------------------------

    \129\ PG&E at 14-15.
    \130\ Cinergy at 10.
    \131\ Id. at 10-12.
---------------------------------------------------------------------------

    69. EEI and INGAA also urge the Commission to address the formal 
process and procedures to be used in resolving manipulation complaints, 
including the burden of proof.\132\ INGAA and ISDA suggest the 
Commission adopt a ``Wells submission'' process like that of the SEC in 
which an entity\133\ is given, at the end of an investigation, notice 
of the proposed charges and enforcement action that staff intends to 
recommend to the SEC, and an opportunity to submit a written statement 
and

[[Page 4256]]

materials to refute staff's recommendation.\134\
---------------------------------------------------------------------------

    \132\ EEI at 19-21; INGAA at 13.
    \133\ The ``Wells submission'' process is set forth in SEC 
regulations, 17 CFR 202.5(c) (2005).
    \134\ INGAA at 12; ISDA Reply at 5.
---------------------------------------------------------------------------

2. Commission Determination
    70. Congress enacted the statutory prohibitions on market 
manipulation as separate sections of the NGA and FPA, giving the 
Commission anti-manipulation authority that is independent of other 
provisions of the NGA and FPA, including NGA section 5 and FPA section 
206. Accordingly, the Commission rejects Cinergy's suggestion that 
complaints alleging manipulation necessarily would rely on NGA section 
5 or FPA section 206.\135\ As to the procedures to be followed when a 
complaint alleging manipulation is filed, the Commission will process 
the filing under the procedures currently set forth in Rule 206 of the 
Rules of Practice and Procedure.\136\ The Commission rejects as 
unnecessary EEI's, INGAA's, and Cinergy's suggestions that we 
incorporate procedures into the final rule. The requirements for filing 
complaints are set out in Rule 206, and the process for handling 
complaints, including the allocation of the burden of proof, is well-
defined through Commission case law. There is no need for a special or 
separate set of procedures for complaints arising from our new anti-
manipulation authority.
---------------------------------------------------------------------------

    \135\ Even if a complaint were to involve NGA section 5 or FPA 
section 206 in some manner, that does not mean that the Commission 
would be limited only to prospective remedies, as Cinergy seems to 
suggest. Certain violations are susceptible of remedies from the 
time the violation occurred. See, e.g., Consolidated Gas 
Transmission Corp., 771 F.2d 1536 (D.C. Cir. 1985) (retroactive 
remedy available under NGA section 16).
    \136\ 18 CFR 385.206 (2005).
---------------------------------------------------------------------------

    71. Cinergy states that the industry needs to understand if there 
is to be any retroactive application of the final rule. The regulations 
adopted herein will become effective upon publication in the Federal 
Register. There can be no violation of the final rule until it is 
effective. The Market Behavior Rules, however, have been in effect 
since December 2003, and will remain in effect pending the outcome of 
the separate Docket Nos. EL06-16-000 and RM06-5-000 proceedings.
    72. To the extent Cinergy suggests that no retroactive remedies 
should be used, the Commission reiterates that a complaint that alleges 
market manipulation will proceed under NGA section 4A or FPA section 
222, utilizing the procedural rules and mechanisms generally applicable 
to NGA and FPA proceedings. We reject any suggestion that the 
Commission cannot remedy manipulative conduct after it has occurred, 
such as by ordering the disgorgement of profits and/or imposing a civil 
penalty. Congress did not limit the Commission's jurisdiction under NGA 
section 4A or FPA section 222 to prospective conduct and associated 
remedies only. How the Commission addresses market manipulation will 
depend on the facts presented, but we have significant discretion to 
shape equitable remedies that achieve the purpose of Congress' 
enactment of anti-manipulation provisions.\137\ In devising a remedy, 
the Commission will exercise discretion to arrive at an appropriate 
remedy \138\ and will explore all equitable considerations and 
practical consequences of our action pursuant to our statutory 
delegation.\139\
---------------------------------------------------------------------------

