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Hedge fund, pipeline owner fixed gas prices, FERC alleges

July 27, 2007|From Reuters

WASHINGTON — U.S. regulators on Thursday charged defunct hedge fund Amaranth Advisors and pipeline operator Energy Transfer Partners with manipulating natural gas markets and proposed $458 million in penalties.

The Federal Energy Regulatory Commission, in its first enforcement action using new authority provided by Congress, is seeking $291 million from Amaranth and former head trader Brian Hunter and his colleague Matthew Donohoe.

Energy Transfer Partners was hit with a possible $167-million penalty for attempting to manipulate gas markets, including at the Houston Ship Channel days after Hurricane Rita hit the Gulf Coast in September 2005.

The agency also demanded both companies return profits related to the trades.

FERC's charges are preliminary. The companies have 30 days to show why they should not be penalized. Both companies denied the charges.

"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.

The Commodity Futures Trading Commission also filed similar charges on Wednesday against Amaranth, which lost $6.4 billion from bad natural gas bets before folding last year.

The companies are accused of pushing down gas prices, threatening 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.

FERC recommended penalties of $200 million and the return of $59 million in profit for Amaranth, as well as a $30-million fine for Hunter and a $2-million fine for Donohoe.

Hunter had sued FERC to block the agency from charging him, arguing that the futures trading commission had authority over natural gas futures markets, but a court ruled against him.

Kelliher said 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 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.

FERC said Energy Transfer Partners, which owns and operates gas pipelines and storage facilities, manipulated 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 seek to give the futures trading commission authority to track activity on electronic exchanges such as the IntercontinentalExchange, where both Amaranth and Energy Transfer Partners traded heavily.

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