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FERC Enforcement Staff Rejects Total's Response to Market Manipulation Charges, Calls For ALJ Hearing

FERC enforcement staff rejected Total Gas & Power North America Inc.'s (TGPNA) arguments against staff's allegations of natural gas market manipulation against the company and two of its trading managers Friday, but in a highly unusual move, staff also requested that the Commission schedule a hearing on certain factual matters before an administrative law judge (ALJ).

"In their response to the staff report's detailed description of respondents' manipulative bidweek trading scheme, respondents raise a host of factual and legal arguments, including a request that the Commission summarily dismiss enforcement staff's claims, as well as several challenges to the Commission's authority to conduct this proceeding," according to the Federal Energy Regulatory Commission's reply to the Total SA unit's filing [IN12-17].

"While respondents' factual arguments present their view of the evidence, they do not, as a threshold matter of law, rebut the alleged violation. Instead, they largely mischaracterize enforcement staff's allegations, make inaccurate and unsubstantiated representations, and, at best, merely raise disputed issues of material fact."

In a surprising move, however, FERC enforcement staff requested "that the Commission set this matter for a hearing before a Commission administrative law judge. Such a hearing is necessary to resolve certain material issues of fact that enforcement staff and respondents dispute." Staff also recommended that the Commission reject Total's legal arguments and challenges to FERC's authority, and "decide several issues of material fact, including certain foundational facts, that respondents either have not disputed or failed to sufficiently dispute."

The market manipulation case brought against TGPNA by FERC enforcement staff "suffers from multiple infirmities" and doesn't include documentary evidence of intent to manipulate any market, the company has said (see Daily GPIJuly 13). FERC should throw out the proceeding, TGPNA said in a 200-page response to an Office of Enforcement show cause order, which included allegations of natural gas market manipulation against the company and two of its trading managers (see Daily GPIMay 3). The order recommended civil penalties of nearly $226 million.

FERC staff has alleged that the trades took place at four Southwest locations between June 2009 and June 2012 at the regional trading hubs of SoCal, Permian, Waha and San Juan and were made by Total West Desk traders Aaron Hall, Therese Tran and Matthew Wilson. FERC staff first issued a notice of the ongoing investigation in September 2015 (see Daily GPISept. 22, 2015).

In its reply, enforcement staff said a laundry list of procedural arguments that TGPNA had laid out in its filing lacked merit. TGPNA "contend that the NGA [Natural Gas Act] and the Constitution require the Commission to adjudicate penalty claims in federal district court. They further claim that the Commission's regulations violate the Administrative Procedure Act (APA), and that the Commission violated its own regulations...[T]hey are incorrect," staff wrote.

Enforcement staff said that, contrary to TGPNA's contention, "the NGA does not vest district courts with exclusive jurisdiction to determine liability in the first instance of penalty matters." The NGA instead "authorizes district courts to assist the Commission when called upon." In addition, the Constitution does not bar adjudicating NGA violations administratively, staff said.

FERC enforcement staff also argued against several TGPNA statements about the Commission's ALJs. ALJ's are not "inferior officers" who have been improperly appointed in violation of the Appointments Clause, and they do not exercise "significant authority," staff said.

"FERC ALJs hold hearings only when designated by the Commission, conduct adjudications according to detailed regulations, and issue only 'initial' decisions that do not become final unless the Commission permits it," staff said.

Finally, staff said that neither Seventh Amendment nor the Due Process Clause prohibit FERC administrative adjudications, and FERC's Ex Parte and Separation of Function Rules do not violate the APA.

Last month, TGPNA asked a federal district court judge to reconsider a decision that the company may not defend itself against the FERC staff allegations in court -- a conclusion that would effectively return the case to the Commission (see Daily GPIAug. 31; July 18) [No. 4:16-cv-01250]. TGPNA had contended that the federal courts are the only place where alleged violations of the federal NGA may be sorted out (see Daily GPIMay 10). Attorneys for Total's North American operations argued that FERC does not get the first chance to decide alleged gas market manipulation cases.

But on Sept. 14, Senior U.S. District Judge Nancy F. Atlas once again rejected those arguments and denied TGPNA's motion to alter or amend her original judgement in the case. TGPNA has indicated that it will appeal the decision to the United States Court of Appeals for the Fifth Circuit.

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