This week’s enforcement update includes a new class action against TOTAL, as well as filings in the City Power, ETRACOM and TOTAL proceedings.
As a reminder, on April 29 in Houston and May 12 in New York, we will host special enforcement roundtable events about developments in California from the recent multi-month leak at Aliso Canyon gas storage, together Dr. Shaun Ledgerwood, Matt O’Loughlin and Steve Levine of The Brattle Group (details below).
Private party files class action complaint against TOTAL in federal district court. On April 14, plaintiff C&C Trading LLC filed a class action complaint in the U.S. District Court for the Southern District of New York against TOTAL Gas & Power North America, Inc. (“TGPNA”) related to TGNPA’s settlement with the CFTC and ongoing FERC proceeding. The complaint alleges “unlawful and intentional manipulation of natural gas prices and false reporting” by TGPNA. According to the complaint, during a period between at least June 1, 2009 and June 30, 2012, defendants manipulated monthly index settlement prices of natural gas at four major trading locations in the southwestern and Texas regions, which directly impacted a multitude of physical and financial natural gas contracts. The complaint seeks damages for violations of the Commodity Exchange Act and Sherman Act.
The plaintiff’s case against TGPNA includes a claim under Section 2 of the Sherman Act. According to our antitrust colleague Karen Kazmerzak, “under the Supreme Court’s decision in Trinko, a violation of Section 2 requires plausible allegations that a defendant (i) possesses monopoly power in a relevant market, and (ii) has maintained, acquired or enhanced that power through exclusionary conduct. Whether that’s the case here is sure to be contested on a motion to dismiss.” She sounds skeptical to us, but these class actions are becoming routine following regulator enforcement actions.
City Power files unopposed motion for leave to respond to FERC’s notice of supplemental authority. On April 19, City Power filed an unopposed response to FERC’s notice of supplemental authority in its pending action in the U.S. District Court for the District of Columbia. FERC previously filed a notice of supplemental authority containing Judge Woodlock’s order denying the Lincoln Paper and Silkman motions to dismiss. City Power addresses Judge Woodlock’s statements on the nature of the show cause proceeding, fair notice, and the meaning of “entity” under Section 222 of the Federal Power Act. On the fair notice point, City Power attempts to distinguish itself from Lincoln Paper/Silkman by claiming that PJM and FERC foresaw the relevant conduct, City Power immediately ceased the trading when contacted by PJM, and City Power’s conduct did not involve a falsification or misrepresentation.
On April 20, the presiding judge issued an order establishing a hearing on City Power’s pending motion to dismiss. The hearing is scheduled for June 1.
ETRACOM files answers to FERC Staff in FERC proceeding. On April 19, ETRACOM filed an answer to the FERC Office of Enforcement staff’s reply to ETRACOM’s answer to the Order to Show Cause. ETRACOM seeks leave to file the answer because Enforcement’s reply allegedly raised several new points of law, fact, and analysis for the first time, contained factual errors, and mischaracterized ETRACOM’s position and the record regarding the market flaws and dysfunction at New Melones. ETRACOM argues that FERC has never found manipulation in a situation where an unknown and flawed market design so intimately influenced the trading activity and caused the unusual outcomes. ETRACOM also argues that Enforcement’s novel theory that a well-functioning market analysis turns only on whether the markets and tariffs at issue were approved by FERC—raised for the first time in its reply—directly contradicts Enforcement’s position that information about whether CAISO was violating numerous provisions of its FERC-approved tariff would do nothing to assist FERC’s evaluation of whether ETRACOM engaged in market manipulation.
Also on April 19, ETRACOM filed an answer to the FERC Office of Enforcement staff’s reply to ETRACOM’s motion requesting FERC to require disclosure of certain materials and information related to CAISO market flaws and errors. According to ETRACOM, the information sought regarding CAISO flaws and errors affecting price formation at New Melones are critical to the issue of whether Staff can prevail in its allegation that ETRACOM intentionally manipulated markets and whether FERC should terminate the proceeding.
On April 22, Enforcement filed a short answer to ETRACOM’s filings. Enforcement argues that ETRACOM’s filings are barred by FERC’s rules prohibiting an answer to an answer, are untimely, are inconsistent with FERC precedent, seek to reargue issues presented in previous filings, and contain mischaracterizations of Enforcement staff’s positions and the evidence. Therefore, Enforcement staff requests that FERC reject ETRACOM’s filings because they would not assist FERC in its decision-making process.
TGPNA files amended complaint and response to FERC in federal district court. On April 14, TGPNA filed an amended complaint and reply in support of its motion to expedite the declaratory judgment process in the U.S. District Court for the Western District of Texas. According to TGPNA, the purpose of the lawsuit and the pending motion to expedite is to avoid the substantial trouble and expense of proceedings at FERC, which it alleges lacks jurisdiction over the subject matter of the proceedings. TGPNA asks the court to issue a judgment declaring that federal district court is the only forum with jurisdiction to adjudicate claims by FERC that TGPNA violated the Natural Gas Act. TGPNA argues that only through expedited resolution of this action can that threshold question be resolved before both TGPNA and FERC incur the unnecessary expense of proceedings before a FERC administrative law judge that would be a legal nullity under the Natural Gas Act.
Sidley hosting enforcement roundtable events in Houston and New York. Please join us on April 29 or May 12 for an enforcement roundtable event to discuss recent developments in California from the Aliso Canyon gas storage leak, together with Dr. Shaun Ledgerwood, Matt O’Loughlin and Steve Levine of The Brattle Group. California regulators and market operators are currently considering various proposals for both the natural gas and electricity markets in response to the limited operations of the Aliso Canyon facility.
We see potential compliance and enforcement issues arising from this situation, and will convene client roundtables in Houston and New York to review. The Houston event will take place this Friday, April 29 from 11:30 a.m. to 1 p.m. at our Houston offices (Wells Fargo Plaza, 1000 Louisiana Street, Suite 6000). Lunch will be provided. You can also participate by telephone.
CAISO has posted the draft final proposal for energy market rule changes related to Aliso Canyon gas-electric coordination. CAISO held a stakeholder call yesterday, and stakeholder comments are due today. CAISO will present its proposal to its Board of Governors on May 4.