United States: FERC Orders Evidentiary Hearing For Alleged Market Manipulation By BP

Last Updated: May 20 2014
Article by Terence T. Healey, Kenneth W. Irvin, Gregory K. Lawrence and Joseph B. Williams

Most Read Contributor in United States, December 2018

On May 15, 2014, the Federal Energy Regulatory Commission (FERC) issued an order setting an evidentiary hearing before an administrative law judge (ALJ) to determine whether BP America Inc., BP Corporation North America Inc., BP America Production Company, and BP Energy Company (collectively, BP) violated FERC's prohibition on market manipulation in section 1c.1 of FERC's regulations and section 4A of the Natural Gas Act.  In an August 2013 report, FERC's Office of Enforcement (OE) alleged that BP manipulated the next-day, fixed-price natural gas market at the Houston Ship Channel (HSC) between September and November 2008.  BP denied these allegations and requested that FERC dismiss the proceeding.  In the May 15, 2014 order, FERC rejected BP's threshold legal objections regarding the FERC's authority to proceed and set the matter for an evidentiary hearing.

The allegations against BP arise out of an investigation conducted by the OE.  OE alleges that BP made uneconomic sales at HSC and attempted to increase its market share at HSC as part of a manipulative scheme designed to suppress the HSC Gas Daily index, to benefit certain BP physical and financial positions that settled based on the HSC Gas Daily index.  According to OE:

  • BP had a financial spread position that benefited when the spread between the daily physical gas prices at HSC and Henry Hub increased after Hurricane Ike in September 2008;
  • BP traders sold next-day, fixed-price gas at HSC to suppress physical gas prices at HSC and, thus, slow the contraction of the HSC-Henry Hub spread; 
  • BP used transportation capacity on the BP Houston Pipeline between Katy and HSC to make uneconomic sales at HSC; and
  • this activity continued through November 2008. 

The investigation began with a self-report by BP when one of its traders called another trader on a recorded line with what FERC construes as concerns that BP was manipulating the physical market in order to benefit a related position.

On August 5, 2013, FERC issued an Order directing BP to show cause why FERC should not find that BP manipulated the next-day, fixed-price natural gas market at HSC between September and November 2008.  FERC's Order also directed BP to show cause why it should not pay civil penalties in the amount of $28,000,000 and disgorge $800,000 in unjust profits, plus interest, or a modification to these amounts as warranted.  The Order to Show Cause included a report by OE describing the findings of OE's investigation.

BP responded to FERC's Order to Show Cause on October 4, 2013 and requested that FERC dismiss OE's claims.  BP argued, among other things, that the OE report:

  • takes the recorded conversation by BP's traders out of context;
  • is based on flawed and erroneous circumstantial evidence;
  • is based on misconstrued, unreliable, and faulty data;
  • misapplies FERC's Penalty Guidelines;
  • incorrectly asserts FERC's jurisdiction over the conduct at issue; and
  • fails to state a claim under FERC's anti-manipulation rule.

FERC's May 15, 2014 order requires a trial-type evidentiary hearing before a FERC ALJ to determine whether BP violated FERC's prohibition on market manipulation in section 1c.1 of FERC's regulations and section 4A of the Natural Gas Act.  FERC rejected BP's motion to dismiss the proceeding, reasoning that there are genuine issues of material fact which require a hearing before an ALJ.  In particular, FERC rejected BP's claims regarding FERC's lack of jurisdiction, finding that FERC may exercise subject matter jurisdiction as a threshold legal issue.  However, FERC noted that further fact-finding is necessary to determine whether the alleged conduct was, in fact, jurisdictional and/or "in connection with" jurisdictional transactions.

FERC directed the ALJ to make findings based on the record developed at the hearing regarding FERC's subject matter jurisdiction and each element of a manipulation claim under FERC's regulations, specifically:

  • Conduct:  whether BP "directly or indirectly, . . . (1) . . . use[d] or employ[ed] any device, scheme, or artifice to defraud; (2) . . . ma[d]e any untrue statement of a material fact or omit[ted] to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (3). . . engage[d] in any act, practice, or course of business that operates or would operate as a fraud or deceit upon any entity";
  • Scienter: whether BP acted with intent or recklessness; and
  • "In connection with" a jurisdictional transaction:  whether BP's conduct was "directly or indirectly, in connection with the purchase or sale of natural gas or the purchase or sale of transportation services subject to the jurisdiction of [FERC]."

FERC reserved for its later consideration whether to impose and the amount of any civil penalty, disgorgement or other sanctions.  Nevertheless, FERC directed the ALJ to make factual findings based on the record developed at the hearing regarding issues related to the penalty (regardless of the final determination of the manipulation claim).  In particular, FERC ordered the ALJ to make findings on the following factors relevant to a civil penalty under FERC's Penalty Guidelines:

  • the number of violations committed, if any, and the number of days on which any such violations occurred;
  • the loss, the volume of natural gas involved (calculating financial and physical positions separately), and duration;
  • whether BP "committed any part of the [alleged] instant violation less than 5 years after a prior [FERC] adjudication of any violation or less than 5 years after an adjudication of similar misconduct by any other enforcement agency";
  • whether "the commission of the [alleged] instant violation violated a judicial or [FERC] order or injunction directed at [BP] by the [FERC] or other Federal and state enforcement agencies that adjudicate similar types of matters as [FERC]";
  • BP's compliance program as compared to the factors in FERC's Penalty Guidelines; and
  • the amount of profits that BP obtained from its alleged manipulative trading activity, including both a gross profit amount and a net amount that subtracts BP's losses from its physical trading.

Administrative Law Judge Carmen A. Cintron has been appointed to preside over this case.  Judge Cintron also presided over the FERC enforcement case against Brian Hunter.  See Brian Hunter, 130 FERC ¶ 63,004 (2010).  You can view FERC's May 15, 2014 order at: http://ferc.gov/whats-new/comm-meet/2014/051514/M-2.pdf.

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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions