Barclays Backs Gates Twins in FERC Trading Dispute

A dozen prominent federal administrative law experts have criticized the Federal Energy Regulatory Commission’s procedures in the now four-years-old dispute over whether FERC overstepped its authority in the case of the small Pennsylvania-based energy trader Powhattan Energy Fund. FERC contends that Powhatan trades in 2010 manipulated the PJM wholesale market. The issue is before a federal court.

In the latest development in the long-running battle between FERC and Powhatan, run by twins Rich and Kevin Gates, Barclays Bank has filed a brief critiquing FERC’s handling of its case, which also applies to the Gates brothers’ dispute with FERC. They argue that they did nothing wrong in their high-volume PJM trades and FERC is shortchanging their legal appeals rights. Barclays argues that FERC has trampled on the rules for civil procedures laid out by the Administrative Conference of the U.S. for adjudicating civil penalty judgments in its dispute over a $435 million proposed civil penalty. FERC has ordered tiny Powhatan to pay some $34 million in civil penalties.

In the Nov. 7 Barclays filing with the U.S. District Court for the Eastern District of California, the 12 experts in U.S. administrative law argue (Case 2:13-cv-02093-TLN-DB ) that FERC should have granted a full-scale hearing before an administrative law judge or a federal district court before it could impose the civil fines. According to Barclays’ brief, FERC has argued that there is no need for a full trial-type review of its judgment because the administrative record is complete and supports FERC’s judgment

The Barclays Bank experts slam FERC’s position on review rights as conflicting “with the plain language of the Federal Power Act. Section 31(d)(3)(B) provides that, if a defendant opts for a district court proceeding, the ‘court shall have authority to review de novo the law and the facts involved.’”

FERC’s characterization of its procedures as a fair and full analysis of the facts is faulty, argues the Barclays brief. The brief argues that “the fact remains that the defendants have not yet been offered the sort of evidentiary hearing (either before the Agency or in this Court) that is guaranteed by the Constitution before a significant money penalty can be assessed.”

One of the elements of the Powhatan case is that it arose during the time when Norman Bay, now the FERC chairman, was head of FERC’s enforcement division. Bay is a former federal prosecutor recruited by then chairman Jon Wellinghoff. He was concerned that market manipulation was a problem in the organized wholesale markets and chose Bay to be a tough cop for energy markets.

The Gates brothers from the beginning of the case have argued that the trading moves they made were conventional practices in competitive markets. They marshaled an impressive phalanx of economic experts, including Bill Hogan, the economics guru who was the intellectual father of competitive wholesale markets; and Susan Court, Bay’s predecessor as head of FERC’s enforcement arm. Both said there was no justification for Bay’s case against Powhaten.

FERC slapped Barclays in 2014 with a $435 million proposed civil fine for alleged market manipulation. Barclays is fighting FERC over the fine in federal court.