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Total Gas & Power North America, Inc. v. Federal Energy Regulatory Commission

United States Court of Appeals, Fifth Circuit

June 8, 2017

TOTAL GAS & POWER NORTH AMERICA, INCORPORATED; AARON TRENT HALL; THERESE NGUYEN TRAN, Plaintiffs - Appellants
v.
FEDERAL ENERGY REGULATORY COMMISSION; ACTING CHAIRMAN CHERYL A. LAFLEUR, In her official capacity; COMMISSIONER COLETTE D. HONORABLE, In her official capacity; CHIEF ALJ CARMEN A. CINTRON, In her official capacity, Defendants - Appellees

         Appeal from the United States District Court for the Southern District of Texas

          Before KING, JOLLY, and PRADO, Circuit Judges.

          KING, Circuit Judge:

         We are presented with a challenge to the authority of the Federal Energy Regulatory Commission to adjudicate violations of the Natural Gas Act and to impose civil penalties on violators. TOTAL Gas & Power North America, Inc., a company that trades in North American natural gas markets, and two of its trading managers brought this declaratory judgment action against the Commission arguing that the Commission was precluded from adjudicating violations or imposing civil penalties because the Natural Gas Act vests authority for those activities exclusively in federal district courts. The district court granted the Commission's motion to dismiss. Because we conclude that the claims are not ripe, we AFFIRM.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         This case involves the process that Defendant-Appellee the Federal Energy Regulatory Commission (FERC) uses for adjudicating violations of the Natural Gas Act (NGA), 15 U.S.C. § 717 et seq., and imposing civil penalties on the violators. For context, we first review the statutory and regulatory scheme that guides FERC's process for adjudicating NGA violations and imposing penalties, and then we discuss the facts of this case.

         A. Statutory Backdrop

         FERC is an independent regulatory commission comprised of five commissioners, each appointed by the President, who serve five-year terms. 42 U.S.C. § 7171(b)(1). FERC primarily administers three statutes: the Federal Power Act (FPA), 16 U.S.C. § 791a et seq.; the Natural Gas Policy Act of 1978 (NGPA), 15 U.S.C. § 3301 et seq.; and the NGA. The NGA, the statute at issue in this appeal, was enacted in 1938. Natural Gas Act of 1938, Pub. L. No. 75-688, 52 Stat. 821. It grants FERC the authority to regulate the interstate transport and sale of natural gas by, for example, setting pipeline rates and establishing the conditions for transportation facilities. 15 U.S.C. §§ 717, 717c, 717f. In the Energy Policy Act of 2005 (EPACT 2005), Congress amended the NGA to prohibit manipulation in natural gas markets by market participants. Pub. L. No. 109-58, 119 Stat. 594, 691 (codified at 15 U.S.C. § 717c-1).

         EPACT 2005 also made changes to how the NGA was enforced. Prior to 2005, the NGA provided FERC with limited enforcement powers. See James H. McGrew, Am. Bar Ass'n, Basic Practice Series, FERC: Federal Energy Regulatory Commission 239-41 (2d ed. 2009). The pre-2005 NGA (like the current NGA) permitted FERC to "investigate any facts, conditions, practices, or matters which it may find necessary or proper in order to determine whether any person has violated [the NGA]." 15 U.S.C. § 717m. In addition, it authorized FERC to conduct hearings and to establish the procedural rules governing those hearings. Id. § 717n. However, if the investigation yielded a finding of a violation, FERC had limited options available to punish violators. Under the pre-2005 NGA, FERC was limited to seeking injunctive relief and criminal penalties against violators in federal district court.[1] Id. §§ 717s, 717t.

         Congress significantly enhanced FERC's enforcement powers under the NGA in EPACT 2005. McGrew, supra, at 239-45. Section 22 added, for the first time, civil monetary penalties (capped at $1 million per day per violation) to those remedies available against NGA violators.[2] Pub. L. No. 109-58, 119 Stat. 594, 691 (codified at 15 U.S.C. § 717t-1). Section 22 provides:

(a) In general
Any person that violates this chapter, or any rule, regulation, restriction, condition, or order made or imposed by the Commission under authority of this chapter, shall be subject to a civil penalty of not more than $ 1, 000, 000 per day per violation for as long as the violation continues.
(b) Notice
The penalty shall be assessed by the Commission after notice and opportunity for public hearing.
(c) Amount
In determining the amount of a proposed penalty, the Commission shall take into consideration the nature and seriousness of the violation and the efforts to remedy the violation.

