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

BP plc has requested a rehearing of a FERC decision last month 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, saying it "is not the product of reasoned decisionmaking and is not supported by substantial evidence."

In opinion No. 549, BP was fined $20.16 million and ordered to disgorge another $207,169 by the Federal Energy Regulatory Commission after the agency found that affiliates of the company had gamed the market for natural gas at the Houston Ship Channel (HSC) in 2008 after Hurricane Ike -- a decision the London-based supermajor said it will continue to challenge [IN13-15] (see Daily GPI, July 12). In a 200-page opinion, the Commission affirmed the findings of FERC ALJ Carmen Cintron, who concluded last August that affiliates of BP gamed the market for natural gas at the HSC during two and a half months after Hurricane Ike in "...a classic case of physical for financial benefits [IN13-15]" (see Daily GPI, Aug. 13, 2015).

But in a request for rehearing filed at FERC Wednesday, BP detailed what it claims are dozens of errors and inconsistencies it says render FERC's opinion No. 549 "arbitrary, capricious, and contrary to law." Among them, according to BP, the order disregarded "controlling precedent in shifting the burden of persuasion in this proceeding to BP. Opinion No. 549 presumes rather than proves the existence of specific intent to manipulate and manipulative conduct by BP. That error pervades every component of the analysis, from the identification of the alleged manipulative conduct, to claims of unprofitable trading, to the alleged 'confluence of acts' to further the presumed 'scheme to manipulate' that the Commission's Enforcement Staff (OE) alleges but does not prove, to the issues of scienter and intent, to disputes regarding jurisdiction, and to the unfounded 'consciousness of guilt' theory adopted in the ID [initial decision] and opinion No. 549. It also affects the calculation of remedies in this case."

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."

And 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 (see Daily GPI, March 18, 2013).

BP asked FERC to reverse or vacate opinion No. 549, terminate the proceeding, and clarify or reconsider the fine and disgorgement.

In her ID, 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." Cintron found that BP violated Section 4 of the Natural Gas Act and FERC's Anti-Manipulation Rule and that the traders knew what they were doing was wrong.

The manipulative scheme caused financial losses of $1.38-1.93 million and affected more than 35 Bcf of physical and financial natural gas, FERC said.

OE staff "contended that BP committed hundreds of violations during the 49 trading days of the investigative period, with a minimum of 48 violations," according to FERC's July 11 order. "Specifically, enforcement staff pointed to four types of affirmative conduct that occurred, and that during the investigative period BP made 680 fixed-price sales, 101 bid-initiated sales at Houston Ship Channel when a more economical offer existed at Katy, and 129 offer-initiated sales when the team could have made more money at Katy."

Last September, BP appealed Cintron's ID (see Daily GPI, Sept. 15, 2015; Sept. 23, 2014). The ALJ's findings were in line with previous recommendations from the FERC OE, which BP disputed.

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