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With up to $217M penalty at stake, Total blasts FERC manipulation charge

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021

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Essential Energy Insights - January 2021


With up to $217M penalty at stake, Total blasts FERC manipulation charge

and affiliates firedall their guns to try to get rid of market manipulation charges brought by FERCenforcement staff that carry potential civil penalties of almost $217 million.

"Thisis likely the first market manipulation case ever brought by the Federal EnergyRegulatory Commission in which neither the show cause order nor the staffreport presents a single piece of documentary evidence showing that therespondents intended to manipulate any market," the company's counselwrote in a blistering response to that FERC order and its notice of proposedpenalty.

"Withoutdocumentation of the key legal element of manipulative intent, on this groundalone, enforcement staff's case against Total Gas & Power North America Inc. ('TGPNA'),Aaron Hall, and Therese Tran should be summarily dismissed," Total argued.

Thisdescription of a "fatal flaw" was part of the July 12 challenge tothe FERC case by attorneys for Total SA; Total Gas & Power Ltd.; Total Gas& Power North America; and two North America trading managers, Hall andTran. The attorneys also outlined what it said were further problems — "multipleinfirmities" — in the FERC enforcement staff's charges, including thestaff's reliance on "unfounded, contradictory, and unreliable allegationsfrom two ex-employees of TGPNA [Matthew Wilson and Stephen Callender], at leastone of whom stole from the company, and both of whom are biased and highlymotivated to manufacture their testimony in search of a financial reward [underthe U.S. CFTC whistleblowerprogram] of up to $65 million."

"Enforcementstaff compounds this error with a superficial analysis of incomplete andunrepresentative trading data," the attorneys wrote. "It is no wonderthat enforcement staff makes the extraordinary request to the commission forpermission to write its report in erasable ink, allowing it to substitute newallegations for the existing allegations when the show cause order's claims arefully debunked, as they are here."

A report by FERC Office of Enforcement staff charged thatTotal Gas & Power North America, through Hall and Tran, made tradesdesigned to affect monthly natural gas indexes.

InApril, FERC asked the Total entities and employees to why they should not be held liablefor almost $217 million in civil penalties and forced to disgorge unjustprofits of more than $9 million for the alleged manipulation of gas prices.(IN12-17)

TheTotal attorneys argued that the Total Gas & Power North America tradingdesk for the West had used a trading strategy between June 2009 and June 2012that consisted "entirely of legitimate, open-market transactions that wereclearly not manipulative." The company's traders, "like traderselsewhere," used market fundamentals to manage risks of trading naturalgas and its derivatives, the attorneys said. The company's traders had lookedfor profits by trading on the price differential between the Henry Hub gasprice and the gas price at a location in the West, among other activities. Theattorneys said such trading of physical basis is more common in the East thanin the West but is "entirely legitimate."

Withthis in mind, the attorneys said, FERC should terminate the proceeding withouta hearing and decline to assess any fines or disgorgements against the Totalcompanies and its employees. Total asked for a full trial-type hearing if FERCdoes decide to go forward, because of the credibility issues the lawyersdescribed with witnesses and other disputed parts of the case. Thetrial and hearing must be launched by an enforcement action that FERC wouldfile in a U.S. district court under the Natural Gas Act, the AdministrativeProcedure Act and the Constitution, the attorneys said.