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FERC Threatens Major Civil Penalties For Natural Gas Market Activities

July 26, 2007

By Mark K. Lewis, D. Kirk Morgan, and Damon R. Daniels

On July 26, 2007, the Federal Energy Regulatory Commission (FERC) issued two separate show cause orders regarding activities in the natural gas markets. In total, the parties to the two cases face potential civil penalties and related remedies that exceed $450 million on an aggregate basis. FERC is acting in part under its new enforcement authority over manipulative and deceptive practices in jurisdictional natural gas markets, authority that Congress granted the agency in the Energy Policy Act of 2005 (EPAct 2005). In both cases, FERC is also relying on its new civil penalty authority under EPAct 2005, which empowers the agency to impose civil penalties of up to $1 million per day for each violation under the Natural Gas Act or the Natural Gas Policy Act of 1978.

The legal merits of each case are yet to be tested, but the message from FERC is clear. These show cause orders are the first to reflect FERCs willingness to get tough in the regulation of natural gas activities subject to its jurisdiction. FERCs actions today also indicate that the agency will seek to regulate to the very boundaries of its jurisdiction in order to restrain what it perceives to be potentially manipulative behavior in natural gas markets.