STAFF WHITE PAPER ON 

ANTI-MARKET MANIPULATION ENFORCEMENT EFFORTS 

TEN YEARS AFTER EPACT 2005

Federal Energy Regulatory Commission

November 2016

This White Paper is a product of the staff of the Federal Energy Regulatory Commission. 

Any views expressed herein are those of staff and do not necessarily reflect the views of 

the Commission, its Chairman, or any individual Commissioner.
i

Staff White Paper on Anti-Market Manipulation Enforcement Efforts Ten 

Years After EPAct 2005

I. Introduction..........................................................................................................1

II. Background..........................................................................................................5

III. Indicia of Fraud Under the Anti-Manipulation Rule......................................10

A. Illicit Purpose of Conduct...............................................................................11

B. Uneconomic Conduct .....................................................................................13

C. Conduct Inconsistent with Market Fundamentals..........................................15

IV. Types of Market Manipulation.......................................................................16

A. Cross-Market Manipulation Schemes............................................................18

1. Pre-EPAct 2005 Cross-Market Manipulation Schemes..............................18

2. Post-EPAct 2005 Cross-Market Manipulation Schemes............................19

B. Gaming of Market Rules................................................................................23

1. Pre-EPAct 2005 Gaming Schemes..............................................................23

2. Post-EPAct 2005 Gaming Schemes............................................................25

C. Misrepresentations..........................................................................................28

1. Pre-EPAct 2005 Misrepresentations and Omissions...................................28

2. Post-EPAct 2005 Misrepresentations and Omissions.................................29

V. Mitigating and Aggravating Factors Relevant to Market Manipulation ...........32

A. Commitment to Compliance...........................................................................33

B. Self-Reporting ................................................................................................35

C. Cooperation ....................................................................................................37

VI. Staff Decisions to Close Investigations of Allegations of Market 

Manipulation ............................................................................................................39

VII. Conclusion......................................................................................................41
1

Staff White Paper on 

Anti-Market Manipulation Enforcement Efforts Ten Years After EPAct 2005 

I. Introduction

Market manipulation threatens the integrity of energy markets. It does so by its 

actual consequences—harming consumers, rendering prices and price-setting 

mechanisms inaccurate and unreliable, interfering with market operations, siphoning 

money away from market participants who are playing by the rules, and other ills that 

should have no place in our nation’s energy markets. It also does so by causing entities 

participating in, benefiting from, or affected by energy markets to lose confidence that 

markets are working fairly and producing results consistent with market rules and 

fundamentals. This became starkly and dramatically clear during the Western Energy 

Crisis of 2000–2001, when Enron and other companies engaged in a variety of 

manipulative schemes that wreaked havoc on energy markets that were designed to 

ensure optimal rates for energy market participants and consumers based on economic

principles of supply and demand. The schemes, which have been well documented,1

were sophisticated, wide-ranging, and reflected major structural changes that had taken 

place in energy markets over the past three decades. The existence of these schemes, and 

the inability of government to effectively detect, stop, and penalize them, were—and 

remain—wholly incompatible with well-functioning energy markets that are essential to 

our society. 

Since the 1980s, the Commission has transitioned from a cost-based, rate-setting 

function to oversight of a market regime designed to deliver energy at competitive prices. 

Along with its benefits, this transition has led to markets that are increasingly complex, 

with features such as physical and financial derivative products, new market operators in 

Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) 

administering complex market rules and products, electronic trading tools and platforms, 

and a host of new market participants besides the traditional public utilities. This 

increased complexity, in turn, has resulted in, and will continue to result in, sophisticated 

market participants looking for new ways to profit from market transactions—both 

lawfully but in some cases through manipulative schemes. 

 1 See, e.g., Am. Elec. Power Serv. Corp., 103 FERC ¶ 61,345, at PP 37–60 (2003), 

reh’g denied, 106 FERC ¶ 61,020 (2004) (Gaming Order); San Diego Gas & Elec. Co. v. 

