On October 9, 2013, FERC filed a petition (“Petition”) in the United States District Court for the Eastern District of California for an order affirming FERC’s assessment of civil penalties totaling $435 million against Barclays Bank PLC (“Barclays”) and four of its traders for manipulating electricity markets in and around California, along with disgorgement of profits in the amount of $34.9 million. FERC assessed the penalties after determining that Barclays violated FERC’s Anti-Manipulation Rule by engaging in an unlawful scheme to trade physical electricity uneconomically to benefit financial positions. Some industry observers believe that FERC filed the Petition in district court in California, instead of the United States District Court in D.C., in an effort to seek a different venue, given FERC’s recent losses in D.C., including privilege battles with JPMorgan and the prosecution of Brian Hunter for violations of the Federal Power Act.
Barclays is a financial-services provider that operated a desk trading physical and financial electricity products in the western United States. Barclays traded at Mid-Columbia, Palo Verde, South Path 15, and North Path 15, significant trading locations in the west that accommodate both physical and financial electricity trading. Physical products could be priced at a fixed price or at a floating index price, such as the Intercontinental Exchange (“ICE”). Financial positions included financial swaps in which a buyer of a swap would pay a fixed price and receive the floating payment of the ICE index settlement.
In July 2007, FERC’s Office of Enforcement (“OE”) began an investigation of Barclays following anonymous calls to FERC’s Enforcement Hotline. As further detailed in FERC’s July 2013 order assessing civil penalties against Barclays, upon investigation and review OE determined that Barclays would set up a financial position, build a large physical position in the opposite direction of the financial position, and then trade a next-day fixed price product to flatten the physical position and benefit the financial position (see July 19, 2013 edition of the WER). FERC found that Barclays turned a profit by influencing the financial swap index up or down to benefit their financial position. Therefore, FERC determined that Barclays traded with the intent of manipulating the ICE daily-index price to benefit its financial positions.
In the July 2013 order, FERC ordered that Barclays disgorge $34.9 million in profits and directly assessed Barclays a civil penalty of $435 million. In addition, FERC penalized Barclays trader Scott Connelly $15 million and three other Barclays traders $1 million each. After Barclays and its traders failed to pay the civil penalty within 60 days, FERC filed Petition in the United States District Court for the Eastern District of California.
A copy of the petition is available here.