FERC's record-breaking $30 million settlement with Energy Transfer Partners LP (ETP) and three affiliates last week will likely "rattle the cages of regulated entities and those who invest in them," said an energy analyst and former Federal Energy Regulatory Commission (FERC) official.
"Given that ETP hired the top-rung Skadden law firm to fight their battle, this high settlement is particularly alarming to those subject to FERC. Some suggest ETP may have spent as much on legal fees as they have agreed to settle" with FERC, wrote William F. Hederman, an analyst with Washington Research Group and former director of FERC's Market Oversight and Investigations, in an "Energy Bulletin."
"This has potential headline risk for other pipelines with similar business models, but ultimately, those firms that have implemented compliance programs that follow FERC guidance will, in our opinion, be on solid ground and not face any new regulatory risks," he said.
The settlement resolved claims that ETP and affiliates manipulated physical natural gas prices at key Texas trading points from late 2003 through 2005. The $30 million fine was the steepest penalty imposed by FERC in an enforcement action since Congress gave the agency enhanced enforcement authority under the Energy Policy Act of 2005.
The settlement called for ETP to pay the U.S. Treasury $5 million within five days, and to set up a designated fund in the amount of $25 million to disgorge allegedly unjust profits to third-party entities that filed claims. An administrative law judge will oversee the fund. Any money remaining in the fund at the end will be forwarded to the Treasury.
In return, the FERC agreed to dismiss all current claims against ETP with prejudice and terminate all investigations in the proceeding. Moreover, the settlement forever bars the Commission from bringing against ETP any and all claims arising out of the case [IN06-3].
With the ink barely dry on the FERC-ETP agreement, the Dallas-based energy company last Tuesday expressed strong dissatisfaction with the way the agency's enforcement staff handled the case.
"I continue to be disgusted by the manner in which the FERC enforcement staff administers the FERC's enforcement powers," said ETP CEO Kelcy L. Warren. "I believe that the FERC needs to take a long, hard look at how its enforcement staff conducts itself to ensure the natural gas industry receives the fairness and due process it rightly deserves."
FERC spokeswoman Mary O'Driscoll declined to comment.
In March 2008 ETP and affiliates reached a $10 million settlement with the Commodity Futures Trading Commission to resolve similar charges that they attempted to manipulate natural gas prices (see NGI, March 24, 2008).
In addition to the civil penalty, the FERC settlement imposed a detailed compliance program on ETP, including written compliance standards; mandatory compliance training for employees directly involved with commodity trading; annual review of the compliance program; ongoing monitoring of ETP's compliance program by its chief compliance officer; confidential reporting systems; disciplinary mechanisms to ensure enforcement of these standards; and procedures for conducting internal investigations of trading activities.
In July 2007 FERC accused ETP and affiliates of manipulating physical natural gas prices at the Houston Ship Channel (HSC) and Waha trading hub on various dates from December 2003 through December 2005 (see NGI, July 30, 2007).
FERC at the time proposed potential civil penalties for ETP totaling $82 million -- $79 million for the alleged manipulations at the HSC and $3 million for the alleged manipulations at Waha and Permian trading hubs. FERC also proposed disgorgement of $69.9 million, plus interest, in unjust profits.
In March the Commission approved a joint offer of settlement filed by its enforcement staff and ETP's Oasis Pipeline and affiliates, which essentially closed the enforcement case against the companies without levying any financial penalties (see NGI, March 2). Oasis and affiliates were accused of discriminating against nonaffiliated shippers in favor of affiliated shippers. FERC initially had proposed $15.5 million in civil penalties for Oasis and affiliates for alleged Natural Gas Policy Act violations of undue discrimination and preference.
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