Sellers of Energy & Ancillary Servs., 149 FERC ¶ 61,116 (2014); FERC, Final Report on 

Price Manipulation in Western Markets: Fact-Finding Investigation of Potential 

Manipulation of Electric and Natural Gas Prices, Docket No. PA02-2-000 (Mar. 26, 

2003) (Final Report on Price Manipulation in Western Markets).
2

During the Western Energy Crisis, the Commission’s enforcement tools lagged 

behind these market developments, and the schemes exposed a major weakness in the 

Commission’s ability to fulfill its core mission of ensuring just and reasonable rates and 

protect energy market participants and consumers. Until the Commission enacted the 

Market Behavior Rules applicable to electric markets and code of conduct applicable to 

natural gas markets in the aftermath of the Western Energy Crisis,

2

neither the statutes 

administered by the Commission nor its rules, regulations, or orders contained any 

explicit prohibition or definition of market manipulation. And in any event, the 

Commission lacked adequate civil penalty authority to effectively deter and sanction 

market manipulation,3 and lacked tools to effectively oversee and surveil potentially 

problematic conduct occurring in jurisdictional energy markets. 

The Commission’s weak enforcement tools, combined with the breadth and 

creativity of the manipulative schemes during the Western Energy Crisis, prompted 

Congress to augment the Commission’s existing authorities with a new broad authority to 

prohibit market manipulation, as well as enhanced penalty authority to meaningfully 

enforce the new law, in the Energy Policy Act of 2005 (EPAct 2005).4

 In passing the 

new law, Congress was clear in directing the Commission to take a powerful and resilient 

 2 See Investigation of Terms and Conditions of Public Utility Market-Based Rate 

Authorizations, 105 FERC ¶ 61,218 (2003); Amendments to Blanket Sales Certificate, 

105 FERC ¶ 61,217 (2003). The Commission enacted these rules pursuant to its 

authority to ensure just and reasonable rates. 

3 At the time, the Commission could assess penalties of only $11,000 per day 

under Part 1 and sections 210-214 of Part 2 of the Federal Power Act (FPA) and $5,550 

per day under the Natural Gas Policy Act of 1978 (NGPA). 16 U.S.C. §§ 823b(c), 825o1 (2000); 15 U.S.C. § 3414(b)(6) (2000); 18 C.F.R. § 385.1602 (2016). It lacked civil 

penalty authority for violations of section 205 of the FPA, requiring rates, terms, and 

conditions to be just and reasonable and not unduly discriminatory or preferential. The 

Commission also lacked civil penalty authority entirely under the Natural Gas Act 

(NGA). As former FERC Commissioner (and later Chairman) Joseph Kelliher stated in 

2005: “This lack of civil penalty authority is a severe handicap in the Commission’s 

enforcement of market rules.” Joseph T. Kelliher, Market Manipulation, Market Power, 

and the Authority of the Federal Energy Regulatory Commission, 26 ENERGY L.J. 1, at 

23 (2005). The Commission’s principal remedial tool at the time was its authority to 

issue refunds. See 16 U.S.C. § 824e(b) (2012).

4 Pub. L. No. 109-58, 119 Stat. 594 (2005); 16 U.S.C. § 824v(a) (2012) 

(“Prohibition of Energy Market Manipulation” under FPA); 16 U.S.C. § 825o-1 (2012) 

(penalty authority of $1,000,000 per day per violation under the FPA); 15 U.S.C. § 717c1 (2012) (“Prohibition on Market Manipulation” under NGA); 15 U.S.C. § 717t-1 (2012) 

(penalty authority of $1,000,000 per day per violation under the NGA).
3

stand against market manipulation. For example, at one of the many Enron-related 

congressional hearings, a Senate Committee member told the Commission’s thenChairman, Patrick Wood III: 

I hope that we are able to look back at your tenure, Mr. 

Wood, and say that you dramatically changed it, you had an 

emergency [brake], you had aggressive overseers, you were 

an aggressive regulator, you saw wrongdoing, and that you 

took action immediately. I hope that is the legacy you will 

leave at that agency.5

The Commission promptly implemented the law, adopting its Anti-Manipulation Rule in 

Order No. 670 in January 2006.

6

 This new rule, which reflected the expansive statutory 

language, gave the Commission broad authority to keep up with the evolving nature of 

complex energy markets and schemes occurring in those markets.7

Staff now has more than ten years of experience investigating and pursuing 

enforcement actions under the Anti-Manipulation Rule. During this time, staff has 

investigated more than 100 manipulation-related matters and continues to examine 

potential manipulation in numerous pending investigations. It has settled twenty-four

 5 Examining Enron: Developments Regarding Electricity Price Manipulation in 

California: Hearing Before the Subcomm. on Consumer Affairs, Foreign Commerce and 

Tourism of the S. Comm. on Commerce, Science, and Transportation, 107th Cong. 135 

(2002) (Examining Enron) (Statement of Sen. Byron Dorgan, Chairman, Subcommittee 

on Consumer Affairs, Foreign Commerce and Tourism); see also id. at 144 (statement of 

Sen. Byron Dorgan to Patrick Wood III, Chairman, Federal Energy Regulatory 

Commission) (“[B]e a tiger.”); California Energy Markets: Refunds and Reform: 

Hearing Before the Subcomm. on Energy Policy, Natural Resources and Regulatory 

Affairs of the H. Comm. on Gov’t Reform, 108th Cong. 38 (2003) (Statement of Rep. 

