United States: BP Case Reflects FERC's Broad View Of Its Jurisdiction

On July 11, 2016, the Federal Energy Regulatory Commission (FERC or "Commission") issued an order affirming an Administrative Law Judge's (ALJ) Initial Decision finding that BP America ("BP") and certain affiliated entities violated FERC's prohibition on market manipulation, the Anti-Manipulation Rule. In the order, FERC affirmed the ALJ's finding that BP executed a scheme in the fall of 2008 to manipulate the price of natural gas in the Houston region by engaging in uneconomic trading of next-day, fixed-price natural gas at the Houston Ship Channel and related transport of natural gas from Katy, Texas, to the Houston Ship Channel. FERC found that BP's conduct was intended to suppress the Houston Ship Channel Gas Daily index price relative to Henry Hub, thereby benefiting BP's Houston Ship Channel-Henry Hub spread position. The order—which is subject to rehearing and potential appeal—directed BP to pay a civil penalty of $20,160,000 and to disgorge $207,169 in unjust profits as a consequence of its violation.

In affirming the Initial Decision, the Commission agreed with the ALJ's findings rejecting various legal and factual defenses. The Commission did, however, order BP to pay reduced civil penalty and disgorgement amounts from those proposed in the August 2013 Order to Show Cause (OSC) that initiated proceedings against BP. At the hearing before the ALJ, FERC's Office of Enforcement (OE) presented testimony alleging that BP's conduct had significantly less impact on the market—a key factor affecting FERC's civil penalty and disgorgement calculations—than what the OE had alleged in the OSC, resulting in reductions from the OSC's proposed $28,000,000 civil penalty and $800,000 disgorgement amounts.

While FERC's theory of manipulation in BP (i.e., a cross-product uneconomic trading scheme) is similar to what FERC has alleged in other recent enforcement cases, the BP case raises important legal questions about the boundaries of FERC's jurisdiction. BP argued to the ALJ and the Commission that FERC did not have jurisdiction to prosecute the conduct at issue because it principally concerned transactions that fell outside the Commission's ratemaking jurisdiction under the Natural Gas Act (NGA)—namely, transactions involving intrastate pipeline capacity, intrastate sales and "first sales" of natural gas. In its order affirming the Initial Decision, the Commission reaffirmed its broad view of its enforcement jurisdiction, which, according to FERC, necessarily extends beyond the limitations of its ratemaking jurisdiction under the NGA and the Federal Power Act (which contains the same market manipulation prohibition).

FERC had previously asserted that its antimanipulation authority—by proscribing manipulative conduct "in connection with" jurisdictional transactions—could potentially reach conduct involving nonjurisdictional transactions that "affected" FERC-jurisdictional markets. Further emboldened by a recent Supreme Court victory in FERC v. Electric Power Supply Association1 regarding the breadth of its authority to regulate conduct that affects jurisdictional rates, in the BP order, FERC described an expansive view of its statutory authority to prosecute market manipulation that is "in connection with" a FERC-jurisdictional transaction. Based on the notion that jurisdictional and nonjurisdictional markets "have become so intertwined," FERC determined that, to effectuate Congress' intent of adopting a "broad prohibition on market manipulation," FERC must have authority to reach conduct outside of its jurisdictional markets that has a manipulative effect on jurisdictional markets:

The Commission's "in connection with" authority is solely directed at protecting jurisdictional markets, but to do so effectively it must reach conduct that "directly affects" these jurisdictional markets—that is, there must be a nexus between the conduct and the matters within the Commission's regulatory jurisdiction—and in so doing the Commission is not asserting any general regulatory jurisdiction over intrastate or first sale natural gas. This is wholly consistent with the Supreme Court's determination that phrases such as "in connection with" are not to be read in a "hyperliteral" way but rather are read in a common sense way that requires there to be a nexus between the conduct and the jurisdictional market. As such, any impact on transactions involving non-jurisdictional natural gas is wholly incidental to the Commission's duty to protect jurisdictional markets, and that sort of incidental effect—even if it turns out to be significant in scope—is allowable, as the Supreme Court recently addressed in EPSA . . . . [F]ar from being limited to reaching only jurisdictional transactions, the Commission's anti-manipulation authority protects jurisdictional markets from manipulation, and this protective duty reaches manipulative transactions that directly affect jurisdictional markets—even if the manipulative instruments happen to involve non-jurisdictional natural gas.2

In applying this jurisdictional analysis, the Commission agreed with the ALJ's decision and found that there were three bases for asserting jurisdiction over BP's conduct: (1) that certain third-party jurisdictional sales were priced off of the index that BP allegedly manipulated, (2) that "cash-out" transactions3were priced off of the index that BP allegedly manipulated and (3) that BP itself engaged in certain jurisdictional sales as part of the allegedly manipulative scheme. The first two bases for jurisdiction—which do not turn on BP itself engaging in jurisdictional transactions—depend on a broad view of FERC's enforcement authority that extends beyond traditional jurisdictional boundaries.

The BP order also reflects a continued narrow reading of the D.C. Circuit's 2013 decision in Hunter v. FERC, in which the court found that FERC did not have jurisdiction to prohibit manipulation of FERC-jurisdictional markets if the transactions used to effectuate the manipulation occurred in futures markets subject to the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). Although parallels can be drawn between the Hunter case and the BP case in that both involved FERC asserting enforcement authority over nonjurisdictional transactions that allegedly had manipulative effects on FERC-jurisdictional markets, it is apparent that FERC views Hunter as reflecting only a narrow limitation on FERC's "in connection with" jurisdiction, likely specific to markets subject to the CFTC's exclusive jurisdiction.

While the scope of FERC's enforcement jurisdiction will ultimately be determined by the courts, the BP order puts market participants on notice that FERC will not hesitate to investigate and prosecute manipulative conduct outside of its jurisdictional electricity and natural gas markets if FERC believes that such conduct affects FERC-jurisdictional markets.


1. 577 U.S. __, 136 S. Ct. 760 (2016).

2. Order at P 313.

3. "Cash-out" transactions are imbalance charges reflected in interstate natural gas pipelines' FERC-jurisdictional tariffs.

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