Barclays Motion to Dismiss Raises Significant Issues About FERC Jurisdiction

by Bracewell LLP

After an investigation of actions in the western electricity markets by Barclays Bank PLC (“Barclays”), Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith (collectively, the “Traders” and together with Barclays, “Defendants”), the Federal Energy Regulatory Commission (“FERC”) issued an order finding the Defendants in violation of FERC’s anti-manipulation regulations and assessing Barclays a $435 million civil penalty, assessing each Trader an individual civil penalty, and requiring disgorgement of $34.9 million plus interest in unjust profits.1 In accordance with the Defendants’ election of a trial de novo in federal district court, on October 9, 2013 FERC filed a petition in the United States District Court for the Eastern District of California requesting an order affirming its assessment of penalties.

In response to FERC’s petition, on December 16, 2013, the Defendants filed a motion to dismiss the complaint.2  The Defendants moved to dismiss the complaint, as a matter of law, on the grounds that venue is not proper and that FERC has failed to state a claim upon which relief can be granted.

This is the first time a FERC electric market manipulation claim is being adjudicated in a federal district court.3 The Defendants have responded in a quite robust fashion to FERC’s allegations and choice of venue.4  While all aspects of this matter are of interest, the substantive legal arguments regarding FERC’s authority merit particular attention as their resolution  may  significantly affect the scope of FERC’s enforcement authority going forward.  

In support of their motion to dismiss, the Defendants argue that FERC has no jurisdiction over the alleged manipulative scheme. Specifically, they contend: 

  • The Commodity Exchange Act (“CEA”) grants the Commodity Futures Trading Commission (“CFTC”) exclusive jurisdiction and anti-manipulation authority over transactions involving commodity futures contracts.  The Defendants assert that the swap contracts Barclays traded on ICE ECM were futures contracts as a matter of law and therefore within the CFTC’s exclusive jurisdiction.
  • The Federal Power Act (“FPA”) expressly limits FERC’s jurisdiction over the transmission and sale of electric energy to electric energy transmitted in interstate commerce.  Barclays does not own or operate any electrical generation facilities, instead it only operated as an intermediary purchasing and selling equal and offsetting amounts of electricity to market participants therefore avoiding any obligation to physically deliver or receive electricity.  The Defendants assert that FERC has no jurisdiction under the FPA unless physical electricity was actually transmitted or delivered.
  • The anti-manipulation section of the FPA expressly prohibits “any entity” from using a “manipulative or deceptive device or contrivance” in connection with the purchase or sale of wholesale electric energy or transmission services. Individuals are not entities and therefore FERC lacks jurisdiction to brings claims against the individual traders.
  • FERC lacks jurisdiction over transactions consummated in the open market between willing sellers and buyers, without any showing of fraud.  The Defendants note that Supreme Court, as well as Ninth Circuit, precedent holds that “manipulation” is a term of art referring to practices that are intended to mislead investors by artificially affecting market activity.5 In contrast, in this case FERC failed to allege an inherently manipulative, false, or deceptive trades, and instead focused only on legitimate trading activity, done with willing counterparties, in the open market, consistent with Barclays’ normal course of business.


The Defendants have provided quite an array of arguments for the court to sort out. This discussion will focus on the areas where they allege FERC is without authority.

CFTC Exclusive Jurisdiction 
The Defendants appear to argue that if a manipulative scheme includes CFTC jurisdictional contracts, then the holding of the Hunter6 case applies and the CFTC has exclusive jurisdiction.  In Hunter, FERC was found to be without jurisdiction over a manipulative scheme involving futures contracts but affecting FERC jurisdictional natural gas contracts. Thus, the Defendants argue that, like in Hunter, an alleged manipulative scheme involving physical power contracts but also including and benefiting futures and swaps is also within the CFTC’s exclusive jurisdiction and outside of FERC’s.  Assuming the Defendants were to prevail, FERC’s authority would be limited to activities solely within physical markets, while any cross-market (physical/financial) actions would solely be within the CFTC's jurisdiction.  Given the nature of commodities markets, such a holding would significantly constrain the scope of FERC enforcement actions.

