Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Barclays allegedly manipulated electric energy prices in West Coast markets, (Jun 24, 2015)

By Linda O’Brien, J.D., LL.M.

Global financial services provider Barclays Bank plc, through its traders, engaged in a coordinated anticompetitive scheme to manipulate electric energy prices in California and other western markets between November 2006 and December 2008, according to a complaint filed in the federal district court in New York City (Merced Irrigation District Inc. v. Barclays Bank plc, June 23, 2015).

Barclays Bank and its subsidiaries provide financial services in the United Kingdom, the Americas, Africa, the Middle East, and Asia. Although headquartered in London, Barclays operated a trading office in New York City for trading electricity contracts on the West Coast. Merced Irrigation District is a state authorized irrigation district engaged in the business of generating, distributing, purchasing, and selling electricity in Merced County.

The complaint states that, in the western United States, electricity contracts are traded with reference to specific recognized geographical trading locations and involve either physical or financial transactions. Physical transactions are priced at either an agreed upon fixed price or at a published index that reflects the volume-weighted average price (VWAP) of transactions made by electricity market participants. One of the most commonly used indices is the daily index published by the Intercontinental Exchange (ICE). The ICE is an electronic trading platform used by market participants, including Barclays, to trade electricity-related products. The Dow Jones Corporation also publishes daily index prices for the same trading locations and energy products, which is intertwined with the ICE daily index prices.

According to the complaint, the Federal Energy Regulatory Commission (FERC) undertook an investigation of the trading activity of Barclays in the electricity markets to determine whether Barclays’ trading practices were affecting the ICE daily index settlement prices to benefit its financial positions. FERC issued a report in which the agency determined that Barclays and four of its traders “built and then flattened substantial monthly physical index positions at four of the most liquid trading points in the western United States for the fraudulent purpose of manipulating the index price to benefit Barclays’ financial swap positions.”

The complaint also alleges that Barclays traders’ anticompetitive scheme consisted of taking physical contract positions they had built and offset them with daily contracts in the cash market, generally at a loss, to impact the ICE daily index settlements to benefit Barclays’ related financial positions that settled against those indices. Because of the large size of Barclays’ position in the swap contracts, the manipulations allegedly resulted in substantial net profits. As a result of Barclays’ interference with competition, Merced was injured by having to pay higher and supra-competitive prices for electricity under pre-existing contracts that settled based on the daily index prices that Barclays had manipulated.

In July 2013, FERC ordered Barclays and four of its traders to pay $453 million in civil penalties for manipulating electric energy prices in California and other western markets between November 2006 and December 2008. FERC also ordered Barclays to disgorge $34.9 million, plus interest, in unjust profits.

Merced claimed that Barclays engaged in specific and calculated acts to conceal their manipulative conduct and to avoid detection. The nature, existence, and extent of such unlawful activity allegedly could only be uncovered by access to Barclay’s emails and a detailed review by experts of amounts of non-public data from a variety of sources. The plaintiff did not discover and could not have discovered with reasonable due diligence facts showing that Barclays engaged in its anticompetitive scheme until April 2012 when the conduct was made available to the public. Thus, any applicable statute of limitations was tolled.

Merced asserts claims for unjust enrichment, unfair and deceptive practices, unreasonable restraint of trade, monopolization, and attempted monopolization in violation of Sections 1 and 2 of the Sherman Act and California’s Unfair Competition Law. The action seeks declaratory relief, restitution, treble damages, interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-04878.

Attorneys: Jeffrey A. Klafter (Klafter Olsen & Lesser LLP), Solomon B. Cera (Cera LLP), Daniel J. Sponseller (Law Office of Daniel J. Sponseller), and Eric L. Christensen (Cairncross & Hempelmann) for Merced Irrigation District.

Companies: Barclays Bank plc

News: Antitrust NewYorkNews