FERC Flexes Its Muscle: Amaranth and Energy Transfer Partners

In the Energy Policy Act of 2005, Congress amended the Natural Gas Act, the Natural Gas Policy Act, and the Federal Power Act to give the Federal Energy Regulatory Commission (FERC) authority to impose civil penalties of up to $1 million per day per violation for violations of those statutes, or of the Commission’s rules, regulations, and orders promulgated thereunder. On July 26, 2007, FERC proposed for the first time to exercise that authority in contested proceedings, in two separate show cause orders—Amaranth Advisors LLC, et al. (Amaranth) and Energy Transfer Partners, LP, et al. (ETP)—setting forth preliminary findings of alleged manipulative conduct in natural gas markets and proposing a combined $458 million in civil penalties and profit disgorgement for entities and individuals involved. At present, FERC’s conclusions remain preliminary, and the respondents will have an opportunity to present evidence to rebut the allegations. However, these orders illustrate the manner in which FERC intends to exercise its recently gained civil penalty authority, particularly where the underlying allegations concern market manipulation, and the proceedings established by these orders should be watched carefully by participants in both natural gas and electric markets.

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