The Commodity Futures Trading Commission (CFTC) filed and simultaneously settled charges against BP America Inc. Thursday for engaging in illegal wash trading in the power market in 2000 via an electronic trading platform. The order directs BP Energy, the marketing arm of BP plc’s Gas, Power and Renewables unit, to cease and desist from further violations, pay a $100,000 civil penalty, and provide future cooperation in investigations of related matters. BP neither admitted nor denied the findings made in the order.
The CFTC order found that on at least six occasions between April and June 2000, an unnamed former trader for BP Energy on its West trading desk executed prearranged trades for electricity contracts at identical prices. On each occasion, according to the order, the BP Energy trader and a counterparty trader agreed to execute one buy or sell on an electronic trading platform and then execute an opposite buy or sell over the telephone at the same volume, price, location and terms.
The order also found that these trades resulted in a financial nullity and caused the transactions on the electronic trading platform to be false, or not bona fide, in violation of the Commodity Exchange Act. The order stated that “BP Energy’s internal control culture and the specific internal control policies and procedures in place in 2000…did not prevent the wash sales… BP Energy represents it subsequently has enhanced and improved its policies and procedures,” the CFTC said.
In August, the commission reached a settlement with Byron G. Biggs, a former power trader from BP Energy Co. who was accused of conducting six illegal wash trades between April and June 2000. Biggs agreed to pay a $30,000 fine, but he did not admit nor deny the findings. Biggs was employed as a trader for BP between 1999 and 2003.
These are the latest actions taken by federal regulators to address widespread market abuse and attempted manipulation. However, it is only the second CFTC settlement with an energy company involving wash trading allegations. Last year, Reliant Energy Services paid the CFTC $18 million to settle wash trading charges. And in May of this year, former Reliant Energy Services power trader Joseph B. Knauth Jr. settled wash trading charges and paid a $25,000 fine.
The wash trading scandal in the energy industry started in spring of 2002 after several companies, notably Reliant Resources, CMS Marketing and Trading, and Dynegy, publicly revealed that they had engaged in wash trading in order to increase their sales volumes or revenues. Most of the transactions occurred in 2000 and 2001.
Following the public announcements, the Federal Energy Regulatory Commission in May 2002 ordered about 140 municipal providers, marketers, traders, utilities, independent power producers and federal power administrations to “admit or deny” in an affidavit that they engaged in “wash” or “round trip” trades in 2000 and 2001.
Reliant Energy told FERC it was involved in trading 139 million MWh over three years in wash trades, while CMS said it had $4.4 billion in revenue from such trades in 2000 and 2001. PG&E National Energy Group (renamed National Energy and Gas Transmission) told FERC that it participated in 12 round-trip trades during 2000-2001 in western states.
In a report to the Securities and Exchange Commission (SEC) in July 2002, Charlotte, NC-based Duke Energy also admitted to 23 paired power and natural gas “wash” transactions that involved 37 Bcf of gas, or 0.73% of Duke Energy’s total gas trades in 2001, and 706 GWh of electricity. Last December, Duke paid FERC a $2.5 million fine, and in a separate settlement agreed to payment of $550,000, with the potential for an additional $1.5 million.
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