Energy Marketer To Pay $1 Million Under Settlement With FERC Concerning Alleged Price Manipulation

FERC approved a Stipulation and Consent Agreement (Agreement) between its Office of Enforcement (Enforcement) and Shell Energy North America (US), L.P. (SENA) (collectively, the Parties) to resolve Enforcement’s investigation under Part 1b of the Commission’s regulations, 18 C.F.R. Part 1b (2020), into whether SENA engaged in a related-positions fraudulent scheme during the May 2016 bidweek, in violation of section 4A of the Natural Gas Act (NGA), 15 U.S.C. § 717c-1, and the Commission’s Anti-Manipulation Rule, 18 C.F.R. § 1c.1.

Under the settlement, SENA agrees to pay a civil penalty of $951,683 to the United States Treasury, to pay disgorgement of $48,317, and to be subject to compliance monitoring

SENA neither admits nor denies the alleged violations.

FERC's order states, "From January through April 2016, one of SENA’s Southwest Desk junior traders (Junior Trader) executed basis and index swap derivative transactions in Junior Trader’s speculative book that settled on May 2016 NGI monthly index prices. The Junior Trader’s speculative book positions were profitable, thus generating positive profit & loss (P&L), when the PG&E Citygate May 2016 NGI price increased and/or the SoCal Border May 2016 NGI price decreased."

FERC's order states, "Prior to the May 2016 bidweek, Junior Trader had been instructed by Junior Trader’s desk supervisor to zero out SENA’s May 2016 exposures in Junior Trader’s speculative book due to significant losses in that book. However, Junior Trader did not do so and instead, during the May 2016 bidweek, Junior Trader engaged in physical fixed-price gas trading in SENA’s shared customer book at the SoCal Border’s KRS and PG&E Citygate trading hubs. Those trades, while generally tracking the direction of the market price movement, had the net effect of moving the published NGI monthly index prices in directions that benefited derivative financial positions in Junior Trader’s speculative book."

FERC's order states, "SENA and, independently, its counterparties, reported their KRS transactions for inclusion in the NGI monthly published indices. SENA was a net-seller at KRS during May 2016 physical bidweek and lowered the VWAP for the NGI monthly index price at the SoCal Border for May 2016 through its transactions. Junior Trader’s speculative book P&L for that month benefited from the lower SoCal Border monthly index."

FERC's order states, "SENA and, independently, its counterparties, reported their PG&E Citygate transactions for inclusion in the NGI monthly published indices. SENA was a net buyer at PG&E Citygate during May 2016 physical bidweek and increased the NGI monthly index price at PG&E Citygate for May 2016 through its transactions. Junior Trader’s speculative book P&L for that month benefited from the higher PG&E Citygate monthly index."

Enforcement alleged that SENA, "engaged in a related-positions fraud: its physical trading at the KRS and PG&E Citygate trading hubs during the May 2016 bidweek was designed to manipulate monthly index prices to benefit derivative financial positions in Junior Trader’s speculative book."

Enforcement alleged that, "Enforcement concluded that oversights in SENA’s compliance program contributed to the violations. Despite instructing Junior Trader to zero out SENA’s May 2016 exposures in Junior Trader’s speculative book due to significant losses, SENA did not appropriately supervise Junior Trader during the May 2016 bidweek, nor did SENA take appropriate compliance action during or after the May 2016 bidweek to address the Junior Trader’s failure to follow their manager’s instructions."

Docket No. IN21-8-000