The Federal Energy Regulatory Commission (“FERC”) Office of Enforcement has made an impression with its most recent efforts to police the integrity of energy markets and ferret out fraud and market manipulation. We discussed the magnitude of FERC’s probes into these areas over the past year and half in our previous post, The Energy Markets Under a Microscope: Government Investigations into Market Manipulation. At the time, FERC had reached a record settlement with Constellations Energy Commodities Group, LLC in which the company neither admitted nor denied the allegations, but agreed to pay $135 million in civil penalties and $110 million in disgorgement. The energy regulator had open investigations against several companies, including JPMorgan Chase & Co. (“JPMorgan”), and its subsidiary J.P. Morgan Ventures Energy Corp. (“JPMVEC”) for alleged manipulative trading in the California and Michigan electricity markets, as well as Barclays Bank PLC and several individual traders for allegedly manipulating California and nearby electricity markets. In the last few weeks, two of the largest of these investigations came to a close, resulting in a record total of $720 million in penalties assessed against JPMVEC and Barclays Bank, $159.9 million in disgorged profits from the companies, and $18 million in penalties imposed against individual traders of Barclays Bank. Just shortly thereafter, FERC initiated another proceeding against BP America Inc., BP Corporation North America Inc., BP America Production Company, and BP Energy Company (“BP”) for allegedly manipulating the next-day, fixed-price gas market at Houston Ship Channel from mid-September 2008 through November 30, 2008. On August 5, 2013, FERC issued an Order to Show Cause and Notice of Proposed Penalty which seeks a $28 million civil penalty and disgorgement of $800,000 plus interest from BP. The BP Show Cause Order can be downloaded here. Below is a brief summary of the outcome of the JP Morgan and Barclays investigations and you can access full copies of the FERC press releases and orders via the links provided:
Settlement Reached with JP Morgan Ventures Energy Corp: FERC brought allegations of market manipulation against JPMVEC related to the company’s bidding in the California and Midwest electricity markets during the period of September 2010 to November 2012. On July 30, 2013, a settlement between FERC and JPMVEC was approved under which JPMVEC, without admitting or denying the allegations, agreed to pay a $285 million civil penalty and to disgorge $125 million in profits. The civil penalty will be paid to the U.S. government, while the disgorged profits will be distributed to electricity ratepayers in the California Independent System Operator ($124 million) and the Midcontinent Independent System Operator ($1 million). View the full FERC Press Release and Order Approving Stipulation and Consent Agreement.
Penalties Imposed Against Barclays Bank: FERC issued an Order to Show Cause seeking a $435 million penalty and $34.9 million in disgorged profits from Barclays Bank PLC, as well as $18 million in penalties from four individual traders, for allegedly manipulating California and western market electric energy prices between November 2006 and December 2008. According to FERC, Barclays and the individuals chose a regulatory procedure under which FERC could issue an order imposing a penalty without a hearing before an administrative law judge. On July 16, 2013, FERC ordered Barclays to pay $435 million in penalties and $34.9 million in disgorged profits. FERC also ordered four of Barclays’ traders to pay penalties totaling $18 million – the individual who was a manager was ordered to pay $15 million dollars, while the other three subordinate traders were ordered to pay $1 million each. Barclays’ disgorged profits will be distributed to the Low-Income Home Energy Assistance Programs of Arizona, California, Oregon, and Washington. FERC levied the heavy penalties “[g]iven the seriousness of the violations and the lack of any effort by Barclays and the traders to remedy their violations,” noting that the Federal Power Act authorizes penalties for such acts of up to $1 million per day per violation. View the full FERC Press Release and the 85-page Order Assessing Civil Penalties.
FERC’s Order Assessing Penalties in the Barclays proceeding was quite harsh in its rebuff of the Company’s and individuals’ arguments, and it was clear in stressing that the penalties imposed were well below what the statute allows and should be severe enough to deter others from engaging in similar activity. FERC’s initiation of the BP enforcement proceeding on the heels of resolving the JP Morgan and Barclays investigations is an indication that the aggressive tenor of its regulatory enforcement efforts in the energy markets is likely to continue.