Almost a decade removed from the alleged energy market manipulations that spawned it, a $453 million FERC penalty against Barclays Bank plc and four of its energy traders remains unpaid and unresolved following a ruling last Tuesday in the U.S. District Court for the Eastern District of California in Sacramento.
The legal machinations have continued to churn since mid-2013, when the Federal Energy Regulatory Commission imposed its largest fine ever. The Commission ordered Barclays and the traders to pay $453 million in civil penalties and disgorge $34.9 million -- plus interest -- in unjust profits for manipulating electric power prices in California and other western markets between November 2006 and December 2008.
Federal District Judge Troy Nunley on Tuesday ruled against FERC's motion to affirm the longstanding penalties. Within 60 days the parties are to meet again in court and file a joint status report outlining how the discovery in the case moves forward to allow Barclays' lawyers "to fully develop their factual defense."
Nunley concluded "in agreement with every other federal court that has expressly addressed this issue that [Barclays and the other defendants] are entitled to conduct discovery under the federal rules of civil procedure." Thus, the judge denied FERC's motion "without prejudice" to a later renewal of the federal agency's legal request to apply the penalties.
At issue is the 2012 decision by the bank and the four traders to decline the option of a penalty case before a FERC administrative law judge (ALJ) in favor of an "immediate penalty assessment" by FERC, which if not paid in 60 days forces the federal agency to seek federal district court review of the civil penalties. Since then, the court has had the role of determining whether the defendants can offer "new arguments and evidence" to refute the penalties, or whether FERC's administrative record is all that is needed to support them.
Arguing for reasons of "basic fairness and due process," Barclays and the traders contend that they should be allowed to add all new evidence to the case that they can now obtain through further discovery. Nunley agreed, deciding that the bank and traders are entitled "to conduct discovery" under the federal rules of civil procedure.
"In the normal civil action in this court, the plaintiff [FERC] must actually 'prove' its case, and this is no less true when nearly $500 million is at stake," the judge's ruling said. "Such proof involves subjecting the evidence presented by both sides to the give-and-take of the adversarial system, [but] this has not happened thus far.
"There is nothing in the record [at FERC] that shows that [its enforcement unit] 'proved' that [Barclays and the traders] broke the law, or that [they] had a true opportunity to defend themselves."
Separately last fall, the U.S. Court of Appeals for the Ninth Circuit in California continued to uphold penalties against market manipulation dating back to the western energy crisis of 2000-2001. A three-judge panel issued a 34-page decision upholding FERC's findings that a number of companies, including a unit of Shell Energy North America and BP plc, manipulated wholesale prices during the western energy market meltdown.
The panel upheld FERC's determination that power sellers violated the California Independent System Operator's (CAISO) tariff, market monitoring and information protocol. At that time, California had settled with more than 50 past power sellers and collectively recovered more than $4 billion, according to a spokesperson for the California Public Utilities Commission.