Doug Ose, Chairman, Subcommittee on Energy Policy, Natural Resources and 

Government Affairs) (directing the Commission to send a “clear and unequivocal 

message about this kind of behavior not being tolerated”). 

6 Prohibition of Energy Market Manipulation, Order No. 670, FERC Stats. & 

Regs. ¶ 31,202, reh’g denied, 114 FERC ¶ 61,300 (2006) (Order No. 670); see also 18 

C.F.R. Part 1c (2016).

7 In the aftermath of the Western Energy Crisis, the Commission also dedicated 

more resources and staff to detect and sanction market manipulation. For example, in 

2002, it strengthened its oversight function by creating the Office of Market Oversight 

and Investigation, the predecessor to the current Office of Enforcement. See Examining 

Enron at 107. Also, in 2012, it created the Division of Analytics and Surveillance within 

the Office of Enforcement to enhance its surveillance capabilities and provide analysis 

and other assistance with market manipulation-related investigations.
4

manipulation-related investigations, tried two in administrative proceedings, and 

currently has six pending in United States district courts on petitions to affirm 

Commission orders assessing civil penalties.8

 In addition, staff has closed many of its 

market manipulation investigations without further action. Along the way, the 

Commission and courts have developed a body of law that, while still in its early stages 

and continuing to evolve, identifies and provides notice on specific types of conduct that 

can constitute market manipulation in the energy markets and factors that are indicative 

of such conduct. In addition, the Commission has identified relevant factors that can 

mitigate or aggravate the culpability and sanctions for such conduct. Equally important, 

staff has gained experience determining which factors lead us to close market 

manipulation matters without action.

Consistent with our efforts during the past ten years to conduct our enforcement 

program in a transparent and fair manner, staff issues this White Paper to provide insight 

on these lessons learned. Specifically, this White Paper provides information on: (1) 

some of the various factors that have been found to be indicative of fraudulent conduct 

under the Anti-Manipulation Rule; (2) some of the specific types of conduct and 

behaviors that have been found to constitute market manipulation; (3) mitigating and

aggravating factors that have lessened or heightened an entity’s culpability and sanctions 

for such conduct; and (4) the types of cases that staff has closed without action and the 

various factors that led to such decisions.9

 This White Paper is being issued 

simultaneously with a White Paper on Effective Energy Trading Compliance Practices.10

 8 Appendix A provides a complete list of these Commission-approved settlements, 

administrative proceedings, and pending district court petitions. In addition to the 

investigations listed, staff has undertaken far more inquiries to determine whether to open 

a market manipulation investigation. 

9 While this White Paper provides some examples and indicia of manipulative 

conduct, they are not meant to be exhaustive lists and avoidance of the conduct described 

here will not necessarily shield an entity from, or provide a defense to, an enforcement 

action. Staff and the Commission will consider all the facts and circumstances of a case 

in determining whether a violation occurred. In addition, while staff aims to provide 

guidance in numerous forms, such as its Annual Reports on Enforcement, presentations at 

industry conferences, and this White Paper, the ultimate and best guidance comes directly 

from Commission orders, such as orders approving settlement agreements, Orders to 

Show Cause, Orders Assessing Civil Penalties, and relevant court decisions.

10 See Office of Enforcement White Paper on Effective Energy Trading 

Compliance Practices (Nov. 17, 2016) (Compliance Practices White Paper). The 

Compliance Practices White Paper is available on the Commission’s website.
5

II. Background

Under the FPA and NGA, the Commission’s core responsibility has been to ensure 

just and reasonable rates for transmission or sale of electric energy and transportation or 

sale of natural gas at wholesale in interstate commerce.11 That core responsibility has 

been unaltered by subsequent regulatory changes that set rates for jurisdictional sales 

through market mechanisms rather than through cost-of-service ratemaking.12 

To address manipulative practices employed during the Western Energy Crisis, the 

Commission created a set of Market Behavior Rules for electric sellers with market-based 

rate authority, as well as a new code of conduct for natural gas sellers with blanket 

certificates.13 These new rules included blanket prohibitions on market manipulation in 

the electric and natural gas markets.14 These rules provided notice to sellers of conduct 

that would be prohibited in all jurisdictional markets, and provided the Commission with 

clear authority to take action against sellers who engaged in such manipulative conduct.15 

 11 16 U.S.C. §§ 824, 824d (2012); 15 U.S.C. § 717c (2012).

