Energy Company Settles Long-Running Dispute With FERC After Jarkesy Decision Undercuts FERC’s Enforcement Authority
Government/Regulatory Enforcement
This links to the home page
Filters
  • Energy Company Settles Long-Running Dispute With FERC After Jarkesy Decision Undercuts FERC’s Enforcement Authority

    01/22/2025
    On January 8, 2025, the Federal Energy Regulatory Commission approved a stipulation and consent agreement between its Office of Enforcement and an energy company (the “Company”) to resolve a dispute pending since 2016 concerning allegations of market manipulation in violation of Section 4A of the Natural Gas Act (“NGA”).  The settlement occurred after last year’s decision in SEC v. Jarkesy, 603 U.S. __ (2024), which buttressed the Company’s longstanding contention that FERC’s efforts to enforce its anti-manipulation rule through proceedings before administrative law judges was unconstitutional.

    In 2016, FERC issued a show cause order and notice of proposed penalty to the Company alleging that the Company, two of its affiliates, and several former traders manipulated the price of natural gas at four locations in the Southwestern United States between June 2009 and June 2012.  The order mandated the Company show cause as to why it should not pay $213.6 million in civil penalties and disgorge $9.2 million in unjust profits for violations of the NGA.  Previously, the Commodity Futures Trading Commission settled with the Company and one of the traders covering largely the same alleged underlying conduct for $3.6 million.  See CFTC Doc. No. 16-03 (Dec. 7, 2015).

    In response to the show cause order, the Company filed a declaratory judgment against FERC in the U.S. District Court for the Southern District of Texas, No. 4:16-1250 (2016), claiming, among other things, that FERC lacked the authority to impose civil penalties for violations of the NGA or FERC’s rules through proceedings with administrative law judges instead of federal jury trials.  The Company’s suit was initially dismissed at summary judgment, with the Court finding the issue was not ripe as FERC had not issued a final penalty; the Fifth Circuit affirmed on appeal.  TOTAL Gas & Power North America, Inc. v. FERC, No. 16-20642 (5th Cir. 2017). 

    Undeterred, the Company brought a second declaratory judgment action in the Southern District of Texas, No. 4:22-cv-04318 (2022), on similar grounds after FERC commenced its enforcement proceedings.  The new action relied in large part on the Fifth Circuit’s ruling in SEC v. Jarkesy, No. 22-859 (5th Cir. 2022), which held that the SEC’s use of administrative law judges to adjudicate civil fraud matters violated defendants’ Seventh Amendment rights.  In March 2023, the District Court stayed the Company’s declaratory judgment action, and the underlying FERC administrative proceedings, after the Supreme Court took up Jarkesy

    The Supreme Court’s ruling in Jarkesy affirming the Fifth Circuit weighed strongly in the Company’s favor and called into question FERC’s ability to enforce its anti-manipulation rule.  In response, FERC held the administrative law proceedings against the Company in abeyance, presumably while the parties negotiated the recent stipulation and consent agreement.  According to the terms of the agreement, the Company does not admit liability, nor does FERC Enforcement concede its claims are not well-founded; the Company will pay a $5 million penalty to several unnamed NGOs to resolve the proceeding. 

    The stark difference between the civil penalties sought in the initial show cause order and the settlement amount obtained by FERC Enforcement highlights Jarkesy’s substantial impact on regulatory agencies that previously relied on the friendly confines of in-house administrative law judges to adjudicate fraud claims.  As the new Congress and administration take over and continue to question the expansive authority of federal agencies, companies and individuals are likely to be better positioned to carry out these types of challenges to enforcement activity on both factual and more fundamental, constitutional grounds.  
    Categories: FERCMarket Manipulation

Links & Downloads