15 U.S.C. § 717t-1.

         B. Regulatory Backdrop

         Following the passage of EPACT 2005, FERC issued a 2006 policy statement interpreting its new civil penalty authority. Statement of Administrative Policy Regarding the Process for Assessing Civil Penalties, 117 FERC 61, 317 (2006) [hereinafter 2006 Policy]. Crucially, FERC explained that, for civil penalties assessed under the NGA, "unlike the FPA and NGPA, Congress did not establish a de novo court review." Id. ¶ 8, 117 FERC at 62, 533. Accordingly, FERC interpreted the NGA to permit FERC itself to assess penalties under the NGA through either "a paper hearing or a hearing before an ALJ." Id. ¶ 2, 117 FERC at 62, 533. FERC has established a comprehensive procedure for assessing civil penalties under the NGA. We provide an overview in order to situate the facts of this case within that procedure.

         (1) FERC's Office of Enforcement, the FERC division in charge of investigating alleged violations, reviews referrals and tips of potential NGA violations by natural gas companies and market participants to determine whether there is a substantial basis for opening an investigation. 2008 Revised Policy ¶¶ 23-26, 123 FERC at 62, 012; see 18 C.F.R. § 1b.3.

         (2) After opening an investigation, Enforcement employs conventional discovery methods such as reviewing documents, conducting interviews and depositions, and communicating with the subject of the investigation. 2008 Revised Policy ¶ 28, 123 FERC at 62, 013; see 18 C.F.R. § 1b.3. Enforcement can terminate an investigation at any point during this process. 2008 Revised Policy ¶ 31, 123 FERC at 62, 013

         (3) If Enforcement concludes that a violation has occurred, it sends the alleged violator the factual and legal conclusions of its investigation and its proposed penalty, to which the alleged violator may confidentially respond. Id. ¶ 32; see 18 C.F.R. § 1b.19. In some cases, this response has prompted Enforcement to terminate the investigation. 2008 Revised Policy ¶ 32, 123 FERC at 62, 013.

         (4) If Enforcement continues to believe that a violation has occurred, it attempts to engage in settlement discussions with the alleged violator. Id. ¶ 33-34, 123 FERC at 62, 013-14. This step concludes the investigation stage of the process and commences the enforcement stage.

         (5) If these settlement discussions are unavailing, Enforcement submits to the commissioners of FERC its recommendation to initiate an enforcement proceeding and impose a civil penalty against the alleged violator, together with any response from the alleged violator. Id. ¶ 35, 123 FERC at 62, 014. The alleged violator is usually notified of this recommendation in advance. Id.

         (6) If FERC deems it appropriate, it issues an order to show cause to the alleged violator, which includes the amount of Enforcement's proposed penalty and a statement of the material facts constituting the violation. Id. ¶ 36, 123 FERC at 62, 014; 2006 Policy ¶ 7, 117 FERC at 62, 533. In issuing this order, FERC does not make a finding that there has been a NGA violation. 2008 Revised Policy ¶ 37, 123 FERC at 62, 014. Rather, issuing an order to show cause merely triggers the procedural rules that FERC has promulgated to govern its hearings. Id.; see 18 C.F.R. §§ 385.101-2202. One such rule dictates that when an order to show cause is issued, the Enforcement staff who were involved in the investigation are designated as "non-decisional" and are not permitted to further advise FERC commissioners on the matter. 2008 Revised Policy ¶ 37, 123 FERC at 62, 014; see 18 C.F.R. §§ 385.2201, 385.2202.

         (7) The alleged violator may file an answer to the order to show cause, which may include arguments on why it did not violate the NGA and why the proposed penalty should not be assessed or ...


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