Total Gas & Power North America Inc. (TGPNA) has asked for more time to respond to the show cause order proposed last Thursday by FERC’s Office of Enforcement (OE) alleging natural gas market manipulation against the company and two of its trading managers and recommending civil penalties of nearly $226 million. The trades allegedly took place at four Southwest locations over the period of June 2009 to June 2012.

TGPNA was given 30 days to show cause why the charges are incorrect and it should not be penalized. The company responded Monday asking for an extension until the later of 45 days after the United States District Court for the Western District of Texas issues an order resolving the threshold jurisdictional issues raised in TGPNA’s Amended Complaint for Declaratory Relief, or 60 days beyond the current due date.

TGPNA seeks a declaratory judgment that the Natural Gas Act “vests in district courts ”exclusive jurisdiction of violations’ of the NGA and, thus, district courts have exclusive jurisdiction to adjudicate the Commission’s allegations of violations in its civil penalties claims…”

TGPNA also claims that four different constitutional provisions — the Appointments Clause, Article III, and the Fifth and Seventh Amendments — require adjudication in federal district court based on the nature of the enforcement actions of the Federal Energy Regulatory Commission and the unconstitutional manner in which FERC ALJs are appointed.” The company’s suit also claims that “FERC’s use of an administrative proceeding violates Section 5(d) of the Administrative Procedure Act (“APA”) due to FERC’s admitted practice of allowing staff who advise the commissioners to have ex parte communications with OE about ongoing investigations.”

At the same time FERC issued the show cause order it said OE staff who worked on the case will not serve as advisers to the Commission or take part in the Commission’s review of any offer of settlement. They also are prohibited from communicating with advisory staff concerning any deliberations in the case.

The Commission has come under fire recently for the secretive nature of its show cause investigations and the fact that in the past FERC staff that prepared the case may have advised the commissioners on how to vote (see Daily GPI, June 8, 2015). It has been charged that the whole process severely impairs defendants’ ability to defend themselves.

Total cited the broad scope of the investigation, the length and complexity of the order and the underlying OE report, and the time that has elapsed since the alleged violations as reasons the Commission usually allows extended response times in cases such as this. Also joining in the court suit are TOTAL S.A., and TOTAL Gas & Power Ltd.

Investigators at the Federal Energy Regulatory Commission are alleging that Total SA’s North American unit carried out a cross-market manipulation scheme involving physical trading over the three-year period. The trades in one market were aimed at benefiting related positions by TGPNA in another market.

Over a three-year period, at what FERC investigators called four of the most heavily traded Southwestern hubs, the company’s west desk — through two specific trading managers called out for civil penalties, Aaron Hall and Therese Nguyen (Tran) — traded monthly physical fixed-price gas during bidweek “at prices and in ways designed to move published index prices at those locations to benefit its derivative financial and physical positions whose value was tied to those indexes.”

A Houston-based spokesperson for TGPNA declined to comment on the matter in response to a query from NGI, noting the FERC investigation is ongoing.

The four heavily traded Southwest locations involved in the alleged scheme were: Southern California Gas Co. (SoCal); El Paso Natural Gas Co.’s Permian Basin (Permian); West Texas, Waha (Waha); and El Paso’s San Juan Basin (San Juan).

According to FERC, the market manipulation scheme operated in two phases. Before and during bidweek (last five business days of each month) the west desk accumulated large positions of physical and financial gas products exposed to monthly index prices, which FERC staff alleges gave the TGPNA traders the ability and motivation to manipulate prices.

In the second phase, FERC alleges the west desk traded a dominant market share of monthly physical fixed-price gas during bidweek to inflate or suppress the volume-weighted average prices and prices to which its indexed deals were exposed.

“As a result, [TGPNA and its two traders] reaped millions of dollars in ill-gotten profits from the related derivative positions they had accumulated, and in so doing, they harmed other market participants who purchased or sold natural gas at manipulated prices,” the FERC order said.

Its proposed show-cause order for the commissioners to consider would ask TGPNA to provide why it should not be ordered to repay an estimated $9.18 million, plus interest, in alleged unjust profits. And it would propose civil penalties for the company of $213.6 million; Hall, $1 million; and Tran another $2 million. Further, the orders ask that parent company Total SA and TGPNA affiliate Total Gas & Power Ltd be held liable for Hall’s and Tran’s conduct.

FERC’s enforcement office maintains that the evidence is “strong” that TGPNA’s west desk carried out the scheme, including testimony from two former TGPNA employees who allegedly and separately “blew the whistle” on the market manipulation.