FERC on Friday approved a new settlement with BP America over allegations that it manipulated interstate natural gas prices in 2008 after an appeals court found the regulator exceeded its authority in an earlier penalty order (IN13-15).
BP agreed to pay a $10.75 million civil penalty and will not seek the return of an additional $250,295 in disgorgement that it had already paid. Initially, FERC had assessed a civil penalty of $20.16 million, which the firm appealed to the 5th U.S. Circuit Court of Appeals.
The firm already paid that earlier fine, plus interest, under protest, so the deal effectively means FERC will not oppose BP seeking to reclaim $13.6 million through a suit in the U.S. Court of Federal Claims, or any other forum with jurisdiction.
The case involved natural gas prices in the Houston Ship Channel in the days following Hurricane Ike in 2008, when BP allegedly traded next-day, fixed-price natural gas to artificially depress them to benefit positions it held.
The 5th Circuit found in a decision in October that some of the transactions FERC was seeking fines for were intrastate trades, over which the court said it does not have jurisdiction. The new order limits the fines to the 18 transactions the court said were under FERC’s authority to regulate.
FERC affirmed its finding that BP engaged in market manipulation but limited that finding pursuant to the court’s order. The commission had argued that it was able to seek fines on any natural gas transaction, including intrastate gas deals, that affects the prices it regulates under the Natural Gas Act, but the court rejected that claim.
“The commission cannot exercise its jurisdiction merely because a manipulative scheme may affect the prices of interstate natural gas trades,” the court said.
BP stipulated to the facts set forth in the deal and acknowledged that the 5th Circuit upheld FERC’s findings of manipulation when it came to the 18 jurisdictional transactions.
FERC’s Office of Enforcement started investigating BP after Ike during the period of Sept. 18 to Nov. 30, 2008, when it sought to determine whether the firm’s trades were intentionally trying to depress Platts’ Gas Daily index prices at the Houston Ship Channel to benefit bigger, financial spread positions BP held that settled off index prices.
The index positions BP held paid off when Houston Ship Channel natural gas was lower than the Henry Hub prices in Louisiana, which was the case when Ike hit and caused prices to plunge. Then the firm “engaged in a glut of physical sales” at the ship channel to keep the index profits rolling in for weeks after the hurricane hit, the court said.
