U.S. Court of Appeals for the Fifth Circuit. Photo: Michael A. Scarcella/ALM

The U.S. Court of Appeals for the Fifth Circuit has swatted back an attempt by one of the world’s largest energy companies to avoid over $216 million in potential federal civil penalties for allegedly attempting to manipulate the natural gas markets.

The background to the Fifth Circuit’s recent decision in Total Gas & Power North America v. Federal Energy Regulatory Commission is as follows.

Total Gas & Power North America trades in the natural gas market. In 2012, the Federal Energy Regulatory Commission (FERC) began a formal investigation into allegations that two of the company’s trading managers had been manipulating prices in the natural gas markets.

In 2015, after a three-year investigation, FERC notified Total of its intention to seek enforcement proceedings against it for violations of the Natural Gas Act of 1938 (NGA)—legislation Congress updated in 2005 to prohibit manipulation in the natural gas market by participants.

Total filed a declaratory judgment action in a Texas federal court in 2016 seeking a ruling that FERC lacked the authority to impose civil penalties on it because the NGA vested such authority exclusively in federal courts.

While the declaratory judgment action was pending, FERC issued a show cause order directing Total to explain why it should not be found to have violated the NGA, have $9 million disgorged for unjust profits and be assessed over $216 million in civil penalties.

But the district court ultimately dismissed Total’s declaratory judgment action for lack of subject matter jurisdiction due to lack of ripeness. The trial court ruled it couldn’t hear Total’s case for several reasons—including the fact that the relief they were requesting would not resolve the dispute because FERC had yet to reach the merits of the case and because the commission had yet to issue a final order.

Total appealed the district court’s ruling to the Fifth Circuit. And in a June 8 decision, the Fifth Circuit affirmed the trial court’s decision that Total had jumped the gun on challenging a FERC penalty that had yet to be issued.

“In sum, Total does not object to any actions FERC has already taken. Rather, Total seeks to preemptively challenge a FERC order that may never be issued,” wrote Senior Fifth Circuit Judge Carolyn Dineen King. “All of Total’s arguments are predicated on future events and are brought before FERC has even scheduled the matter for a hearing—let alone issued an order finding a NGA violation and imposing a civil penalty.”

“Total’s suit is thus not ripe and the district court did not err in dismissing it on justiciability grounds,” King concluded in her decision.