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FERC Sends 2008 Gas Market Manipulation Charges Against BP to ALJ

FERC on Thursday rejected BP America Inc.'s motion to dismiss allegations that it gamed the physical and financial markets at the Houston Ship Channel (HSC) in 2008, voting instead to send the issue to an administrative law judge (ALJ) for hearing.

The Federal Energy Regulatory Commission in August 2013 ordered BP and affiliates to show cause in the long-running case [IN13-15] and proposed a near-$29 million penalty for transactions taking place from mid-September 2008 through Nov. 30, 2008 (see Daily GPI, Aug. 15, 2013; Aug. 6, 2013). BP had disclosed in a quarterly filing in early 2011 that FERC and the Commodity Futures Trading Commission were investigating "several BP entities regarding trading in the next-day natural gas market at the Houston Ship Channel during October and November 2008" (see Daily GPI, Feb. 2, 2011).

BP has repeatedly disputed the allegations.

"The FERC enforcement staff's allegations are without merit and we look forward to the hearing," BP spokesman Scott Dean told NGI Friday morning. "We stand by what we previously disclosed publicly in February 2011 -- that BP natural gas traders did not engage in any market manipulation in late 2008 as alleged by FERC enforcement staff."

The Office of Enforcement (OE) alleges that BP "made uneconomic sales at Houston Ship Channel and took steps to increase its market share at Houston Ship Channel as part of a manipulative scheme to suppress the Houston Ship Channel Gas Daily index, and that this scheme was motivated by a desire to benefit certain physical and financial positions held by BP whose price was set by the same index," according to the FERC order. "OE Staff further alleges that BP's transport and trading of gas was done with scienter [intent or knowledge of wrongdoing], and was in connection with jurisdictional transactions."

BP devised the scheme "after it discovered that some of its financial positions had benefited when the spread between daily physical gas prices at Houston Ship Channel and Henry Hub grew wider in the aftermath of Hurricane Ike in September 2008," OE alleged.

The complaint by FERC includes affiliates BP America Inc., BP Corp. North America Inc., BP America Production Co. and BP Energy Co.

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