* FERC steps up market manipulation investigations * Constellation settles for record $245 million * More FERC manipulation allegations pending By Scott DiSavino and Eileen O'Grady April 11 (Reuters) - US energy regulators have alleged Barclays PLC and four former electricity traders manipulated the California power markets more than three years ago. In a public notice of "alleged violations" published on its website on April 5, the U.S. Federal Energy Regulatory Commission (FERC) said the UK bank and its four West Coast power traders manipulated the electricity market between November 2006 and December 2008, trading in the physical market in such a way to derive bigger gains on derivative markets. The notice, which is not a formal charge but suggests the advanced enquiry is likely to move forward, comes just a month after the agency won a record $245 million fine from Constellation Energy over similar trading practices in New York. Barclays Capital rejected the allegations and said it has been cooperating fully with the investigation. "We believe that the allegations made by FERC against Barclays and its former staff are without basis... We are reviewing our options with respect to FERC's announcement," Barclays said in a statement. The four traders listed in the FERC notice no longer work for Barclays. The bank closed down its western power trading desk earlier this year for economic reasons unrelated to the FERC investigation, a Barclays spokesman said Wednesday. The notice is one of a dozen or so such market-manipulation investigations the agency has confirmed since January 2011, when it began a controversial policy to pre-announce advanced investigations. Prior to 2011, it successfully concluded only a handful of manipulation cases, two of them related to the $6 billion explosion of hedge fund Amaranth. The notice also suggested a heightened focus on so-called "loss-leader" trading in which a firm may intentionally seek to sell a physical commodity at a loss in order to reap a much larger profit on related derivative positions. The Barclays traders traded day-ahead fixed-price physical electricity at the Mid-Columbia, Palo Verde, South Path 15 and North Path 15 to benefit Barclays' IntercontinentalExchange (ICE) fixed-for-floating financial swap positions in those markets, FERC said. After the Constellation settlement, the FERC commissioners told Reuters the agency was adding staff with more analytical skills and energy market experience to allow the enforcement division to delve deeper into trading data and make it tougher for trading firms to manipulate natural gas and power markets. In the Barclays case, the FERC staff alleged the bank assembled substantial physical positions in the opposite direction of Barclays' fixed-for-floating financial swap positions and that Barclays flattened those physical positions in the next-day fixed-price physical markets to move the ICE daily index settlement up if buying and down if selling. The FERC posting did not say how much money the bank may have made through these activities. NOTICE OF ALLEGED VIOLATIONS FERC's decision in late 2009 to begin publishing its "staff notice of alleged violations" was controversial in itself, as most regulatory investigations remain confidential until charges are brought or a settlement is reached. However, in the agency's decision it said the value of increased transparency offset the potential reputational damage of placing the subject in the public eye before a formal action is reached. Such notices come after a period of initial study concludes that further investigation is merited, and after FERC staff have given the subject an opportunity to respond. "We note that the majority of investigations terminate without further action and without a preliminary finding of violation," it said at the time. "In our experience, when investigations reach the stage of a preliminary findings letter, there is a much greater likelihood that they will culminate in a public settlement or a public order to show cause," it added.