11 December 2015

Energy Enforcement Update

This week’s developments on the enforcement front, including an update on the Total natural gas market manipulation case:

  • CFTC files and settles charges against Total Gas & Power North America, Inc. and Therese Tran for attempted manipulation of natural gas monthly index settlement prices.
  • Staff holds technical conference on Connected Entity data.
  • FERC files the administrative record in the Powhatan/Chen proceeding.

CFTC files and settles charges against Total Gas & Power North America, Inc. and Therese Tran for attempted manipulation of natural gas monthly index settlement prices.  On December 7, the CFTC issued an order bringing and settling charges against Total and Therese Tran for attempted manipulation of natural gas monthly index settlement prices at four major trading hubs in Texas and elsewhere in the southwest.  The CFTC found that during bid-weeks for September 2011, October 2011, March 2012, and April 2012, Total (through Tran and other traders under Tran’s direction) attempted to manipulate monthly index settlement prices of gas at four hubs (El Paso Natural Gas Co. Permian Basin, El Paso San Juan Basin, Southern California Gas Co., and West Texas, Waha) through their physical fixed-price trading.  According to the CFTC, Total was one of the largest players in the fixed-price market during these periods, with trading accounting for a substantial percentage of the total market by volume at the relevant hubs, even though Total had no material customer business, assets, or transportation at the hubs.   The CFTC alleges that Total attempted to affect the monthly index settlement prices to benefit the company’s related financial positions, including basis swap and index swap positions.

The CFTC’s order requires Total and Tran jointly to pay a $3.6 million civil monetary penalty.  The order also imposes, among other sanctions, a two-year trading limitation on the respondents from trading physical basis or physical fixed-price natural gas at hub locations when Total also holds, prior to and during bid-week, any financial natural gas position whose value is derived in any material part from natural gas bid-week index pricing.  In addition, the order requires Total to comply with certain reporting and recordkeeping requirements for two years.

FERC is not part of this settlement, so FERC’s case against Total remains ongoing.  As FERC issued a Notice of Alleged Violations on September 21 naming Total and two traders.  In FERC’s public notice, Staff alleges that Total’s scheme involved making largely uneconomic trades for physical natural gas during bid week designed to move indexed market prices in a way that benefited the company’s related positions.  FERC alleges that this scheme was implemented on at least 38 occasions during June 2009 through June 2012.

Staff holds technical conference on Connected Entity data.  On December 8, FERC staff hosted a technical conference at which staff made a presentation and then hosted a panel discussion by industry members regarding FERC’s proposed rulemaking to collect “Connected Entity” data from RTO/ISO market participants.  The staff portion of the panel was led by staff from FERC’s Office of Enforcement, including Larry Parkinson (Director of the Office of Enforcement) and Sean Collins (Director of the Division of Analytics and Surveillance).

Staff continues to believe passive interests and debt relationships should be disclosed to FERC:

  • Staff considers debt interests to be “convertible” as long as there is a right to foreclose or convert to ownership/control upon the occurrence of a particular event – regardless of whether that event has occurred.
  • Accordingly, any secured lending arrangement impacting a market participant will fall into the mix of reportable information as proposed.

Commissioners LaFleur and Clark – who attended for the panel portion of the conference – expressed several concerns:

  • Commissioner Clark commented that a number of “threshold” questions need to be addressed first, including whether Staff has “made the case” that this information is needed in the first instance.  If it is needed, then the proposal should be reviewed to confirm that it represents the most efficient approach with the least amount of burden possible.
  • Commissioner LaFleur likewise pressed for comments from market participants, especially on the burdens created by the proposed rule.  She also was keenly interested in suggestions by panelists that other existing reporting mechanisms (e.g., FPA Section 203/205 filings and EQRs) already provide much of the information being requested – or could be tweaked slightly to provide what is potentially missing.  Staff reacted that not everyone is required to make these submissions, such as virtual/FTR-only traders.

FERC files the administrative record in the Powhatan/Chen proceeding.  On December 10, FERC lodged the “administrative record” in the U.S. District Court for the Eastern District of Virginia as part of its enforcement proceeding against Powhatan and Chen.  According to FERC’s filing, the “administrative record” consists of the full record before FERC when FERC issued the Order Assessing Civil Penalties.  This record includes the materials filed by Enforcement staff and by respondents in the Show Cause proceeding, as well as FERC’s orders issued in that proceeding.  The initial pretrial conference in this case is scheduled for January 7.

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