On April 5, 2012, FERC Staff issued a Notice of Alleged Violations against Barclays Bank PLC (“Barclays”) and individual traders Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith. FERC staff indicated that in a nonpublic formal investigation, the Office of Enforcement staff made a preliminary determination that Barclays and the individual traders violated FERC’s Prohibition on electric energy market manipulation (18 CFR 1c.2).
In its notice, Staff specifically alleged that Barclays and the individual traders engaged in a scheme during particular months from November 2006 to December 2008 by “trading day-ahead fixed price physical electricity at the locations of Mid-Columbia, Palo Verde, South Path 15 and North Path 15 to benefit the Barclays IntercontinentalExchange (“ICE”) fixed-for-floating financial swap positions in those markets.” FERC staff alleged that Barclays put together physical positions in the “opposite direction of Barclays’ fixed-for-floating financial swap positions” and then “flattened” those physical positions in the next-day fixed-price physical markets in order to move the ICE daily index settlement up or down.
This Notice of Alleged Violations follows an increased focus by FERC on the relationship between the physical and financial energy markets. The Commission is examining energy trading practices in which positions in one product market are used by a party to influence or benefit its own positions in another product market.
In this regard, the Commission recently approved a Stipulation and Consent Agreement with Constellation Energy Commodities Group (“Constellation”) in which the company was alleged to have manipulated the price of physical power through virtual and physically-settled transactions in the New York ISO market (and to a lesser extent the PJM Interconnection and New England ISO) to benefit swap positions that Constellation held (see March 12, 2012 edition of the WER).
A copy of the Notice of Alleged Violations is available here.