FERC has recently imposed severe monetary penalties on entities it claims engaged in market manipulation in violation of the Federal Power and Natural Gas Acts. In particular, FERC has focused on entities that it asserts have engaged in gas or power transactions for the purpose of obtaining financial benefits with respect to related transactions.
For example, as widely reported, in March 2012, Constellation Energy Commodities Group, Inc. (“Constellation”) agreed to pay a civil penalty of $135 million and to disgorge $110 million in profits to settle claims that it manipulated electric markets. FERC asserted that Constellation had entered into virtual and Day Ahead physical schedules in in various RTO and ISO markets for the purpose of benefitting its contract for differences (“CFD”) positions in the markets. FERC claims that Constellation’s entered into these transactions “solely with the intent to impact the Day Ahead price . . . to the benefit of the CFD . . . positions.” Although it agreed to pay the hefty penalties, Constellation did not concede that its actions constituted market manipulation.
FERC appears to be investigating a number of other companies for engaging in similar financial activities, including BP America Inc. and affiliates, Deutsche Bank Energy Trading, LLC, and Barclays Bank PLC and traders.
Further, on April 19, 2012, FERC issued a final rule [PDF] that requires RTOs and ISOs to provide FERC with ongoing electronic market data in order to enhance FERC’s ability to detect market manipulation. The Final Rule, which takes effect 60 days after publication in the Federal Register, requires RTOs and ISOs to provide FERC, on a continuous basis, with information related to physical and virtual offers and bids, market awards, marginal costs, interchange pricing, and other market data.
Without a doubt, these activities indicate that FERC has become very concerned about market manipulation associated with financial transactions in gas and electric markets. However, FERC Chairman Wellinghoff has stated that “[c]ompliance, not penalties” are his primary goal. Participants in the gas and electric markets may wish to re-evaluate their compliance plans now to ensure that all trading activities have legitimate business purposes in order to avoid Commission scrutiny and very heavy fines.