BP America Inc.'s response to a November 2008 telephone call between two members of its "Texas team," during which it was suggested the team was attempting to manipulate the natural gas market at the Houston Ship Channel (HSC), was appropriate and helped detect and deter potentially manipulative conduct, according to rebuttal testimony filed at FERC by the producer Wednesday.
"BP maintained a robust compliance program during and after the investigative period, including through the present," according to the testimony of Thomas Nuelle, chief regulatory compliance officer for BP Energy Co.
"The robust nature of BP's compliance program was the result of BP's effort to devote a significant amount of resources toward compliance in an effort to prevent unlawful conduct...both FERC [Federal Energy Regulatory Commission] enforcement staff and the independent monitor approved by the CFTC [Commodity Futures Trading Commission] recognized that BP's compliance program in place on and after Nov. 5, 2008 reflected applicable industry practices and was effective in detecting and deterring potentially manipulative conduct."
Nuelle's testimony came in response to previous testimony by industry analysts, filed by FERC's Office of Enforcement (OE) staff, alleging that the Texas team of BP's Southeast gas trading desk engaged in next-day fixed-price natural gas trading at the HSC in 2008 to benefit its HSC-to-Henry Hub spread position tied to the index (see Daily GPI, Sept. 23, 2014).
The analysis relied in part on a telephone call between Texas team members Clayton Luskie and Gradyn Comfort recorded Nov. 5, 2008.
During the call, Luskie said that during a recent conversation he had "mischaracterized the desk's activities and made it sound like we were attempting to manipulate the market," according to separate testimony from Comfort.
The Luskie-Comfort phone call was reported to the independent monitor the same day that it occurred, and a recording of the call was turned over to BP compliance within hours, Nuelle said. An internal review was begun, but it was not finalized, because after FERC and the CFTC began their own investigation they told BP to suspend theirs.
"Very shortly following the two minute taped call that started this case and the prompt disclosure of that call to both FERC and the CFTC, two federal investigations began." In cooperation with those investigations, BP produced a total of 182 GB of data, 480,000 pages of materials and more than 3,000 pages of testimony from nine witnesses.
"The BP internal review was overtaken by these developments," Nuelle said.
Comfort testified that he knew at the time of the telephone conversation that Luskie's statements weren't accurate and that he was "upset and shocked" by the call.
"I knew we were on a recorded line and that the statement could be misinterpreted, even though it was factually incorrect...I cut Clayton off several times because I was concerned about the content of the call and the way things were phrased," he said.
The testimony came 17 months after FERC ordered BP America and affiliates to show cause in the long-running case (see Daily GPI, Aug. 6, 2013). The initial charges were based on an OE investigation alleging that traders on the Texas team traded physical natural gas at HSC in a manner designed to increase the value of the company's futures market position.
FERC's complaint included affiliates BP America, BP Corp. North America Inc., BP America Production Co. and BP Energy Co. The Commission initially proposed a near-$29 million penalty for transactions taking place during the investigative period.
BP had revealed in a quarterly Securities and Exchange Commission filing that FERC staff originally notified the company of its preliminary conclusions in November 2010, at which time BP said it gave a detailed response. OE subsequently made public a preliminary determination accusing BP of making fraudulent physical trades to set up its futures market position (see Daily GPI, Aug. 1, 2011; Feb. 2, 2011).
A number of rebuttal testimonies by different parties involved filed by BP Wednesday were labeled “confidential” and were not available to the public. A hearing is slated for March 2, with an initial decision by July 15.