12 See Calif. ex rel. Lockyer v. FERC, 383 F.3d 1006, 1014-1016 (9th Cir. 2004) 

(affirming the Commission’s authority to rely on market mechanisms to set just and 

reasonable rates, but only coupled with “implied enforcement mechanisms” sufficient to 

address the sorts of manipulative trading strategies employed during the Western Energy 

Crisis that would have pushed rates outside the zone of reasonableness); Investigation of 

Terms and Conditions of Public Utility Market-Based Rate Authorizations, 97 FERC ¶ 

61,220, 61,976 (2001) (“We have a responsibility under the FPA to monitor wholesale 

markets to ensure that jurisdictional rates in the markets remain within a zone of 

reasonableness. Our responsibility is to ensure that sellers not charge unjust and 

unreasonable wholesale rates, and that the market structures and market rules governing 

public utility sellers nationwide, and affecting the wholesale rates of such public utility 

sellers, do not result in, or have the potential to result in, wholesale rates that are unjust, 

unreasonable, unduly discriminatory, or preferential.”).

13 Investigation of Terms and Conditions of Public Utility Market-Based Rate 

Authorizations, 105 FERC ¶ 61,218; Amendments to Blanket Sales Certificate, 105 FERC 

¶ 61,217.

14 Investigation of Terms and Conditions of Public Utility Market-Based Rate 

Authorizations, 105 FERC ¶ 61,218 at P 35 (adopting Market Behavior Rule 2, which 

prohibited “Actions or transactions that are without a legitimate business purpose and that 

are intended to or foreseeably could manipulate market prices, market conditions, or 

market rules for electric energy or electricity products”); Amendments to Blanket Sales 

Certificate, 105 FERC ¶ 61,217 at P 27 (adopting same prohibition in natural gas 

markets).

15 When the Commission took action against sellers who had engaged in 

manipulative “gaming” practices in California’s markets during the Western Energy 
6

However, the Commission’s authority to take meaningful enforcement action against 

entities who engaged in manipulation was still somewhat limited: the prohibition was 

applicable only to electric sellers with market-based rate authority and natural gas sellers 

with blanket certificates, and while the Commission could revoke such authorities and 

certificates, and had the power to direct disgorgement of unjust profits, it lacked authority 

to impose significant civil penalties under the FPA and lacked civil penalty authority 

altogether under the NGA.16

Congress addressed these limitations in EPAct 2005. That legislation provided for 

significant civil penalties for violations of all sections of Part II of the FPA and the NGA, 

and augmented the Commission’s existing anti-manipulation authority by expressly

prohibiting manipulative acts in connection with jurisdictional transactions by “any 

entity,” not merely sellers with market-based rate authority and blanket certificates.17

Specifically, EPAct 2005 created new FPA section 222 and NGA section 4A, which 

broadly prohibited the use or employment of “any manipulative or deceptive device or 

contrivance” in connection with jurisdictional transactions in the electric and natural gas 

markets.18 It also created new FPA section 316A and NGA section 22, which provided 

for maximum civil penalties of $1 million per day, per violation, for any violation of Part 

II of the FPA as well as any section of the NGA or any rule or order thereunder.

 

Crisis, it did so by enforcing certain provisions of the California Independent System 

Operator (CAISO) and California Power Exchange (PX) tariffs. See Gaming Order, 103 

FERC ¶ 61,345; San Diego Gas & Elec. Co. v. Sellers of Energy & Ancillary Servs., 149 

FERC ¶ 61,116. Those provisions were not uniformly applicable to all jurisdictional 

transactions, however. Moreover, including the prohibition of manipulation directly in 

sellers’ tariffs eliminated any questions about the relative roles of the Commission and 

any ISO or RTO in enforcing the terms of the applicable tariff. See generally Am. Elec. 

Power Serv. Corp., 106 FERC ¶ 61,020 (rejecting, inter alia, contentions that the 

prohibition of manipulative gaming was impermissibly vague and that the Commission 

lacked authority to enforce tariff provisions that the ISO had not itself enforced).

