Energy Transfer Partners LP (ETP) is seeking expedited rehearing of a July show cause order in which FERC accused it of manipulating the natural gas physical markets at the Houston Ship Channel and Waha trading hub. The Dallas-based energy company faces up to $167 million in total penalties and disgorgement of unjust profits if it is unable to successfully dispute the charges (see NGI, July 30).
Energy Transfer is challenging the Federal Energy Regulatory Commission's (FERC) claim that it can summarily act or set the matter for a hearing before an administrative law judge once the company responds to the charges in the show cause order in late September. Both the Natural Gas Policy Act (NGPA) and Natural Gas Act (NGA) "require that ETP be permitted to have its civil penalty liability -- including whether ETP violated any legal requirements, whether there should be any penalties, and, if so, what amount -- adjudicated in a de novo trial in federal district court," not at FERC, Energy Transfer told the agency [IN06-3-002].
The Federal Energy Regulatory Commission, which began investigating ETP in October 2005, "is proposing to impose approximately $97.5 million in civil penalties on ETP. While we have the highest respect for the Commission and its staff, the language of the show cause order, along with press releases and press accounts of interviews, not only creates the appearance that the Commission has prejudged the outcome of this case, but supports a finding of actual prejudgment. The show cause order...reads much more like an advocate's brief than an order impartially launching a tentative inquiry," the company said.
"The Commission would only exacerbate these due process concerns by shrugging aside Congress's choice of a de novo federal district court forum and seeking instead the 'home court advantage' of adjudicating these substantial claims itself, followed, no doubt, by a claim of substantial deference on judicial review before a U.S. Court of Appeals. The Commission should not be the prosecutor and judge in civil penalty proceedings."
Both the NGPA and NGA "allow the Commission to issue a show cause order, solicit a response and assess civil penalties. The Commission then, however, must seek to have its case tested in a de novo trial in federal district court, where issues concerning liability for civil penalties (and other remedies the Commission seeks to assess) and their proper amount...are resolved," Energy Transfer said.
The company also asked the Commission to stay the show cause proceeding against ETP until these threshold jurisdictional issues can be resolved by FERC and, if necessary, a reviewing court.
The case against Energy Transfer, which came to the Commission's attention through its enforcement hotline, involves manipulation of wholesale natural gas markets at Houston Ship Channel and Waha, TX, trading hubs on various dates from December 2003 through December 2005. The Commodity Futures Trading Commission also brought an enforcement action against Energy Transfer in late July for attempted manipulation (see related story).
FERC's investigation found that ETP allegedly violated the agency's Market Behavior Rule, the anti-manipulation rule then in effect, when it artificially lowered the price for prompt-month gas at the Houston Ship Channel to the benefit of its physical and financial positions. By lowering the price, ETP reportedly depressed the Inside FERC's Gas Market Report Houston Ship Channel index, published by Platts, on which the pricing of many physical natural gas contracts and financial derivatives is based.
The investigation also found that Energy Transfer depressed the price of daily gas at Waha, and violated the NGPA by unduly preferring affiliated shippers and unduly discriminating against nonaffiliated shippers on its Oasis Pipeline for interstate gas transportation system from Waha in West Texas to Katy, TX, near Houston.
The Commission is proposing to assess ETP civil penalties totaling $97.5 million, and require total disgorgement of $69.9 million in unjust profits. For alleged market manipulation, FERC proposes that ETP pay $82 million in civil penalties -- the maximum $79 million for the manipulations at the Houston Ship Channel, and $3 million for the manipulations at Waha and Permian Basin. The Commission also is proposing disgorgement of $67.6 million for alleged manipulation in the Houston Ship Channel and $2.2 million for manipulation at Waha and Permian Basin.
Moreover, the Commission is seeking to revoke ETP's blanket certificate to sell natural gas for one year, beginning 120 days from July 26. This means that ETP would have to get Commission approval for all jurisdictional sales of natural gas.
For the alleged NGPA violations by Oasis Pipeline, the Commission proposes that ETP pay $15.5 million in civil penalties for undue discrimination and undue preference, and $500,000 for failure to file an amended operating statement. The Commission is proposing that the pipe disgorge $267,122, plus interest, in unjust profits as well.
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