FERC’s Interpretation Of Its Statutory Authority Underlying Its 2003 Code Of Conduct Is Entitled To

Deference

Even if the NGA were ambiguous about the scope of FERC’s authority, this Court should defer to FERC’s reasonable conclusion that it possesses that authority under the NGA. If a “ ‘statute is silent or ambiguous’ ” regarding the proper scope of authority that Congress conferred on an agency, the agency’s “reasonable interpretation” of “the scope of [its] stat- utory authority (that is, its jurisdiction)” is entitled to Chevron deference. City of Arlington v. FCC, 133 S. Ct. 1863, 1868, 1874-1875 (2013) (citation omitted); see Mississippi Power & Light Co., 487 U.S. at 380- 381 (Scalia, J., concurring in the judgment) (FERC’s construction of Federal Power Act, including provi- sions “designed to confine its authority,” is entitled to Chevron deference.).

7 _{FERC did not exercise regulatory authority over non-}

jurisdictional sellers’ index-related practices associated with non- jurisdictional sales before Congress’s 2005 enactment of EPAct. In EPAct, Congress directed FERC to regulate the manipulative practices of “any entity” employed in connection with jurisdictional sales. 15 U.S.C. 717c-1. Under FERC’s construction of that provision, Congress granted FERC authority to regulate non- jurisdictional entities’ manipulative reporting about, and wash- trade practices purporting to involve, non-jurisdictional sales when they are used to manipulate wholesale gas rates, pp. 7-8, supra, thereby providing a single federal standard for such practices for all natural-gas sellers. This case, however, does not call for the Court to interpret the scope of FERC’s authority under EPAct.

a. FERC has reasonably concluded that it pos- sessed statutory authority before 2005 to regulate the type of manipulative conduct of jurisdictional sellers at issue in this case. In 2003, FERC amended its blanket gas-marketing certificates to impose a Code of Conduct on jurisdictional sellers. See pp. 5-7, supra. That Code expressly prohibited jurisdictional sellers from engaging in actions without a legitimate business purpose to manipulate market prices, including wash trades, and from making false price reports to index publishers. Amendments to Blanket Sales Certifi- cates, 68 Fed. Reg. 66,323, 66,337 (Nov. 17, 2003) (promulgating 18 C.F.R. 284.403 (2004)). FERC spe- cifically invoked “Sections 5, 7, and 16 of the NGA” as statutory authority to adopt that Code. Amendments to Blanket Sales Certificates, 107 F.E.R.C. at 61,690.

As discussed above, Section 5(a) of the NGA au- thorized FERC to regulate “any * * * practice * * * affecting” rates subject to its jurisdiction and to prohibit such practices that are “unjust” or “unrea- sonable.” 15 U.S.C. 717d(a). Section 7 further author- ized FERC to attach to certificates for jurisdictional sellers “reasonable terms and conditions as the public convenience and necessity may require.” 15 U.S.C. 717f(e). And Section 16 authorized FERC to make orders, rules, and regulations and to take actions “as it may find necessary and appropriate to carry out [the NGA].” 15 U.S.C. 717o; see Louisiana Power & Light Co., 406 U.S. at 642 (Section 16 “assures the [Commission] the necessary degree of flexibility” to carry out its “ ‘broad responsibilities’ ” and “ ‘therefore demand[s] a generous construction’ ”) (citation omit- ted). FERC invoked those provisions in promulgating its 2003 Code of Conduct based on its findings that the

Code’s “prohibited practices are unjust and unreason- able”; that “explicit” anti-manipulation prohibitions were “necessary to ensure that market-based sales of gas * * * will be just and reasonable”; and that “the public convenience and necessity” further war- ranted adopting the Code “to ensure a competitive and transparent market.” Amendments to Blanket Sales Certificates, 107 F.E.R.C. at 61,690. Although FERC did not analyze its authority further, its con- clusion that the NGA conferred authority to address the prohibited practices is reasonable, see pp. 17-32, supra, and entitled to deference. See City of Arling- ton, 133 S. Ct. at 1868, 1874-1875.

b. The Ninth Circuit concluded that FERC’s 2003 Code of Conduct did not suggest that “FERC had jurisdiction over the market manipulation at issue” here. Pet. App. 36a-37a. The court’s reasons for its conclusion do not withstand scrutiny.

First, the Ninth Circuit concluded that the Code of Conduct applied only to practices arising from “sales within [FERC’s] jurisdiction” because FERC noted that it “ ‘does not regulate the entire natural gas mar- ket’ ” and applied the Code to “ ‘that portion of the gas market which is within its jurisdiction.’ ” Pet. App. 38a (quoting 68 Fed. Reg. at 66,326). But FERC’s rationale was that it could not regulate “all sellers of natural gas,” 68 Fed. Reg. at 66,326 (emphasis added), not that it lacked authority to prohibit jurisdictional sellers from engaging in the type of conduct alleged here. The terms of the 2003 Code of Conduct thus broadly prohibited jurisdictional sellers from taking actions to manipulate “market prices” (including wash trades) and from providing false information to index publishers, without limiting those prohibitions

to contexts involving jurisdictional sales. 18 C.F.R. 284.403(a) and (b) (2004).

Second, the Ninth Circuit concluded that Con- gress’s 2005 passage of EPAct’s market-manipulation provision (15 U.S.C. 717c-1) would be “superfluous” if FERC had preexisting authority to regulate the con- duct here. Pet. App. 37a-38a. That is incorrect. Sec- tion 717c-1 expanded the prohibitions in FERC’s 2003 Code of Conduct by making it unlawful for “any enti- ty”—not just jurisdictional entities—directly or indi- rectly to use a manipulative or deceptive device (as those terms are used in Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78 j(b)) in connection with a jurisdictional sale in violation of FERC’s im- plementing regulations. See 15 U.S.C. 717c-1; pp. 7-8, supra.