April 11, 2012 / 7:31 PM / in 7 years

FERC takes aim at Barclays over power market manipulation

* 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
    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.	
    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.
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