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Total Challenges FERC Jurisdiction Over Manipulation Charges in Federal Court

Total Gas & Power North America Inc. (TGPNA) has taken its defense against a recent FERC enforcement staff allegation of three years of natural gas trading manipulation in the Southwest to a federal district court in Texas. The Total SA unit contends the federal courts are the only place where alleged violations of the federal Natural Gas Act (NGA) can be sorted out.

Attorneys for Total's North American operations are contending that the Federal Energy Regulatory Commission does not get the first chance to decide alleged gas market manipulation cases. Total defended its claim in a brief filed earlier this month in the U.S. District Court for the Southern District of Texas in Houston.

FERC's Office of Enforcement (OE) issued a show cause order earlier this month with allegations of natural gas market manipulation against the company and two of its trading managers; it recommended civil penalties of nearly $226 million (see Daily GPI, May 3).

In January this year TGPNA had asked the federal court for a declaratory order to stop FERC from proceeding with any administrative enforcement (see Daily GPI, Feb. 1). It asked the court to guarantee the company a chance to have the  allegations heard by a jury trial in a federal district court.

The trades allegedly took place at four Southwest locations over the period of June 2009 to June 2012 (see Daily GPIMay 3). FERC staff first issued a notice of the ongoing investigation in September 2015 (see Daily GPISept. 22, 2015).

Separately, in December last year, TGPNA forged a settlement with the Commodity Futures Trading Commission (CFTC) in which the Total SA unit agreed to pay $3.6 million in civil penalties for attempting to manipulate gas prices.

Whistleblowers were involved in both the CFTC and FERC cases, with former TGPNA traders filing complaints. While FERC's enforcement staff is citing trading activity covering the three-year period beginning in June 2009, the CFTC settlement only pertains to the period starting Aug. 15, 2011.

TGPNA attorneys are arguing that the "long-established practice" of Congress has been to grant to the federal district courts authority over alleged NGA violations.

TGPNA was given 30 days to show cause why the FERC charges are incorrect and it should not be penalized. The company responded May 2 asking for an extension until the later of 45 days after the federal district court issues an order resolving the threshold jurisdictional issues raised in TGPNA’s Amended Complaint for Declaratory Relief, or 60 days beyond the current due date.

TGPNA claims that four different constitutional provisions -- the Appointments Clause, Article III, and the Fifth and Seventh Amendments -- require adjudication in federal district court based on the nature of the enforcement actions of FERC and the unconstitutional manner in which FERC [judges] are appointed.” The company’s suit also claims that “FERC’s use of an administrative proceeding violates Section 5(d) of the Administrative Procedure Act (“APA”) due to FERC’s admitted practice of allowing staff who advise the commissioners to have ex parte communications with OE about ongoing investigations.”

At the same time FERC issued the show-cause order it said OE staff who worked on the case will not serve as advisers to the commission or take part in the commission’s review of any offer of settlement. They also are prohibited from communicating with advisory staff concerning any deliberations in the case.

FERC has tried to get the district court to dismiss the company's complaint, but TGPNA fired back, accusing the federal agency of using "false and baseless assumptions" that attempt to claim the court lacks "subject matter jurisdiction."

"Congress has never granted FERC adjudicative jurisdiction over NGA violations (although it has conferred such authority on FERC expressly in limited circumstances under 'other' statutes)," TGPNA attorneys argued. "Instead, Congress has explicitly conferred on the federal district courts 'exclusive jurisdiction of violations' of the NGA."

TGPNA has asked the federal court to extend by 45 days the time it has to answer the show-cause  order from FERC, accusing the federal regulators of attempting to be "investigator, prosecutor, judge and jury," usurping the court’s authority.

FERC in recent years has come under fire for the alleged secretive nature of its show-cause investigations and the fact that in the past FERC staff that prepared the case may have advised the commissioners on how to vote (see Daily GPI, June 8, 2015). It has been charged that the whole process severely impairs defendants’ ability to defend themselves.

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