FERC is an acronym for Federal Energy Regulatory Commission. The Federal Energy Regulatory Commission is the United States federal agency that regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce and regulates the transportation of oil by pipeline in interstate commerce. The agency is the modern incarnation of the Federal Power Commission formed by Congress in 1920.
FERC Responsibilities
FERC is responsible for a number of issue regarding energy in the U.S. The 2005 Energy policy act widened those responsibilities which, as listed on the FERC website are repeated below
- Regulates the transmission and wholesale sales of electricity in interstate commerce;
- Reviews certain mergers and acquisitions and corporate transactions by electricity companies;
- Regulates the transmission and sale of natural gas for resale in interstate commerce;
- Regulates the transportation of oil by pipeline in interstate commerce;
- Approves the siting and abandonment of interstate natural gas pipelines and storage facilities;
- Reviews the siting application for electric transmission projects under limited circumstances;
- Ensures the safe operation and reliability of proposed and operating LNG terminals;
- Licenses and inspects private, municipal, and state hydroelectric projects;
- Protects the reliability of the high voltage interstate transmission system through mandatory reliability standards;
- Monitors and investigates energy markets;
- Enforces FERC regulatory requirements through imposition of civil penalties and other means;
- Oversees environmental matters related to natural gas and hydroelectricity projects and other matters; and
- Administers accounting and financial reporting regulations and conduct of regulated companies.
The second point, highlighted in bold is of most relevance to traders and investors. This gives FERC a significant amount of influence of the merger arbitrage spread. Energy sector mergers have in the past tended to trade at wider spread levels because of this additional scrutiny placed on deal in a protected industry causing amongst other things the length of time taken to complete the deal to extend. Traders pay special attention to FERC statements in order to accurately gauge the deal closing probability (DCP).