    \137\ ``[T]he Commission has broad authority to fashion 
equitable remedies in a variety of settings.'' Columbia Gas 
Transmission Corp. v. FERC, 750 F.2d 105, 109 (DC Cir. 1984) and 
cases cited therein. The courts have noted that ``the breadth of 
agency discretion is, if anything, at zenith when the action 
assailed relates primarily * * * to the fashioning of policies, 
remedies, and sanctions * * * to arrive at maximum effectuation of 
Congressional objectives.'' Niagara Mohawk Corp. v. FPC, 379 F.2d 
153, 159 (DC Cir. 1967).
    \138\ Gulf Oil Corp. v. FPC, 536 F.2d 588 (3rd Cir. 1977), cert. 
denied, 434 U.S. 1062 (1978), reh'g denied, 435 U.S. 981 (1978).
    \139\ FPC v. Tennessee Gas Transmission Co., 371 U.S. 145 
(1962); Continental Oil Co. v. FPC, 378 F.2d 510 (5th Cir. 1967).
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    73. The Commission also declines to accept Cinergy's suggestion 
that we explicitly urge parties first to bring concerns and potential 
complaints to the Hotline.\140\ Aggrieved entities should be free to 
choose the approach best suited to their circumstances, and if an 
entity so chooses, the Hotline (or other informal contact with the 
Commission's staff) is available for such matters.
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    \140\ See 18 CFR 1b.21 (2005)
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    74. Turning to INGAA's suggestion that the Commission adopt what is 
referred to as a ``Wells submission'' to permit entities under 
investigation to submit material to refute staff findings and 
recommendations prior to Commission action, we find that no new process 
need be adopted here. The Commission already has a regulation in place 
that provides a company under investigation with an opportunity to 
present its views,\141\ and staff's existing practice is to present the 
company's views to the Commission as part of any report or 
recommendation made by staff following an investigation.
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    \141\ See 18 CFR 1b.18 (2005).
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J. Miscellaneous Issues

1. Use of ``Entity'' in place of ``Person'' in sections 1c.1(a)(3) and 
1c.2(a)(3)
a. Comments
    75. Two commenters express concern with the use of ``person'' in 
proposed sections 47.1(a)(3) and 159.1(a)(3) and urge the Commission to 
substitute ``entity'' for ``person.'' \142\ Specifically, APPA points 
out that under proposed section 47.1(a)(3), it is unlawful ``to engage 
in any act, practice, or course of business that operates or would 
operate as a fraud or deceit upon any person'' (emphasis added) and 
that the definition of ``person'' under the FPA excludes 
municipalities. Thus, according to APPA, an entity that practices a 
``fraud or deceit'' on a municipality could argue that proposed section 
47.1(a)(3) does not apply because the victim is not a ``person'' under 
the FPA.\143\ APGA makes a similar argument with respect to proposed 
section 159.1(a)(3).\144\
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    \142\ See APGA at 10-11; APPA at 2-4.
    \143\ APPA at 2-3.
    \144\ APGA at 10.
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b. Commission Determination
    76. The Commission agrees with these commenters. It would be unfair 
and unintended to prohibit fraudulent or manipulative behavior by any 
entity, including municipalities, but then not cover fraud or deceit 
when it is perpetrated against a municipality. Accordingly, the 
Commission will substitute the word ``entity'' for ``person'' in 
sections 1c.1(a)(3) and 1c.2(a)(3) of the final rule.\145\
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    \145\ As noted, the final rule will appear in 18 CFR 1c.1 and 
1c.2 of the Commission's Rules of General Applicability, and the 
language change will be in 18 CFR 1c.1(a)(3) and 1c.2(a)(3).
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2. Impact of New Regulations on the Policy Statement on Natural Gas and 
Electric Price Indices
a. Comments
    77. NGSA requests that the Commission clarify that the new 
regulations do not modify or supersede the Commission's Policy 
Statement on Natural Gas and Electric Price Indices.\146\
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    \146\ NGSA at 8-9. See Policy Statement on Natural Gas and 
Electric Price Indices, 104 FERC Sec.  61,121 (2003) (explaining the 
conditions under which the Commission will give industry 
participants safe harbor protection for good faith reporting of 
transactions data to entities that develop price indices).
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b. Commission Determination
    78. The Commission clarifies that the new regulations are not 
intended to modify or supersede the Commission's Policy Statement on 
Natural Gas and

[[Page 4257]]

