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Court respects FERC enforcement in $226M market manipulation case against Total

A federal appeals court dropped a challenge by Total Gas & Power North America Inc. to the way the Federal Energy Regulatory Commission investigates alleged manipulation of natural gas markets, allowing the commission to continue.

Total and two of its traders, Aaron Hall and Therese Tran, have criticized an investigation by FERC enforcement staff, which carries proposed fines and disgorgements of up to $226 million, as baseless and heavy-handed, designed to force companies into settling with the commission. The company asked for a court judgment that the commission cannot evaluate violations of the natural gas markets or impose civil penalties because the Natural Gas Act gives this authority to the federal district courts.

In July 2016, a federal district court granted the commission's motion to dismiss the request, and three judges of the U.S. Court of Appeals for the 5th Circuit agreed in a June 8 decision. The 5th Circuit judges said Total's claims were not ripe because the FERC investigation was not complete.

"In sum, Total does not object to any actions FERC has already taken," Senior Judge Carolyn King and Judge Edward Prado wrote in the majority opinion. "Rather, Total seeks to preemptively challenge a FERC order that may never be issued. All of Total's arguments are predicated on future events and are brought before FERC has even scheduled the matter for a hearing — let alone issued an order finding a [Natural Gas Act] violation and imposing a civil penalty. Yet in [a 2009 5th Circuit decision involving Energy Transfer Partners LP], we held that any challenge to FERC's authority to adjudicate NGA violations and impose a civil penalty must await a final determination of a violation and imposition of a penalty by FERC."

In an opinion that agreed with the judgment of the majority, Judge E. Grady Jolly said he was not convinced that the Energy Transfer Partners case should guide the court's analysis because that case used a different standard than the one that should be applied to a declaratory judgment action such as the Total case. However, the judge agreed that Total's claims should be dismissed, saying the company cited no authority for its argument that FERC had injured it by subjecting the company to "an arguably inefficient" proceeding but one that is not beyond the commission's authority.

The judges in the majority opinion also said Total undercut its own argument that the FERC proceedings placed a burden on it. The judges noted that Total in the same argument complained that the FERC proceedings were "abbreviated" and that Congress could not have meant for such an informal process to determine a penalty that could reach into the hundreds of millions of dollars. (U.S. Court of Appeals for the 5th Circuit docket 16-20642)

In April 2016, FERC demanded that Total SA entities and employees explain why they should not be held liable for almost $217 million in civil penalties and forced to disgorge unjust profits of more than $9 million for the alleged manipulation of gas prices between 2009 and 2012. Total responded by condemning the enforcement action. Total said commission staff had failed to present "a single piece of documentary evidence showing that the respondents intended to manipulate any market." (FERC docket IN12-17)