This Environmental Year in Review summarizes many of the significant court rulings, regulatory changes and policy developments that occurred during 2016. As 2016 was the final year of the Obama administration, change is in the air. The commencement of the Trump administration promises to bring with it shifts in policy focus, rule changes and inevitably litigation. (more…)
This week’s enforcement update covers:
- Fifth Circuit schedules oral argument, and FERC and TOTAL file pleadings regarding Appointments Clause;
- Plaintiffs in class action against TOTAL file response related to oral argument;
- CME Group Exchanges expand reach of manipulation and fraud rules;
- FERC and Silkman file joint discovery plan in district court, and court sets scheduling conference; and
- Judge holds motion hearing in FERC district court case against Barclays.
The Texas-based oil and natural gas equipment company National Oilwell Varco, Inc., and its subsidiaries Dreco Energy Services, Ltd. (Dreco), and NOV Elmar (Elmar) (collectively NOV) recently settled potential civil penalties with the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce Bureau of Industry and Security (BIS) and executed a nonprosecution agreement (NPA) with the U.S. Department of Justice (U.S. Attorney’s Office for the Southern District of Texas). NOV, which did not voluntarily disclose the alleged violations to the government, will pay a total of US$25 million to resolve the charges.
On Tuesday, October 11, 2016, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) revealed a pipeline civil penalty framework on its website. PHMSA will allow a respondent in an enforcement case to request a proposed civil penalty calculation related to its case.
PHMSA’s current caps for administrative civil penalties occurring on or after August 1, 2016, are $205,638 per day and $2,056,380 for a related series of violations. PHMSA states that its penalties may exceed the guideline amounts to “serve as a strong deterrence, driving down incident risk.”
PHMSA’s guidelines provide the following “assessment considerations” for determining penalty amounts: nature; circumstances; gravity; culpability; history of prior offenses; good faith; and other matters as justice may require.
On August 12, TOTAL filed a motion to alter judgment and motion to file a second amended complaint in federal district court. This case involves TOTAL’s declaratory judgment action in federal court in Texas claiming FERC lacked jurisdiction to adjudicate the manipulation claims against TOTAL. As we previously reported, U.S. District Judge Nancy F. Atlas issued an order on July 15 dismissing TOTAL’s declaratory judgment action against FERC. TOTAL argues that it is entitled to a declaratory judgment stating that FERC must litigate alleged market manipulation violations in federal district court because such a process is mandated by Section 24 of the Natural Gas Act, as well as the Constitution and the Administrative Procedure Act. FERC’s response to TOTAL’s motion is due by August 29.
On August 24, City Power filed its answer to FERC’s complaint in the U.S. District Court for the District of Columbia. As we previously reported, Judge Bates issued an order denying City Power’s motion to dismiss in FERC’s case on August 10. City Power’s answer denies many of the allegations in FERC’s complaint. City Power also asserts a number of defenses, including that FERC’s complaint fails to state a claim for which relief can be granted, due process violations, FERC’s lack of jurisdiction over the UTC trades at issue, and lack of fair notice.
On August 16, FERC filed a response to the Barclays filing of supplemental authorities (the recent decisions in the Maxim Power and City Power cases on de novo review). FERC states that it “respectfully disagrees” with those courts’ holdings that Section 31(d)(3) of the Federal Power Act requires application of the Federal Rules of Civil Procedure and a regular civil trial. In addition, FERC points to some of the language from the City Power decision supporting its position on liability, including that: (a) FERC is not required to show harm; (b) traders are presumed to be trading based on their best estimates of the security’s economic value, and trading for other purposes can be deceptive; and (c) de novo review does not eliminate Chevron deference.
On August 17, FERC filed its complaint against ETRACOM and Michael Rosenberg in the U.S. District Court for the Eastern District of California. As we previously reported in June, FERC issued an Order Assessing Civil Penalties finding that ETRACOM and Rosenberg violated FERC’s anti-manipulation rule through a scheme to submit virtual supply transactions at the New Melones intertie at the CAISO border in order to affect power prices and economically benefit ETRACOM’s Congestion Revenue Rights sourced at that location. FERC assessed $2,400,000 against ETRACOM and $100,000 against Rosenberg in civil penalties, plus $315,072 in disgorgement. Since ETRACOM elected the de novo review procedures under Section 31(d)(3) of the Federal Power Act and then did not pay the penalty within 60 days, FERC instituted the instant proceeding in district court seeking an order affirming the assessment of a civil penalty. The case has been assigned to Judge Troy L. Nunley, the same judge presiding over the Barclays case.
On August 22, FERC issued an order approving a settlement between FERC’s Office of Enforcement and Saracen Energy Midwest, LP (Saracen) that resolves Enforcement’s investigation into whether Saracen violated the Southwest Power Pool, Inc. (SPP) tariff by submitting bids for Transmission Congestion Rights (TCRs) at Electronically Equivalent Settlement Locations (EESLs) for auctions in September and October 2014, and March and April 2015. Enforcement determined that in five separate auction rounds across these four different auction months, Saracen submitted TCR bids at EESLs, which is prohibited under the SPP tariff. Saracen neither admitted nor denied the violations and agreed to pay a civil penalty of $25,000. Saracen also agreed to implement measures designed to ensure compliance in the future, including submitting an annual compliance report.
On August 3, FERC issued similar Staff Notices of Alleged Violations (NAV) stating that FERC Enforcement Staff has preliminarily determined that National Energy and David Silva violated FERC’s anti-manipulation rule. According to the NAVs, Staff alleges that National Energy and Silva fraudulently traded physical basis at Texas Eastern M3 during the January 2012 bid-week to increase the value of their financial basis positions. In particular, Staff alleges that National Energy and Silva sold physical basis at arbitrarily low prices early in the morning to benefit a large short financial basis position acquired before bid-week, a large part of which they repurchased after making their physical basis sales. Staff also alleges that National Energy fraudulently traded physical basis at Henry Hub during the April 2014 bid-week to increase the value of its financial exposure, which included trading physical basis after the close of the NYMEX solely to benefit National Energy’s exposure to the Henry Hub Inside FERC index.