Electric Price Indices. That Policy Statement provided guidance on how 
market participants should report price transaction information to 
price index developers, and stated that if the Policy Statement 
guidelines are followed, participants would not be penalized for 
inadvertent errors. We continue to encourage market participants to 
contribute to price formation and to utilize the guidelines of the 
Policy Statement when reporting pricing information. We also note that 
if an inadvertent error occurs, it would not involve the scienter 
needed for application of the final rule.
3. Special Pleading
a. Comments
    79. AEP argues that the Commission should discourage general 
allegations of fraud by requiring parties that bring an action under 
the proposed rule to plead with ``sufficient particularity'' by 
addressing eight items.\147\ Other commenters, however, argue that the 
Commission should not adopt special pleading requirements beyond its 
notice provisions and existing complaint procedures.\148\
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    \147\ AEP at 3-4. The eight items are: (1) What identifiable 
acts or omissions occurred, what representations were made and why 
they were not accurate but constituted a scheme or device to 
defraud; (2) when and where each act occurred; (3) who participated, 
that is, how each entity is related to the case; (4) what specific 
documents contained what specific misrepresentations or material 
omissions; (5) how a party relied on the other party's actions; (6) 
whether the necessary element of scienter was present; (7) when the 
purchase, sale, or transmission of electric energy or natural gas 
occurred; and (8) what the offending party gained as a result of the 
fraud.
    \148\ See, e.g., TDUS Reply at 9.
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b. Commission Determination
    80. Commenters' concerns regarding special pleading requirements 
are clearly covered by Rule 206 of the Commission's Rules of Practice 
and Procedure, which contains detailed requirements as to the 
specificity required by parties filing complaints with the Commission. 
For instance, under Rule 206(b)(1)-(2), a complaint must ``clearly 
identify the action or inaction which is alleged to violate applicable 
statutory or regulatory requirements,'' and must ``explain how the 
action violates statutory or regulatory requirements.'' \149\ 
Similarly, in Order No. 663, the Commission sets forth the requirement 
that issues must be listed with specificity in a separate section 
entitled ``Statement of Issues.'' \150\
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    \149\ See Wisconsin Department of Natural Resources v. Wisconsin 
River Power Company, 101 FERC Sec.  61,108 at P 5 (2002) (rejecting 
complaint). See also Union Electric Company, d/b/a AmerenUE, 93 FERC 
Sec.  61,158 at 61,529 (2000) (denying a request for a hearing, 
citing Rule 206(b)(1), (2), and (8), and stating that ``[t]he 
Commission's rules require a complaint not only to identify clearly 
the action that is alleged to violate applicable statutory standards 
or regulatory requirements, but to explain how the action violates 
those standards or requirements, and to include all documents in the 
complainant's possession that support the facts in the complaint'').
    \150\ See Revision of Rules of Practice and Procedure Regarding 
Issue Identification, 70 FR 55723 (2005), FERC Stats. & Regs. Sec.  
31,193 (2005).
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IV. Regulatory Flexibility Act Certification

    81. The Regulatory Flexibility Act of 1980 \151\ generally requires 
a description and analysis of a final rule that will have significant 
economic impact on a substantial number of small entities.\152\ The 
Commission is not required to make such analyses if a rule would not 
have such an effect.
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    \151\ 5 U.S.C. 601-612 (2000).
    \152\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small business concern'' as a business which is independently 
owned and operated and which is not dominant in its field of 
operation. 15 U.S.C. 632 (2000). The Small Business Size Standards 
component of the North American Industry Classification System 
defines a small electric utility as one that, including its 
affiliates, is primarily engaged in the generation, transmission, 
and/or distribution of electric energy for sale and whose total 
electric output for the preceding fiscal years did not exceed 4 
million MWh. 13 CFR 121.201 (Section 22, Utilities, North American 
Industry Classification System, NAICS) (2004).
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    82. The Commission concludes that this final rule would not have 
such an impact on small entities. This final rule prohibits all 
entities, including small entities, from employing manipulative or 
deceptive devices or contrivances in connection with energy markets 
subject to the Commission's jurisdiction, and therefore may cause 
entities, including potentially small entities, to increase costs in 
order to comply. This prohibition, however, will improve market 
transparency to the economic benefit of all entities, including small 
entities. Therefore, the Commission certifies that this final rule will 
not have a significant economic impact on a substantial number of small 
entities. Therefore, no regulatory flexibility analysis is required.

