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BP: FERC Has Failed to Prove Market Manipulation

BP America Inc. and affiliates contend FERC enforcement staff has failed to make a case that they manipulated the physical and financial markets at the Houston Ship Channel (HSC), and have asked the agency to dismiss the proceeding.

In August, the Federal Energy Regulatory Commission (FERC) ordered BP to show cause in a long-running case (IN13-15) involving the alleged gaming of the physical and financial markets at the HSC (see Daily GPIAug. 6). The company responded to the show-cause order on Friday. The Commission proposed a near-$29 million penalty for transactions taking place from mid-September 2008 through Nov. 30, 2008.

If the Commission chooses not to dismiss the proceeding, BP said it seeks a full evidentiary hearing to address the contested issues of material fact.

The order was based on an Office of Enforcement (OE) investigation alleging that traders on the "Texas team" of BP's Southeast Gas Trading desk traded physical natural gas at the Ship Channel in a manner designed to increase the value of the company's futures market position.

"Specifically, staff alleges that the Texas team traders uneconomically used BP's transportation capacity between Katy [TX] and HSC, made repeated early uneconomic sales at HSC, and took steps to increase BP's market concentration at HSC as part of a manipulative scheme. In doing so, staff alleges, the Texas team traders suppressed the HSC Gas Daily Index with the goal of increasing the value of BP's financial position.."

BP disputed FERC's claims. "After almost five years of investigation, the staff report does not identify any direct evidence supporting enforcement staff's market manipulation theory. None exists. Enforcement staff attempts to make its case solely on circumstantial evidence that does not withstand scrutiny," BP argued.

"Enforcement staff's allegations that BP traders built up a supply of 'new gas' after Sept. 18, 2008 to facilitate the imagined manipulative scheme misread the relevant data. There are more plausible alternative explanations for the long position at Katy," BP said.

With respect to October 2008, NERA Economic Consulting in New York finds that most of BP's long Katy gas position came from transactions that occurred before Hurricane Ike and therefore could not have been purchased in connection with any alleged scheme, according to BP. 

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