Physical Delivery Requirement
The Defendants also appear to argue that unless physical power is transmitted or delivered, FERC has no jurisdiction over the alleged manipulation claim. The power market contains multiple physical contracts that may not result in delivery, including (1) forward power transactions that are “booked out” or subject to other market arrangements; (2) dispatchable power purchase agreements involving power plants that do not result  in the physical delivery of power unless the plant is dispatched; (3) options on the physical sale/delivery of power that will not result in physical delivery of power unless exercised; (4) capacity products and markets that represent the ability to generate power but of themselves do not involve physical deliveries; and (5) virtual markets in FERC regulated RTOs. 

Assuming the Defendants were to prevail, FERC’s authority would be limited to transactions in which power was actually transmitted or delivered.  Such a holding would not only significantly impact the scope of FERC enforcement but would also raise questions regarding the scope of FERC’s jurisdiction under its rate authority.  Effectively, unless and until power flowed over a transmission line or was delivered under a contract, FERC would have no enforcement authority.

Individuals Are Not Entities
According to the Defendants, the plain meaning of the term “entity” does not include natural persons and Congress’ use of the term “entity” elsewhere in the FPA confirms that it intended the term to have its ordinary meaning throughout the statute.  On the other hand, FERC, beginning with its first Policy Statement on Enforcement in 2005 through the Hunter case, has continuously maintained that “individuals are subject to prosecution under criminal provisions of our statutes and to civil remedies.” FERC may have a difficult time equating the statutory term “entity” with a natural person.

Assuming the Defendants were to prevail, FERC would be precluded from bringing a manipulation claim against a natural person. 

Open Market Transactions
The Defendants appear to claim that they could not have violated FERC’s fraud-based anti-manipulation rule because the trades at issue were transacted between competent market participants in an open and transparent market.

Assuming the Defendants were to prevail, for FERC to bring a manipulation claim the transactions at issue would need to involve direct fraud. More indirect “manipulations,” such as those alleged here, would not be properly brought. It appears that the Defendants are arguing that a scheme involving losing money in open market transactions with willing counterparties to benefit other positions in other markets is too attenuated to be actionable manipulation under FERC’s authority.   

What Is At Stake
When the totality of the Defendants’ arguments are considered, one can see that in effect the legal sufficiency of FERC’s enforcement regime for power markets has been placed in question.  If FERC does not have jurisdiction over manipulative schemes that (1) touch on futures and swaps; (2) do not involve the actual physical transmission or delivery of power; and (3) involve “open market” transactions in which there is a willing buyer, FERC will be left with a limited scope of activities to supervise under its manipulation authority.  Its scope will largely be fraudulent transactions in physically transmitted and/or delivered power in which the buyer/seller was defrauded (as long as no futures or swaps are involved).

The Defendants’ arguments are not without merit and we expect the court will carefully consider them. As this is a case of first impression, how these arguments are addressed by the court will be of great significance to those regulated by FERC.

It is important to note that any manipulation claim that is found to be beyond FERC’s jurisdiction for the reasons given by the Defendants could very well be properly brought by the CFTC.  In 2010, Congress required that the FERC and CFTC enter into a memorandum of understanding (MOU) to clarify their jurisdictional boundaries.  On January 2, 2014, such a MOU was agreed upon. However, as the MOU does not address the issues raised in the motion, it appears that the courts, as in the Hunter case, will resolve these issues. 

We will continue to follow this case and update as further developments occur.


1 See David Perlman & Bob Pease, Ferc Assesses Record Civil Penalty But the Story is Just Beginning (July 17, 2013).

2 Notice of Motion and Motion to Dismiss, FERC v. Barclays Bank PLC et al., No. 2:13-cv-02093-TLN-DAD (E.D. Cal.  Dec. 16, 2013).

3 Natural gas claims must be adjudicated before a FERC ALJ.

4 With respect to venue, the Defendants claim the acts in question did not occur in the district where the case was filed, there was no delivery of electricity in the district and that the case, if not dismissed, should be transferred to the Southern District of New York.

5 Notice of Motion and Motion to Dismiss, FERC v. Barclays Bank PLC et al., No. 2:13-cv-02093-TLN-DAD (E.D. Cal.  Dec. 16, 2013)(quoting Santa Fe Industries Inc. v. Green, 430 U.S. 462, 476 (1977)).

6 Hunter v. FERC, 711 F.3d 155 (D.C. Cir. 2013). 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bracewell LLP | Attorney Advertising

Written by:

Bracewell LLP

Bracewell LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.