The US Commodity Futures Trading Commission (CFTC) announced $20 million in settlements with units of Calgary-based EnCana Corp. and Williams Cos. Inc., Tulsa, concerning accusations that their trading units sought to manipulate the US natural gas market by reporting false data to index publishers.
"Today's settlement is further indication of the commission's commitment to uncover and prosecute false reporting and manipulation in the markets that we oversee in an expeditious, yet thorough, manner so that wrongdoers are appropriately punished," CFTC Chairman James Newsome said in response to the EnCana deal.
Neither Williams nor EnCana admitted or denied CFTC's findings.
In the EnCana case, company executives said the allegations concerned its now-defunct Houston-based WD Energy Services Inc. in 2000 and 2001.
During the alleged misconduct, WD Energy was a subsidiary of PanCanadian Energy Corp., which merged with Alberta Energy Co. in 2002. The new company, called EnCana, is Canada's largest independent gas producer and one of the world's largest exploration and production companies.
EnCana said that it was unaware of any evidence that the inaccurate reporting alleged by the CFTC affected any of the price indices compiled by energy industry publications.
In a recent submission to a US federal judge, the CFTC identified 18 other energy companies being investigated for reporting false gas prices to energy publishers. Publishers use price quotes to calculate indexes used for billions of dollars in natural gas contracts.
CFTC has settled with four companies over attempted price manipulation. El Paso Corp., Houston, earlier this year agreed to pay $20 million in civil fines to settle allegations that it tried to manipulate natural gas prices published in trade publications, such as Platts, an energy information service subsidiary of McGraw-Hill Cos. (OGJ Online, Mar. 24, 2003). Dynegy Inc., also of Houston, settled similar charges for $5 million last December. Neither company admitted any wrongdoing.
Settlements
The CFTC settlement alleged that from "at least" June 2000 through "at least" August 2001, WD Energy reported false natural gas trading information, including price and volume information, to certain reporting firms.
One employee of WD Energy discussed false reporting with traders at two other energy companies, CFTC said.
It also found that WD Energy knowingly submitted false information to the reporting firms in an attempt to skew those indexes for its financial benefit, and that WD Energy's false reporting conduct violated the Commodity Exchange Act.
The charges against Williams were similar to those against EnCana, although the timeframe of the alleged illegal activity was longer.
CFTC found that from at least January 2000 through June 2002, Williams reported false natural gas trading information, including price and volume information, to certain reporting firms.
"Companies that violate our laws and the trust of the public are being held accountable. To preserve taxpayer resources, we continue to urge these companies strongly to step up and cooperate fully with the government," said CFTC Director of Enforcement, Gregory G. Mocek.
"As a company, we have to take ownership for our successes and our failures," said Steve Malcolm, Williams chairman, president, and CEO. "Our expectation for all employees is to always do the right thing, to always preserve their own honesty and integrity as well as the company's. Settlements allow companies to move forward, but we expect more from ourselves."
In a joint statement issued by federal regulators that oversee energy markets, it was stressed that neither agency plans to bring false reporting cases against energy market participants where the false report was inadvertent or based solely on human error.
CFTC and the Federal Energy Regulatory Commission issued the joint statement to address the regulatory concerns of market participants and encourage ongoing industry consensus solutions.
"We look forward to increased reporting of transaction data by energy market participants, as this will promote price discovery and the efficient operation of these markets. We will continue to monitor progress in this important endeavor," said CFTC's Newsome and FERC Chairman Pat Wood.
Industry reaction
In a related effort, several industry groups, including the American Gas Association and the Natural Gas Supply Association, praised FERC for acting quickly on its policy statement on price index reporting.
FERC called for voluntary standards and included language on a proposed "safe harbor" provision that addresses inadvertent reporting errors that may be made by data providers.
"The commission underscored the depth of its commitment to improving gas price reporting through its swift action on a policy statement," said Jane Lewis, senior managing counsel and director of regulatory affairs at AGA. "Natural gas utilities share FERC's dedication to achieving price reporting that is complete and accurate in order to increase confidence in the published indices for natural gas prices," she said. "We're pleased that the commission recognizes the need to address possible disincentives to price reporting."
NGSA Chairman Bill Transier also praised FERC's decision to allow market participants to craft their own guidelines.
"In many respects, FERC is adopting the consensus recommendations recently put forward by a majority of market participants," Transier said. "This is a clear signal that the commission recognizes the need for the market to resolve these issues to the mutual benefit of all participants. Now, of course, it will be up to all market participants to see these proposals through and implement these enhancements for the benefit of all energy customers.
"Recognized standards for voluntary price reporting, with the support of federal regulators, will certainly serve to enhance the credibility of the published indices," Transier said, adding, "That, in turn, will help to shore-up confidence and increase liquidity in the nation's energy markets, which will contribute to more vibrant competition and, hopefully, greater efficiency for all users.