FERC scored a crucial victory earlier this week when a federal appeals court in Louisiana said it would not review the agency’s enforcement action against Energy Transfer Partners LP (ETP) on the grounds that it lacked jurisdiction to intervene in an ongoing agency matter.

The U.S. Court of Appeals for the Fifth Circuit in New Orleans issued a one-page decision, saying “it is ordered that respondent’s [FERC’s] motion to dismiss the petition for review for lack of jurisdiction is granted and the motion to intravene is denied.”

The court ruling Monday coincided with an order requiring Energy Transfer and three subsidiaries to pay $10 million as part of a settlement reached with the Commodity Futures Trading Commission (CFTC) on charges that they attempted to manipulate natural gas prices at the Houston Ship Channel (HSC). The CFTC charges, while similar, are separate from the Federal Energy Regulatory Commission’s enforcement action (see Daily GPI, March 19).

Dallas-based ETP had petitioned the Fifth Circuit to review the July 2007 FERC show-cause orders, which accused the company and three affiliates of manipulating the physical gas market at the HSC and Waha, TX, trading hubs on various dates from December 2003 through December 2005 (see Daily GPI, July 27).

FERC is seeking to assess penalties on ETP of $97.5 million and require total disgorgement of $69.9 million in unjust profits. Commission enforcement staff in February asked the agency to increase the penalty amount to $107 million and disgorged profit amount to $74.9 million based on additional information that it uncovered during its investigation (see Daily GPI, Feb. 19).

In seeking a dismissal of ETP’s petition for court review, FERC told the Fifth Circuit that the agency proceedings “initiated by the show cause order are still ongoing. FERC has made no final determinations fixing ETP’s legal rights or obligations, and has not directed ETP to pay any amounts.” The proceedings are “only the beginning of formal litigation” into charges that ETP and subsidiaries took actions that violated regulations under both the Natural Gas Act and Natural Gas Policy Act, the agency said.

“Judicial review of administrative orders is only available once agency action becomes final,” FERC argued. To be ripe for judicial review, a FERC action “must mark consummation of the agency’s decision-making process [and]…the action must be one by which rights or obligations have been determined, or from which legal consequences will flow,” it noted.

Courts previously have ruled that the effect of premature judicial review “is likely to be interference with the proper functioning of the agency and a burden for the courts,” and would lead to “piecemeal review,” FERC pointed out.

In its petition, ETP noted that FERC on rehearing rejected its request to have its civil penalty liability initially determined de novo by a federal district court rather than by the agency. While this court does provide an exception “when an agency exceeds the scope of its delegated authority or violates a clear statutory mandate,” the Commission told the Fifth Circuit that that was not the case with ETP.

The action against ETP, and separately against Amaranth Advisors LLC last July, marked the first prosecution of market manipulation by the Commission with its new enforcement authority granted under the Energy Policy Act of 2005, and also was the first time the Commission has proposed maximum civil penalties.

The Commission’s investigation found that ETP violated FERC’s Market Behavior Rule, the anti-manipulation rule then in effect, when it allegedly artificially lowered the price for prompt-month gas at the HSC to the benefit of its physical and financial positions. By lowering the price, Energy Transfer reportedly depressed the Inside FERC’s Gas Market Report HSC index, published by Platts, on which the pricing of many physical natural gas contracts and financial derivatives are based [IN06-3-002].

In October 2007, ETP responded to the Commission’s allegations, saying that “the Commission’s theory of the case against Energy Transfer Partners LP and its affiliates is economically incoherent, internally inconsistent, riddled with factual errors and contrary to sound public policy.”

The company further argued that “in federal court — the proper forum for adjudicating remedies here…the Commission’s analysis would never survive an independent de novo review or a Daubert challenge [on the admissibility of expert testimony]. Nor can it support further proceedings” before the agency (see Daily GPI, Oct. 10, 2007).

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