On May 20, 2015, the U.S. District Court of the Eastern District of California (“District Court”) upheld FERC’s decision that it had jurisdiction over Barclays Bank PLC and four traders (collectively, “Barclays”) for allegedly manipulating electricity markets in the West. In doing so, the District Court held that FERC maintained jurisdiction, and not the Commodity and Futures Trading Commission (“CFTC”). The District Court also ruled that FERC’s jurisdiction under Federal Power Act (“FPA”) sections 201 and 222 – FERC’s authority to regulate transmission and sale of wholesale electric energy in interstate commerce and FERC’s anti-manipulation rule, respectively – was appropriate. The District Court made several additional findings, including its determination that FERC has the authority to fine individuals, as well as companies, for market manipulation violations.
In 2012, FERC began its actions against Barclays when FERC issued a notice of alleged violations. In 2013, FERC assessed a $435 million civil penalty and disgorgement of $34.9 million against Barclays Bank PLC, as well as $18 million total against the four traders. After Barclays failed to pay the civil penalty within 60 days, FERC filed a Petition to Affirm Civil Penalties with the District Court (see October 11, 2013 edition of the WER). Barclays in turn filed a Motion to Dismiss on several grounds, which included arguments that only the CFTC could maintain jurisdiction to assess civil penalties in the proceeding.
In its Motion to Dismiss, Barclays argued that FERC did not maintain FPA section 201 and 222 jurisdiction over the proceeding because the alleged manipulative behavior did not involve the physical delivery of electric energy by Barclays. Specifically, Barclays argued that “FERC has jurisdiction where a financial trader – without generating or transmitting power, like Barclays – takes steps to purchase, arrange with a utility for transmission and then itself delivers or receives electric energy. Where electric energy is not received or delivered, FERC does not have jurisdiction.”
The District Court, however, held that “it does not appear accurate to characterize Barclays’ role in the relevant transaction as lacking any connection to the physical transfer of energy.” The District Court reached this conclusion because “[t]he markets in which [Barclays] traded were relied on by other market participants to meet physical needs, including utilities and generators.” Therefore, the District Court determined that FERC maintained jurisdiction under FPA sections 201 and 222.
With regard to whether FERC or the CFTC maintained jurisdiction, Barclays argued that only the CFTC had jurisdiction over the proceeding because the main positions in the alleged manipulation involved futures contracts, and futures contracts are the exclusive jurisdiction of the CFTC. Furthermore, Barclays argued that a prior decision involving similar issues in the Brian Hunter case (see March 18, 2013 edition of the WER) – in which the U.S. Court of Appeals for the D.C. Circuit held that the CFTC had exclusive jurisdiction over the manipulation of natural gas futures contracts – affirmed that FERC lacks jurisdiction in the present case.
The District Court disagreed. The District Court stated that while the allegedly manipulative trades in Brian Hunter occurred on the New York Mercantile Exchange, which is regulated by the CFTC, the Barclays trades occurred on the Intercontinental Exchange, which is a FERC-jurisdictional market. As such, the CFTC does not have jurisdiction because the Commodities Exchange Act “makes clear that the CFTC’s jurisdiction is exclusive with regards to accounts, agreements, and transactions involving commodity futures contracts on CFTC-regulated exchanges.”
A copy of the District Court’s opinion is available here.