FERC enforcement has proposed that the agency increase the civil penalty against Energy Transfer Partners LP by $25 million to $107 million, and raise the unjust profits that the company will be required to disgorge to $74.9 million in the event it is found guilty of manipulation of natural gas prices. The increase is based on the Federal Energy Regulatory Commission (FERC) staff's belief that Energy Transfer also engaged in manipulation of monthly gas prices at the Houston Ship Channel (HSC) in November 2005, during which it allegedly earned an additional $7.3 million in unjust profits that was previously unknown to the agency.
Staff also recommended that the FERC set for hearing before an administrative law judge (ALJ) key issues related to allegations that Dallas-based Energy Transfer manipulated the physical gas markets at HSC and other trading hubs in Texas during certain months in the period of December 2003 through December 2005. However, staff said a trial-type evidential hearing was unnecessary for the charges against affiliate Oasis Pipeline, and instead it recommended that FERC directly issue a penalty assessment order against the Oasis.
The charges, which the Commission brought against Energy Transfer in July 2007, "have not been persuasively refuted by ETP," staff said in a 133-page brief filed at the agency (see NGI, July 30, 2007). "Similarly, the errors ETP claims to have found in [FERC's] order to show cause are nonexistent, inconsequential or are ETP's errors, the correction of which further establish that ETP manipulated prices at HSC." Staff called on the Commission to terminate Energy Transfer's request to terminate the proceeding.
FERC staff asked the agency to direct an ALJ to issue an initial decision within six months on four central issues, including:
Staff also recommended that FERC set for hearing the issue of whether Energy Transfer manipulated monthly gas prices at the HSC for the delivery month of November 2005. This delivery month was not among the nine delivery months for which the company was accused of manipulating prices at HSC in the original show-cause order issued last summer.
As for Oasis Pipeline, "the Commission has before it a sufficient record from which to issue a penalty assessment order, from which Oasis Pipeline can seek a de novo hearing in federal district court," agency staff noted.
"It is unnecessary to expend further time and resources with a trial-type evidentiary hearing at the Commission. We recommend that the Commission issue a penalty assessment order in the amount of $15.5 million against Oasis Pipeline for its undue discrimination and other violations of Commission regulations promulgated under the NGPA [Natural Gas Policy Act of 1978]," and direct the pipeline to disgorge $265,836 in unjust profits, the agency staff said.
Oasis Pipeline is accused of showing undue preference to its marketing affiliate in the interstate transportation of natural gas from Waha to Katy, TX, while discriminating against nonaffiliated shippers who sought this transportation. "The...undue preference violations by Oasis Pipeline were serious, occurred over an extended period of time in a systematic way, were knowingly done to benefit [affiliate] ETC Marketing to the detriment of nonaffiliated shippers, and, as such, had adverse consequences for the interstate transportation of natural gas."
FERC's show-cause orders contains evidence of a "strong case" against ETP, according to staff. "As the evidence demonstrates, ETP orchestrated its financial and physical portfolio to profit from lower prices at HSC. ETP then sold fixed-price gas for prompt month delivery at HSC for less than a competitive price. ETP reported these artificially lower prices to Platts Inside FERC, which included them in its monthly HSC index (IFERC HSC index). ETP benefited from lower prices reported in the IFERC HSC index in at least two ways," staff said.
"First, as a net buyer of gas at the IFERC HSC index in eight of the nine months referenced in the order to show cause, ETP benefited from a lower IFERC HSC index price. Second, in all of the nine months reference in the order to show cause, ETP had a short basis position at HSC, meaning that it had entered into leveraged financial positions that increased in value as the value of the IFERC HSC index fell. In all, ETP derived an estimated $67.6 million in unjust profits, exclusive of interest form its manipulation of monthly gas prices at HSC."
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