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Court Affirms $200M in FERC Imposed Market Manipulation Penalties

The U.S. Court of Appeals for the Ninth Circuit in California last Thursday continued to uphold penalties against market manipulation dating back to the western energy crisis of 2000-01.

A three-judge panel issued a 34-page decision upholding Federal Energy Regulatory Commission (FERC) findings that a number of companies, including a unit of Shell Energy North American and BP plc, manipulated wholesale prices during the western energy market meltdown, opening the door for California to recover an additional $200 million in over-charges from power traders found at fault.

The panel upheld FERC's determination that power sellers violated the California Independent System Operator's (CAISO) tariff and market monitoring and information protocol.

Companies had argued that the federal agency had acted arbitrarily and abused its discretion. Judges Sidney Thomas, M. Margaret McKeown and Richard Clifton, disagreed, denying in part and dismissing in part consolidated petitions for review from the power trading companies.

To date, California has settled with more than 50 past power sellers and collectively recovered more than $4 billion, a spokesperson for the California Public Utilities Commission (CPUC) told NGI on Monday.  "We are going to create a web page to list the cases on our web page, but we don't have it completed yet,." she said.

Last year, the U.S. Supreme Court upheld a Ninth Circuit ruling that took a narrow view of the jurisdiction of FERC under the Natural Gas Act (NGA), affirming state jurisdiction over retail natural gas sales (see Daily GPIApril 21, 2015). The decision went against energy companies that had been defending themselves against antitrust claims, arguing that federal law preempted consideration of the cases at the state level.

The case involved the false reporting of wholesale natural gas price data to price index publishers, dating back to the early 2000s. Oneok Inc. v. Learjet Inc. deals with the preemptive effect of the NGA and the scope of FERC's enforcement authority relative to the states. The companies already had been prosecuted by FERC for the violations and paid billions of dollars in settlements.

Now the Ninth Circuit judges concluded that certain sellers in California power markets violated the market rules in the summer of 2000. Back then the state's power market was represented by both the CAISO and the now-defunct California Power Exchange (CalPX).

Over the years, a number of companies settled with California parties as an offshoot of FERC proceedings, but five did not and they remain as the power traders who are ultimately liable in this case: MPS Merchant Services (formerly Aquila Merchant Services Inc.); Illinova Corp.; APX Inc. (a middleman man between power buyers and sellers in California); Shell Energy; and BP Energy Co.

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