FERC's Office of Enforcement (OE) said Thursday it raked in $304 million in civil penalties and almost $141 million in unjust profits that included the largest penalty ever assessed by the agency in settlements during the current fiscal year.
OE's focus during 2013 has been on fraud and market manipulation, which "present a significant risk to the markets overseen by the Commission," said an OE staffer during the Federal Energy Regulatory Commission's regular monthly meeting. She said at least half of the investigations opened by enforcement in the past year involved market manipulation.
Enforcement's other priorities have included "serious violations of the reliability standards, anticompetitive conduct and conduct that threatens the transparency of regulated markets. Enforcement does not intend to change these priorities in fiscal year 2014," staff said in its "2013 Report on Enforcement."
The $304 million penalty figure includes a record penalty of $285 million that the Commission assessed against JP Morgan Ventures Energy Corp.(JPMVEC) to resolve an investigation into the company's bidding practices in California and the Midwest. The company paid the penalty along with disgorged profits of $125 million. The settlement of an investigation that had been ongoing for some time came just days after JPMorgan Chase & Co., parent of JPMVEC, said it would be joining other large marketers in exiting the physical commodities business, disposing of its holdings of commodities assets and its physical trading operations (see Daily GPI,July 29).
In July, enforcement also found Barclays Bank PLC and four of its traders to have violated the Commission's anti-manipulation rule (see Daily GPI,July 17). FERC assessed civil penalties of $435 million against Barclays and $18 million against the traders, and it directed the company to disgorge $34.9 million plus interest in unjust profits. Barclays and the traders have not settled the matter at FERC, but rather have elected to challenge the penalty in federal court.
The biggest defeat for FERC came in March when the U.S. Court of Appeals for the District of Columbia ruled that the Commission had no jurisdiction in the futures market. Finding that the Commodity Futures Trading Commission alone (not FERC) has jurisdiction over gas futures contracts, the court overturned a FERC order imposing a $30 million penalty on a gas trader for allegedly manipulating natural gas futures for failed hedge fund Amaranth Advisors LLC (see Daily GPI,March 18).
In August, FERC ordered BP America Inc. and affiliates to show cause in a long-running case [IN13-15] involving the alleged gaming of the physical and financial markets at the Houston Ship Channel (HSC). The Commission proposed a near-$29 million penalty for transactions taking place from mid-September 2008 through Nov. 30, 2008 (see Daily GPI,Aug. 6).
BP disputed the allegations. BP has asked the Commission to dismiss the proceeding, or in the alternative to set it for a full evidentiary hearing before an administrative law judge to address the contested issues. The BP order was based on an OE investigation alleging that traders on the "Texas team" of BP's Southeast Gas Trading desk traded physical natural gas at HSC in a manner designed to increase the value of the company's futures market position.
During the current fiscal year, enforcement said it has completed 29 financial and operational audit of public utilities and natural gas pipelines on a wide range of topics. The audits resulted in 360 recommendations for corrective action and directed $15.4 million in refunds.