United States: The Federal Energy Regulatory Commission Strikes Again - FERC Pursues Yet Another Allegedly Manipulative Energy Trading Scheme

On August 5, 2013, The Federal Energy Regulatory Commission (The "Commission" Or "FERC") Issued An Order Directing BP America Inc. And Its Affiliates (Collectively, "BP") To Show Cause Why It Should Not Pay A $28 Million Civil Penalty And A $800,000 Disgorgement Fee For Manipulating The Next-Day, Fixed-Price Gas Market At The Houston Ship Channel ("HSC") From September To November 2008 In Violation Of Section 4A Of The Natural Gas Act ("NGA") And Section 1c.1 Of The Commission's Regulations (The "Anti-Manipulation Rule").1 This Is The Third In A String Of High-Profile Orders In Which The Commission Has Sought Or Assessed Unprecedented Civil Penalties Against Energy Traders, Financial Institutions, And/Or Energy Companies.2 This Latest Case Demonstrates That The Commission Will Continue To Investigate And Prosecute Allegedly Manipulative Energy Trading Schemes, Even Years After The Trading Activity At Issue Has Occurred. Further, It Bears Noting That, While The Commission Uses A Complex Formula To Determine Civil Penalties, Its Assessment Of Civil Penalties In Recent Cases Ranges From Roughly Two To Thirty Times The Corresponding Disgorgement Fee.3


The Commission Issued The Show Cause Order Based On A FERC Office Of Enforcement ("Enforcement") Report Alleging That BP Conducted A Manipulative Energy Trading Scheme In Violation Of Rules Prohibiting Market Manipulation.4 According To The Enforcement Report, In September 2008, The Texas Team Of BP's Southeast Gas Trading Desk Had A Financial Spread Position Between HSC (Short Index Swaps) And Henry Hub (Long Index Swaps) That Benefited When The Spread Between The Daily Physical Gas Prices Between HSC And Henry Hub Increased. The Texas Team Realized That Its Spread Position Potentially Was Worth Millions Of Dollars When Hurricane Ike Caused The Physical Gas Prices At HSC To Plummet On September 13, 2008. Enforcement Staff Alleges That, To Maintain The Beneficial Spread, Three BP Traders Began Selling Next-Day, Fixed-Price Gas At HSC To Suppress Physical Gas Prices At HSC, And Thereby Slow The Shrinkage Of The HSC-Henry Hub Spread. In So Doing, The Traders Uneconomically Used The Transportation Capacity On The BP Houston Pipeline Between Katy Hub And HSC, Repeatedly Made Uneconomic Sales At HSC, And Increased BP's Market Concentration At HSC. The Enforcement Report Alleges That Such Activities Suppressed The Physical Gas Prices At HSC With The Goal Of Benefiting The Financial HSC-Henry Hub Spread. The Traders Continued This Activity Through November 2008.

Show Cause Order

The Commission Orders BP To Show Cause Why FERC Should Not Find That BP Violated NGA Section 4A And The Anti-Manipulation Rule Regarding BP's Trading Of Physical Natural Gas At HSC And Why FERC Should Not Assess A $28 Million Civil Penalty And A $800,000 Disgorgement Fee For Any Such Violation. Pending An Extension Request, BP Has Thirty Days From The Date Of The Show Case Order To File An Answer, And Enforcement Staff Has Thirty Days Thereafter To File A Response To BP's Answer. Alternatively, BP May Choose Not To Contest The Show Cause Order And Pay The Proposed Assessment.


While The Outcome Of This Case Is Unclear, The Commission Will Continue To Use Its Authority Under Federal Statutes To Investigate And Prosecute Energy Trading Activities That May Constitute Market Manipulation. It Is Of Paramount Importance, Therefore, That Financial Institutions, Energy Companies, And Traders That Engage In Energy Trading Activities Use Lessons From Current And Past Cases To Develop Internal Compliance And Surveillance Programs To Prevent Activities That The Government May Perceive As Violations Of Its Market Manipulation Rules.


1 See BP America Inc. Et Al., 144 FERC ¶ 61,100 (Aug. 5, 2013) ("Show Cause Order"); 15 U.S.C. § 717c-1 (Prohibition On Market Manipulation); 18 C.F.R. § 1c.1 (Prohibition Of Natural Gas Market Manipulation).

2 See Show Cause Order (Proposing To Assess Over $28 Million In Civil Penalty And Disgorgement Fees Against Energy Company); In Re Make-Whole Payments And Related Bidding Strategies, 144 FERC ¶ 61,068 (July 30, 2013) (Assessing $410 Million In Civil Penalty And Disgorgement Fees Against Bank); Barclays Bank PLC, 144 FERC ¶ 61,041 (July 16, 2013) (Assessing Approximately $470 Million In Civil Penalty And Disgorgement Fees Against Bank, $15 Million Against One Individual Trader, And $1 Million Against Three Individual Traders).

3 See Cases Cited Supra Note 2.

4 See BP America Inc. Et Al., "Enforcement Staff Report And Recommendation," Docket No. IN13-15-000 (Aug. 5, 2013) ("Enforcement Report").

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.