On April 28, 2016, FERC issued an order directing Total Gas & Power North America, Inc. (Total Gas), two of its traders, its ultimate corporate parent, Total S.A. (Total) and an affiliate Total Gas & Power, LTD (TGPL) to show cause why they should not be found to have violated section 4A of the Natural Gas Act and section 1c.1 of FERC’s regulations through a scheme to manipulate the price of natural gas at locations in the Southwest United States between June 2009 and June 2012. The order further directs the respondents to show cause why they should not be required to disgorge $9.18 million (plus interest) and why Total Gas should not be assessed a civil penalty of $213.6 million, why one trading manager should not be fined $1 million and another trading manager $2 million. The respondents have 30 days to respond.

This show cause order echoes a theme familiar to other FERC investigations. According to the FERC Office of Enforcement, Total Gas, through its named traders, deliberately engaged in uneconomic trades of monthly physical fixed price natural gas during the bid week (i.e., the last five days of the month) and then reported the trades to publications for inclusion in monthly index prices. These "manipulated" price indices benefited other Total Gas financial and physical positions. The 100-plus page Enforcement Report attached to the order explains that the conduct caused more than $89 million in harm to other market participants who purchased and sold natural gas at manipulated prices and undermined the credibility of natural gas indexes in the Southwest. By no means are such manipulation claims unique; this type of index manipulation has been investigated numerous times, and concerns regarding the integrity of the natural gas and electric price indices dates back to the California energy crisis.

What makes this proceeding unique, however, is that the Office of Enforcement maintains that Total Gas, Total, and TGPL all acted as single entity: not only did the corporate parent provide corporate guarantees because Total Gas lacked sufficient credit, but the Total and TGPL exercised direct oversight and control of Total Gas' trading operations. As such, the Office of Enforcement contends that all the entities should be held jointly and severally liable under either the FERC's single entity doctrine (under which the fiction of corporate separateness of state-chartered corporations is not permitted to frustrate the policies of a federal statute) or the more well-known "piercing the corporate veil" doctrine (which can impose liability on one corporation for the obligations of another in order to prevent fraud or injustice).

The report explains that holding the parent and affiliate liable for Total Gas’ conduct is necessary to prevent the corporate family from allowing Total Gas' undercapitalized Houston office to manipulate U.S. natural gas markets for years and then avoid the consequences due to insufficient funds.

Finally, it is worth noting that in December 2015, the Commodity Futures Trading Commission settled charges against Total Gas and one of the trading managers for attempts to manipulate monthly index prices of natural gas to benefit their financial basis swap and index swap positions. Total Gas and the trading manager jointly and severally agreed to pay a civil penalty of $3.6 million.

Lessons Learned

  1. Marketers (and their traders) that attempt to lose money in one market, in order to make money in another, must be ready to disgorge their profits and pay hefty civil penalties.
  2. FERC is willing to "pierce the corporate veil" in order to hold complex corporate entities and their individual employees jointly and severally liable for market manipulation.
  3. A FERC investigation can be initiated in a variety of ways, including as it was here, on a tip made to the FERC Enforcement Hotline by a trader who questioned the trading scheme and was fired after alerting management about the scheme.