United States: FERC Enforcement Staff Argues Claims Against BP Are Not Time-Barred Due To Differences Between NGA And FPA

On January 25, 2018, as amended on January 31, 2018, FERC Office of Enforcement Staff ("OE Staff") answered BP America Inc., BP Corporation North America Inc., BP America Production Company, and BP Energy Company's (collectively, "BP") arguments that FERC must dismiss its order assessing civil penalties and disgorgement against BP for violating FERC's anti-market manipulation rule due to the five-year statute of limitations for civil penalties. Among other things, OE Staff argued that (1) enforcement actions under the Natural Gas Act ("NGA") are distinct from the enforcement process under the Federal Power Act ("FPA"), and thus similar federal district court precedent in the FPA context is inapplicable to BP; and (2) FERC's issuance of disgorgement is more remedial than punitive and thus not subject to the statute of limitations.

On August 5, 2013, FERC issued an order to show cause proposing to penalize BP for violating FERC's anti-market manipulation rule. Specifically, FERC determined that, from September 18, 2008 through November 25, 2008, BP traded physical natural gas at the Houston Ship Channel uneconomically to benefit BP's related financial positions. After issuing an order on May 15, 2014 setting the matter for hearing, FERC issued an order assessing BP a civil penalty of $20,160,000 and requiring BP to disgorge $207,169 of profits on July 11, 2016.

In a December 11, 2017 motion, BP requested that FERC dismiss or grant reconsideration of its order assessing penalties, arguing that two federal court opinions issued in 2017—FERC v. Barclays ("Barclays") and Kokesh v. SEC ("Kokesh")—changed the law regarding the statute of limitations for actions imposing civil penalties and disgorgement, and thus FERC's assessment of civil penalties and disgorgement was time-barred (see December 19, 2017 edition of the WER)). In doing so, BP argued that the court in Barclays held that a FERC order to show cause did not commence a proceeding for purposes of the five-year statute of limitations for civil penalties, and that the U.S. Supreme Court in Kokesh held that disgorgement is considered a penalty, thereby subjecting disgorgement to the statute of limitations. BP concluded that FERC's August 5, 2013 order to show cause did not commence a "proceeding" before the five-year statute of limitations ended on November 25, 2013, and thus FERC must dismiss its order assessing penalties and disgorgement.

In its January 25, 2018 answer, OE Staff distinguished Barclays from the case against BP by noting that, in Barclays, the respondent took advantage of the FPA's bifurcated enforcement process by electing to forego a formal hearing before an Administrative Law Judge and instead proceeding to the federal district court for a de novo review of FERC's penalty assessment order (see January 8, 2018 edition of the WER for details on the enforcement process under the FPA). By contrast, OE Staff argued that the NGA does not provide a de novo review option; rather, there is one proceeding commencing with the order to show cause. OE Staff continued that, under the NGA, FERC determines whether to proceed to a full adversarial administrative hearing after considering the respondents answer to the order to show cause. Thus, OE Staff disputed BP's distinction between the August 5, 2013 order to show cause and the May 15, 2014 order setting the matter for hearing as two separate proceedings and instead argued that there was one administrative proceeding beginning with the order to show cause. As a result, OE Staff concluded that the August 5, 2013 order to show cause initiated a "proceeding" for purposes of the statute of limitations prior to the November 25, 2013 deadline.

In addition, OE Staff rebuffed BP's claims that, based on the ruling in Kokesh, the five-year statute of limitations also applies to FERC's assessment of disgorgement against BP. In particular, OE Staff argued that FERC's issuance of disgorgement was assessed under FERC's remedial authority under the NGA, whereas the U.S. Securities and Exchange Commission's disgorgement in Kokesh was punitive. In support, OE Staff stated FERC has clarified that disgorgement is a remedial action to correct for unjust and unreasonable rates and is imposed to "encourage compliance with the law." Moreover, OE Staff noted that, in BP's case, the disgorgement amount equaled the amount of unjust and unreasonable profit that BP obtained from its manipulative scheme and that FERC required BP to pay this amount to the Low Income Home Energy Assistance Program in Texas, rather than to the U.S. Treasury. In sum, OE Staff asked FERC to deny BP's December 11, 2018 motion.

A copy of OE Staff's answer is available here.

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