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BP Again Seeks Rehearing of FERC's $20M Decision in 2008 Market Manipulation Case

BP plc has requested a rehearing of a July 2016 FERC decision that affirmed the findings of an administrative law judge (ALJ) and levied a $20.16 million fine against the London-based supermajor in a 2008 market manipulation case, asking the Commission to consider changes in law based on two recent cases.

In the case Federal Energy Regulatory Commission v. Barclays Bank plc et al, No. 2:13-cv-2093-TLN, the U.S. District Court for the Eastern District of California in October held that a FERC Order to Show Cause does not initiate a "proceeding" within the meaning of the five-year federal statute of limitations, BP said in a motion filed at FERC. In a separate case, Kokesh v. SEC, No. 137 S. Ct. 1635, the Supreme Court held that the same statute applies to actions for disgorgement, BP said.

"These opinions represent a significant change in the law that applied throughout the pendency of this matter before the Commission and support the conclusion that this matter should be dismissed...as barred by the statute of limitations," or be reconsidered in light of the two cases.

FERC fined BP $20.16 million and ordered it to disgorge another $207,169 after the Commission determined that affiliates of the company had gamed the market for natural gas at the Houston Ship Channel (HSC) in 2008 after Hurricane Ike [IN13-15]. The Commission affirmed the findings of FERC ALJ Carmen Cintron, who had concluded that the affiliates gamed the market for two and a half months in "...a classic case of physical for financial benefits."

Cintron said BP America Inc., BP Corp. of North America Inc., BP America Production Co. and BP Energy Co. (collectively BP) engaged in market manipulation by which the company's "Texas team" of BP's Southeast gas trading desk "...intentionally sold large volumes of next-day physical gas at HSC in a way designed to benefit their corresponding short financial positions." The scheme caused financial losses of $1.38-1.93 million and affected more than 35 Bcf of physical and financial natural gas, FERC said.

BP appealed Cintron's initial decision (ID) in September 2015 and, in August 2016, filed a request for rehearing of FERC's decision, which is still pending before the Commission.

In that request, BP argued that FERC's decision "is not the product of reasoned decisionmaking and is not supported by substantial evidence," detailing what it claimed were dozens of errors and inconsistencies it said render FERC's opinion No. 549 "arbitrary, capricious, and contrary to law."

FERC's decision was based on Cintron's ID, which included the "categorical determination that all OE witnesses were credible and no BP witnesses were credible," BP said. And it erred "in giving weight to OE expert testimony on the subjective intent of BP traders, contrary to federal precedent."

In light of the opinion's "complete failure to identify any jurisdictional physical transactions related to the alleged manipulation, no market harm disgorgement calculation, including financial transactions, is warranted under the Hunter v. FERC decision," BP said.

In that 2013 case, a federal appeals court granted the plea of a former natural gas trader for failed hedge fund Amaranth Advisors LLC to overturn a FERC order imposing a $30 million penalty for allegedly manipulating natural gas futures, finding that FERC lacked authority because the Commodity Futures Trading Commission has exclusive jurisdiction over all transactions involving commodity futures contracts.

On Thursday, FERC granted its Office of Enforcement an extension until Jan. 25 to respond to BP's motion. 

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