WASHINGTON Two market regulators on Thursday fined two large natural gas players - defunct hedge fund Amaranth Advisors and pipeline company Energy Transfer Partners LP - alleging widespread market manipulation.
In its first enforcement action using new authority provided by Congress, the Federal Energy Regulatory Commission says it will seek $458 million in penalties and the return of unjust profits from the two companies.
In the bigger case, FERC charged Amaranth Advisors, a collapsed hedge fund, its former head trader, Brian Hunter, and fellow trader Matthew Donohoe with manipulating natural gas prices last year and called for $291 million in penalties. The Commodity Futures Trading Commission filed similar charges on Wednesday, though it did not specify any fines or penalties.
Amaranth racked up $6.4 billion in losses from bad natural gas contract bets before it folded last year.
On Thursday, both agencies brought actions against Energy Transfer Partners LP for attempting to manipulate gas markets at the Houston Ship Channel delivery hub days after Hurricane Rita hit the Gulf Coast in September 2005. FERC said it was seeking $167 million in penalties and the disgorgement of related profits.
Both companies said they did not manipulate the gas markets and will fight the CFTC and FERC actions.
FERC's charges are preliminary in both cases, and the accused have 30 days to show why they should not be assessed penalties for the alleged illegal activity.
"For these two companies, failure to refute these findings will confirm that their actions harmed many wholesale market participants, creating losses that ultimately hurt natural gas customers across the country," said FERC Chairman Joseph Kelliher.
Ironically, both companies are accused of pushing down gas prices. Kelliher acknowledged consumers may have benefited in the short run, but ultimately the actions threatened the integrity of the marketplace in setting fair prices for gas.
"Manipulation designed to lower prices is as offensive as manipulation that raises prices," Kelliher said.
The commission recommended penalties of $200 million and the return of $59 million in unjust profits for Amaranth, $30 million for Hunter and $2 million for Donohoe.
FERC's action came one day after the CFTC filed a similar lawsuit against Amaranth and Hunter.
Hunter had sued FERC to block the agency from charging him, but a court ruled against him. He argued the CFTC, and not FERC, had authority over natural gas futures markets.
Kelliher said the FERC was not trying to regulate the New York Mercantile Exchange, where Amaranth traded gas futures.
He said FERC was going after Hunter, because the NYMEX gas futures prices that were manipulated affected the prices of interstate gas supplies in the East and Gulf Coast regions that are under FERC's jurisdiction.
In separate actions, the agencies brought enforcement actions against Energy Transfer Partners, a Delaware limited partnership based in Dallas.
FERC proposed $167 million in penalties and disgorgement of unjust profits on ETP for manipulating gas prices at the Houston Ship Channel and Waha, Texas, trading hubs on various dates from December 2003 through December 2005.
The charges come as some members of Congress want to give the CFTC authority to track trading on electronic exchanges like the IntercontinentalExchange (ICE.N), where both Amaranth and ETP conducted heavy trading.
Much of Amaranth's trading took place on the NYMEX, which is fully regulated by the CFTC. The Atlanta-based ICE is exempt from CFTC oversight, except for the agency's policing power.