The U.S. Court of Appeals for the Fifth Circuit has ordered FERC to recalculate a $20.16 million fine levied against BP plc for allegedly manipulating the Texas natural gas market in 2008.

The Federal Energy Regulatory Commission wrongly attempted to expand its Natural Gas Act jurisdiction to cover intrastate gas trading, the circuit court said. 

BP has fought a July 2016 decision by the Commission after it affirmed the findings of an administrative law judge (ALJ) regarding a 2008 market manipulation case (No. 16-60604).

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FERC fined BP and ordered it to disgorge another $207,169 after finding company affiliates had gamed the natural gas market at the Houston Ship Channel (HSC) in 2008 following Hurricane Ike [IN13-15]. 

FERC ALJ Carmen Cintron concluded that the affiliates gamed the market for two and a half months in “…a classic case of physical for financial benefits.” The “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.” 

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

BP appealed the initial decision in September 2015, and in August 2016 filed a request for FERC to rehear the case. In December 2020, FERC issued a rehearing order, modifying portions of its jurisdictional holdings but otherwise upholding the previous decision and penalty. BP then brought another petition for review, which was consolidated with the previous case. 

In the Fifth Circuit ruling issued last Thursday (Oct. 20), the court said “BP makes a bevy of arguments as to why FERC’s order should be overturned, but all are meritless save one.

“Contrary to FERC’s position, we hold that the Commission has jurisdiction only over transactions in interstate natural gas directly regulated by the Natural Gas Act (NGA). Specifically, we reject FERC’s broader theory that its authority to address market manipulation extends to any natural gas transaction which affects the price of a transaction under the NGA.

“Otherwise, however, we uphold the Commission’s order.”

The circuit court said “because FERC predicated its penalty assessment on its erroneous position that it had jurisdiction over all (and not just some) of BP’s transactions, we must remand for reassessment of the penalty in the light of our jurisdictional holding. Thus, we grant in part and deny in part BP’s petition for review and remand to the agency for reassessment of the penalty.”