During oral arguments last Thursday, two out of three appellate court judges appeared to challenge FERC’s claim of authority to prosecute alleged manipulation in the natural gas futures market.
Judges Stephen Williams and David Tatel of the U.S. Court of Appeals for the District of Columbia Circuit peppered the Federal Energy Regulatory Commission’s (FERC) lawyer with numerous questions on whether the agency’s jurisdiction extended beyond the physical natural gas market into futures, thereby giving the impression they did not look favorably on the agency’s position.
But a Washington, DC, attorney cautioned against jumping the gun on which way the court will go on the issue. “You shouldn’t bet the farm just on how the questions went in oral arguments,” said Dena E. Wiggins, an attorney for Washington, DC, law firm Ballard Spahr.
“You never know until the opinion is written,” Wiggins said. A decision is expected in the Amaranth case later this year. “All the energy practitioners will be watching this case and waiting for the opinion.”
Ex-Amaranth gas trader Brian Hunter has challenged FERC’s ruling that he allegedly manipulated the gas futures market and asked the court to overturn a FERC order imposing a $30 million fine (see NGI, Dec.19, 2011). Hunter has also faces court action initiated by the Commodity Futures Trading Commission (CFTC). That case is awaiting a ruling on the jurisdictional issue.
Traditionally, FERC has jurisdiction over the physical natural gas market and the CFTC oversees futures.
In his appeal seeking review of the November 2011 FERC order, Hunter argued that “Section 4A of the NGA [Natural Gas Act] 1.) does not authorize the Commission to police manipulation occurring in the futures market; 2.) does not permit enforcement actions against natural persons; and 3.) vests the federal district courts with exclusive jurisdiction to adjudicate alleged violations.”
What makes the case significant is the fact that it is the “first fully litigated proceeding under Section 4A of the Natural Gas Act, and involves one of the largest civil penalties” against a gas trader since passage of the Energy Policy Act (EPAct) of 2005, according to FERC. The court is being asked to clarify the extent of the FERC’s anti-manipulation authority under the EPAct.
Aside from the jurisdictional issue, Wiggins said “another interesting issue” in the case is Hunter’s claim that FERC can’t fine individuals.
Hunter had been the head gas trader at Amaranth, which made a number of wrong-way trades that led to more than $6 billion in gas trading losses and the collapse of Amaranth Advisors in September 2006 (see NGI, Sept. 25, 2006).
As for Hunter’s claims that the Commission overstepped its jurisdiction, FERC counters that Hunter’s alleged manipulation of the gas futures market took a toll on physical gas contracts over which the FERC has sole jurisdiction.
The CFTC has sided with Hunter on the issue of FERC’s jurisdiction in the futures market, arguing that “FERC’s assertion of jurisdiction directly conflicts with the express statutory grant of exclusive jurisdiction to the CFTC over futures trading on futures exchanges.” The CFTC contends that FERC has overstepped the authority granted to it by Congress in EPAct and encroached on the jurisdictional turf of the CFTC in the futures market.
The two federal regulatory agencies have gone head to head on the issue of whether FERC has jurisdiction in cases where the manipulation of natural gas futures trades was found to have influenced the price of physical gas transactions (see NGI, Nov. 10, 2008).
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