Retained by Skadden, Arps, Slate, Meagher & Flom
Counsel for Energy Transfer Partners, L.P. (ETP) retained Cornerstone Research and Professor Craig Pirrong of the University of Houston to respond to allegations made by the FERC Enforcement Litigation Staff (Enforcement Staff) and their experts that ETP manipulated the market for natural gas at the Houston Ship Channel (HSC) and Waha, Texas, delivery locations. In the FERC’s public brief filed in February 2008, the government stated it was seeking $107 million in civil penalties and $75 million (before interest) in disgorgement of “unjust profits.”
ETP and FERC executed a settlement agreement in which ETP agreed to make a $5 million payment to the federal government, and FERC agreed to dismiss all claims against ETP.
Professor Pirrong criticized the expert testimony offered on behalf of the Enforcement Staff for failing to present a manipulation theory, derived from fundamental economic principles, that supports the claim that ETP caused the price of natural gas in HSC to fall below competitive levels, and for failing to provide any credible evidence that ETP had the power to cause prices to fall below competitive levels. Professor Pirrong presented empirical analysis demonstrating that, in fact, ETP’s activities did not cause the price of gas in the HSC market to fall below competitive levels. Further, Professor Pirrong criticized the method proposed by the Enforcement Staff’s expert for determining whether a market was manipulated, highlighting the conceptual flaws of that proposed method and its perverse public policy implications. Specifically, Professor Pirrong testified that the Enforcement Staff’s proposed method would lead to less fixed-price trading, thereby degrading the quality of gas price indices and discouraging market participants from engaging in transactions that improve market efficiency.
ETP and FERC executed a settlement agreement in which ETP agreed to make a $5 million payment to the federal government, and FERC agreed to dismiss all claims against ETP. Separate from the payment to the federal government, ETP also agreed to establish a $25 million fund for the purpose of settling related third-party claims against ETP.