V. Information Collection Statement

    83. This final rule implements the existing requirements as set 
forth in sections 315 and 1283 of EPAct 2005 and does not include new 
information requirements under the provisions of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

VI. Environmental Statement

    84. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\153\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment. Included in the exclusion are rules that are clarifying, 
corrective, or procedural or that do not substantially change the 
effect of the regulations being amended.\154\ Thus, we affirm the 
finding we made in the NOPR that this final rule is procedural in 
nature and therefore falls under this exception; consequently, no 
environmental consideration would be necessary.
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    \153\ Regulations Implementing the National Environmental Policy 
Act, Order No. 486, 52 FR 47897 (1987), FERC Stats. & Regs. Sec.  
30,783 (1987).
    \154\ 18 CFR 380.4(a)(2)(ii) (2005).
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VII. Document Availability

    85. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through the Commission's Home Page (http://www.ferc.gov) and 

in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, 
Washington, DC 20426.
    86. From the Commission's Home Page on the Internet, this 
information is available in the eLibrary. The full text of this 
document is available on eLibrary both in PDF and Microsoft Word format 
for viewing, printing, and/or downloading. To access this document in 
eLibrary, type the docket number excluding the last three digits of 
this document in the docket number field.
    87. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours. For assistance, please contact 
Online Support at 1-866-208-3676 (toll free) or 202-502-6652 (e-mail at 
FERCOnlineSupport@FERC.gov), or the Public Reference Room at 202-502-

8371, TTY 202-502-8659 (e-mail at public.referenceroom@ferc.gov).

VIII. Effective Date and Congressional Notification

    88. This final rule will take effect upon publication in the 
Federal Register. The Commission has determined, with the concurrence 
of the Administrator of the Office of Information and Regulatory 
Affairs of the Office of Management and Budget, that this rule is not a 
major rule within

[[Page 4258]]

the meaning of section 251 of the Small Business Regulatory Enforcement 
Fairness Act of 1996.\155\ The Commission will submit the final rule to 
both houses of Congress and the Government Accountability Office.\156\
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    \155\ 5 U.S.C. 804(2) (2000).
    \156\ 5 U.S.C. 801(a)(1)(A) (2000).
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    89. A non-major rule goes into effect ``as otherwise provided by 
law after submission to Congress.'' \157\ The effective date may be 
sooner if the agency ``for good cause'' finds that ``notice and public 
procedure thereon are impracticable, unnecessary, or contrary to the 
public interest.'' \158\ The Administrative Procedure Act (APA) \159\ 
requires rulemakings to be published in the Federal Register. The APA 
generally mandates that publication or service of a substantive rule 
not be made less than 30 days before its effective date. This waiting 
period is not required, however, if the agency finds ``good cause'' for 
waiving the 30 day waiting period.\160\
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    \157\ 5 U.S.C. 801(a)(4) (2000).
    \158\ 5 U.S.C. 808(2) (2000).
    \159\ 5 U.S.C. 551, et seq. (2000).
    \160\ 5 U.S.C. 553(d)(3) (2000).
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    90. The Commission finds that ``good cause'' exists that makes 
further notice and public procedure impracticable, unnecessary, or 
contrary to the public interest. The Commission has balanced the 
necessity for immediate implementation of this final rule against the 
principles of fundamental fairness which require that all affected 
persons be afforded reasonable time to prepare for the effective date 
of this ruling. The Commission is of the view that the persistent high 
energy prices in the wake of severe damage to the United States energy 
infrastructure from the hurricanes of 2005, together with the potential 
for severe price events in the event of cold winter weather during the 
winter months of 2006, may present opportunities for energy price 
manipulation. It would be contrary to the public interest to delay 
regulations that implement Congressional intent to prohibit 
manipulation in energy markets. Immediate adoption of the final rule 
will protect natural gas and electricity markets from manipulative 
conduct. Moreover, the public has had an opportunity to comment on the 
proposed rules, and the final rule being adopted is substantively the 
same as the rule that was proposed. Finally, the conduct proscribed by 
the final rule is similar to the conduct already proscribed by the 
Market Behavior Rules. Market participants should not have difficulty 
preparing to comply with a rule that bars manipulation in energy 
markets, particularly since many such participants are currently 
subject to the existing Market Behavior Rule provisions prohibiting 
manipulation. This final rule, therefore, will be made effective upon 
publication in the Federal Register.

