Energy Transfer Partners LP (ETP) has called on FERC to dismiss a complaint brought by a Victoria, TX-based energy company, claiming it is simply "parroting without any independent support" the same allegations of natural gas price manipulation that the agency outlined in its July show cause order against ETP and affiliates.
The complaint was filed in late October by O'Connor & Hewitt Ltd., which sold its natural gas to ETP affiliate Houston Pipe Line Co. between 2003 and 2006 based on the Houston Ship Channel (HSC) index that was published by Inside FERC's Gas Market Report. It said it believed at the time that the index was a "true reflection" of the market price during that period, but this turned out not to be the case because "ETP [allegedly] manipulated wholesale natural gas prices at HSC by suppressing them to benefit ETP's financial positions and other physical positions."
The Federal Energy Regulatory Commission "should view the complaint for what it is -- an attempt by O'Connor to hijack the Commission's show cause order proceeding and improperly insert itself into the resolution of the investigation," ETP told FERC [RP08-30]. "The complaint adds nothing new or different from what the Commission has alleged in [its] show cause order" against ETP, the Dallas-based energy company said.
FERC, in its show cause order, charged ETP and affiliates with engaging in manipulation of wholesale natural gas markets at the HSC and Waha trading hubs on various dates between December 2003 and 2005 (see NGI, July 30). ETP disputed the charges in early October, and asked the Commission to dismiss the matter in its entirety (see NGI, Oct. 15). ETP further contends that FERC's allegations and proposed civil penalty are subject to review by a district court, not the Commission.
"If the Commission does not dismiss the [O'Connor] complaint outright, then we urge -- in the alternative -- that this proceeding be held in abeyance until the charges lodged in the Commission's show cause order are ultimately resolved," ETP said.
O'Connor & Hewitt is seeking refunds of at least $5.9 million from ETP for allegedly manipulating the price of natural gas at the HSC. The company is the authorized agent for individuals, trusts, partnerships and limited liability companies that have interests in gas-producing properties in Refugio and Goliad counties, TX.
O'Connor & Hewitt claims that ETP violated the Natural Gas Act (NGA) by failing to make its sales for resale at the HSC at "negotiated rates;" intentionally engaged in market manipulation in violation of FERC's market behavior rules; knowingly submitted misleading trade data to Platts, publisher of Inside FERC, to include in the calculation of its HSC index; and caused the company to suffer "quantifiable economic losses."
ETP contends that FERC "has no jurisdiction over the underlying transactions from which O'Connor's alleged injury flows -- 'first sales' by O'Connor to an intrastate pipeline that have been expressly excluded from the Commission's NGA jurisdiction by the Natural Gas Policy Act of 1978." The complaint "should be dismissed on this basis as well," it said.
O'Connor & Hewitt has asked FERC to order ETP to disgorge all profits stemming from its alleged violations of the NGA; refund the amount of money necessary to return O'Connor & Hewitt to the status quo; and revoke ETP's blanket market certificate or, alternatively, appoint an independent monitor to supervise ETP's future resale trades at the HSC and ETP's reporting of trade data to the Inside FERC newsletter. FERC already is seeking more than $167 million in total penalties and disgorgement of unjust profits from ETP and affiliates.
O'Connor & Hewitt said it suspected ETP of price manipulation even before FERC filed its show cause order in July. The company brought a lawsuit against ETP in state court in Victoria County, TX, in March 2007, seeking pre-arbitration discovery and a temporary injunction enjoining ETP from initiating arbitration in any other court or from destroying documents.
ETP refused to turn over documents as ordered by the court and later challenged the lower court's ruling in the Thirteenth Court of Appeals in Corpus Christi, TX, where the case currently is pending, according to O'Connor & Hewitt.
As a matter of law, O'Connor's claims against ETP and affiliates "are not proper for Commission review because they are subject to [a] binding arbitration" clause in the company's January 1998 gas purchase agreement with Houston Pipe Line, ETP further argued.
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