52 F.4th 204
5th Cir.2022Background
- Hurricane Ike (Sept. 2008) caused a price collapse at the Houston Ship Channel (HSC). BP held a financial spread bet whose value rose as the HSC–Henry Hub price differential widened.
- BP’s Texas traders allegedly transported gas on the Houston Pipeline (HPL) from Katy to HSC and sold physical gas at HSC (sometimes uneconomically) to prolong depressed HSC prices and benefit BP’s financial position.
- A recorded call between junior trader Clayton Luskie and senior trader Gradyn Comfort raised internal compliance concerns; subsequent unrecorded calls and an internal report triggered a FERC investigation.
- FERC found BP engaged in market manipulation (Sept. 18–Nov. 30, 2008 Investigative Period) and imposed a civil penalty of about $20 million; BP sought rehearing and then appealed to the Fifth Circuit.
- The Fifth Circuit upheld FERC’s manipulation finding and several penalty-related choices, but limited FERC’s jurisdictional theory: FERC cannot reach purely intrastate trades merely because they affect interstate prices.
- The court upheld FERC’s jurisdiction over 18 BP sales because the gas had previously been transported under contracts governed by the NGA, and remanded for penalty recalculation given the narrowed jurisdictional scope.
Issues
| Issue | BP's Argument | FERC's Argument | Held |
|---|---|---|---|
| Scope of FERC jurisdiction under NGA §4A ("in connection with") | §4A does not expand FERC’s NGA jurisdiction to reach intrastate trades; jurisdiction limited to interstate transactions. | §4A’s "in connection with" language gives FERC authority over any trades that affect prices of jurisdictional (interstate) transactions. | Rejected FERC’s broad theory; §1(b)’s interstate/intrastate divide limits FERC. FERC cannot reach purely intrastate trades just because they affect interstate prices. |
| Whether specific sales were governed by NGA or NGPA (alternative jurisdiction) | The upstream contracts were NGPA §311 contracts (thus outside NGA), based on internal spreadsheet and parties’ intent. | Contract language referenced Subpart G of Part 284 (NGA implementation); therefore NGA governed and FERC had jurisdiction over those sales. | Court finds substantial evidence supports FERC’s view that 18 sales involved gas transported under NGA contracts; jurisdiction over those sales upheld. |
| Market-manipulation finding (substantial evidence / intent) | Trading changes were explainable (seasonality, contract volumes, profitable trading); no sufficient proof of manipulative intent. | BP materially changed trading (sell more, earlier, uneconomic transports) to depress HSC prices; recorded call supports awareness of wrongdoing. | FERC’s factual findings and intent inference were supported by substantial evidence; manipulation finding affirmed. |
| Penalty assessment and use of FERC guidelines | Penalty improperly based on advisory guidelines, retroactive application, failure to credit compliance, and inclusion of pre-guideline settlements. | Guidelines are advisory; agency may consider prior settlements and compliance program deficiencies when assessing penalty. | Court upheld most penalty-process choices but remanded for reassessment of penalty given the narrower jurisdictional scope (some transactions excluded). |
| Separation of functions (APA §554) | FERC investigators improperly participated in adjudication; APA separation-of-functions violated. | The APA forbids participation only by those who performed investigative/prosecutorial functions in the same case; named staff had not been shown to have worked on BP’s case. | Claim rejected: BP offered only speculation and failed to produce particularized evidence showing investigators participated in adjudication of this case. |
| Statute of limitations (28 U.S.C. §2462) | FERC’s order to show cause did not begin a “proceeding”; enforcement was time-barred. | BP waived the issue by failing to raise it in rehearing; in any event, FERC’s action was timely. | Court held it lacked jurisdiction to consider the statute-of-limitations defense because BP failed to raise it in its rehearing application and had no reasonable excuse for delay. |
Key Cases Cited
- Oneok, Inc. v. Learjet, Inc., 575 U.S. 373 (2015) (interpreting NGA jurisdictional language; similar phrasing supports limiting FERC’s reach)
- Texas Pipeline Ass’n v. FERC, 661 F.3d 258 (5th Cir. 2011) (rejecting expansive readings of new NGA provisions that ignore §1(b) jurisdictional limits)
- Northwestern Central Pipeline Corp. v. State Corp. Comm’n, 489 U.S. 493 (1989) (discussing Congress’s decision not to grant wholesale federal regulation of entire natural-gas field)
- Consolo v. Federal Maritime Comm’n, 383 U.S. 607 (1966) (standard for reviewing agency factual findings as supported by substantial evidence)
- Kokesh v. SEC, 137 S. Ct. 1635 (2017) (held §2462’s limitations period applies to disgorgement; cited regarding limitations but did not control here)
- Withrow v. Larkin, 421 U.S. 35 (1975) (presumption of adjudicator impartiality relevant to separation-of-functions analysis)