List of Subjects in 18 CFR Part 1c

    Electric utilities, Natural gas.

    By the Commission.
Magalie R. Salas,
Secretary.

0
In consideration of the foregoing, under the authority of EPAct 2005, 
the Commission amends Chapter I, Title 18, Code of Federal Regulations, 
by adding Part 1c to read as follows:

PART 1c--PROHIBITION OF ENERGY MARKET MANIPULATION

Sec.
1c.1 Prohibition of natural gas market manipulation.
1c.2 Prohibition of electric energy market manipulation.

    Authority: 15 U.S.C. 717-717z; 16 U.S.C. 791-825r, 2601-2645; 42 
U.S.C. 7101-7352.

Sec.  1c.1  Prohibition of natural gas market manipulation.

    (a) It shall be unlawful for any entity, directly or indirectly, in 
connection with the purchase or sale of natural gas or the purchase or 
sale of transportation services subject to the jurisdiction of the 
Commission,
    (1) To use or employ any device, scheme, or artifice to defraud,
    (2) 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
    (3) To engage in any act, practice, or course of business that 
operates or would operate as a fraud or deceit upon any entity.
    (b) Nothing in this section shall be construed to create a private 
right of action.

Sec.  1c.2  Prohibition of electric energy market manipulation.

    (a) It shall be unlawful for any entity, directly or indirectly, in 
connection with the purchase or sale of electric energy or the purchase 
or sale of transmission services subject to the jurisdiction of the 
Commission,
    (1) To use or employ any device, scheme, or artifice to defraud,
    (2) 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
    (3) To engage in any act, practice, or course of business that 
operates or would operate as a fraud or deceit upon any entity.
    (b) Nothing in this section shall be construed to create a private 
right of action.

    Note: The following Appendix will not be published in the Code 
of Federal Regulations.

Appendix--List of Parties Filing Comments and Reply Comments and 
Acronyms

Ameren Services Co. (Ameren)
American Electric Power Service Corporation (AEP)
American Gas Association (AGA)
American Public Gas Association (APGA)
 * *
American Public Power Association (APPA) * *
Association of Oil Pipelines (AOPL)
BP Energy Co. (BP)
Cinergy Services, Inc. (Cinergy) * *
Constellation Energy Group, Inc., DTE Energy Company and Sempra 
Energy (Indicated Market Participants)
DTE Energy Company (DTE)
Edison Electric Institute (EEI) * *
Electric Power Supply Association (EPSA)
FirstEnergy Service Co. (FirstEnergy)
International Swaps and Derivatives Association, Inc. (ISDA) * *
Interstate Natural Gas Association of America (INGAA)
LG&E Energy LLC (LG&E)
Midwest Independent Transmission System Operator, Inc. (Midwest ISO)
Missouri Public Service Commission
National Association of Regulatory Utility Commissioners (NARUC) * *
National Association of State Utility Consumer Advocates (NASUCA)
National Rural Electric Cooperative Association (NRECA) *
Natural Gas Supply Association (NGSA)
New Jersey Board of Public Utilities (NJBPU)
NiSource, Inc. (NiSource)
Pacific Gas and Electric Co. (PG&E)
PNM Resources, Inc. (PNM) *
Progress Energy Inc. (Progress)
SCANA Energy Marketing, Inc. (SCANA)
Southern California Edison Company (SCE)
States of Illinois, Iowa, Minnesota, Missouri and Wisconsin (States)
SUEZ Energy North America, Inc. (SUEZ)
Transmission Dependent Utility Systems (TDUS) *
Xcel Energy Services Inc. (Xcel)

* Entities filing reply comments only.
* * Entities filing reply comments in addition to initial comments.

[FR Doc. 06-716 Filed 1-25-06; 8:45 am]

BILLING CODE 6717-01-P