On July 11, FERC issued an order affirming an administrative law judge’s decision in the natural gas market manipulation case against BP. In the order, FERC assessed a civil penalty in the amount of $20,160,000 (payable to the U.S. Treasury), plus disgorgement of unjust profits in the amount of $207,169 (to the Texas Low Income Home Energy Assistance Program). FERC found that BP executed a scheme to profit from the market conditions in the aftermath of Hurricane Ike during the period from September 18, 2008 through November 30, 2008 by manipulating the price of natural gas in the Houston region. FERC’s order affirms the ALJ’s findings across the board, but imposes slightly less in terms of the civil penalty and disgorgement than FERC initial sought in the order to show cause ($28 million civil penalty and $800,000 in disgorgement).
According to FERC, BP’s Texas trading team engaged in uneconomic trading of next-day, fixed-price natural gas at Houston Ship Channel and related transport of natural gas from Katy, Texas to Houston Ship Channel with the requisite intent of depressing the Platts Gas Daily index prices at Houston Ship Channel to benefit larger financial spread positions held by BP that settled off the index prices. Among other things, BP had argued that FERC lacks jurisdiction over the gas trades in question because they occurred entirely at locations within Texas, rather than within the interstate gas markets. In affirming the initial decision, FERC rejected BP’s claim that FERC may not exercise anti-manipulation authority when the fraudulent conduct in question (and not the effect) occurred in non-jurisdictional markets.
BP has 30 days to file a request for rehearing of FERC’s order. If FERC upholds its decision on rehearing, then BP may appeal the case to a federal appeals court.