16 See supra note 3. 

17 16 U.S.C. §§ 824v, 825o-1 (2012); 15 U.S.C. §§ 717c-1, 717t-1 (2012).

18 EPAct 2005, Pub. L. No. 109-58, §§ 315, 1283, 119 Stat. 594, 691, 979–80 

(2005) (codified as amended at 15 U.S.C. § 717c-1 and 16 U.S.C. § 824v (2012)). 

Congress modeled this language after the anti-fraud provision in the Securities Exchange 

Act of 1934, which prohibits “any manipulative or deceptive device or contrivance” in 

the securities markets. Order No. 670, FERC Stats. & Regs. ¶ 31,202 at P 6; see 15 

U.S.C. § 78j(b) (2012). In some instances, the Commission has applied securities cases 

as precedent, but there are also instances in which the Commission has held that 

application of securities law is not appropriate in the context of the Commission’s 

mandate to ensure just and reasonable rates in energy markets. See infra note 22.
7

Through notice-and-comment rulemaking, the Commission promptly implemented 

its expanded authority.19 In Order No. 670, the Commission defined market 

manipulation broadly:

(a) It shall be unlawful for any entity, directly or indirectly, in 

connection with the purchase or sale of natural gas [or electric energy] 

or the purchase or sale of transportation [or transmission] services 

subject to the jurisdiction of the Commission,

(1) To use or employ any device, scheme, or artifice to defraud,

(2) To make any untrue statement of a material fact or to omit to state 

a material fact necessary in order to make the statements made, in the 

light of the circumstances under which they were made, not 

misleading, or

(3) To engage in any act, practice, or course of business that operates 

or would operate as a fraud or deceit upon any entity.20

The Commission outlined the elements of the Anti-Manipulation Rule in Order No. 670, 

explaining that it prohibits an entity from: (1) using a fraudulent device, scheme, or 

artifice, making a material misrepresentation or omission, or engaging in any act, 

practice, or course of business that operates or would operate as a fraud or deceit upon 

any entity; (2) with the requisite scienter; (3) in connection with the purchase or sale of 

natural gas or electric energy (or the transportation or transmission of such) subject to the 

jurisdiction of the Commission.21

After adoption of the Anti-Manipulation Rule, the Commission started interpreting 

the new law, applying it to different factual situations, and rendering decisions on the 

meaning of its various elements. In addition, a few federal courts have issued opinions 

on the new law. As a result, a law of energy market manipulation has begun to emerge. 

As will be discussed throughout this White Paper, this developing law is generally 

 19 See generally Order No. 670, FERC Stats. & Regs. ¶ 31,202.

20 18 C.F.R. Part 1c (2016).

21 Order No. 670, FERC Stats. & Regs. ¶ 31,202 at P 49. The Commission also 

made clear that there would be “no gap” in its prohibition of manipulation between 

Market Behavior Rule 2 and the Anti-Manipulation Rule, noting that the manipulative 

practices prohibited by Market Behavior Rule 2 “are manipulative or deceptive practices 

or contrivances, and are therefore prohibited activities under this Final Rule, subject to 

punitive and remedial action.” Id. PP 58-59. The Commission subsequently revoked 

Market Behavior Rule 2 “to simplify the Commission’s rules and provide greater clarity 

and regulatory certainty to the industry” by avoiding duplicative and overlapping 

requirements, but in so doing noted that its prohibitions lived on in the Anti-Manipulation 

Rule. Investigation of Terms & Conditions of Public Utility Market-Based Rate 

Authorizations, 114 FERC ¶ 61,165, at PP 11-12 (2006). 
8

consistent with decades of anti-manipulation precedent in the securities and commodities 

context, with some differences to reflect unique characteristics of the energy markets and 

the Commission’s obligation to ensure just and reasonable rates in such markets.22

This section highlights some of the key elements of this developing law on energy 

market manipulation:

• Broad Definition of Fraud: Fraud is a question of fact and is defined generally 

“to include any action, transaction, or conspiracy for the purpose of impairing, 

obstructing or defeating a well-functioning market.”23

• Fraud Includes Open-Market Transactions Executed With Manipulative 

Intent: The Commission has held, and a United States district court has 

confirmed, that fraud under the Anti-Manipulation Rule includes open-market 

transactions, i.e., transactions occurring on public trading platforms or exchanges, 

executed with manipulative intent.24

• Fraud Is Not Limited to Tariff and Other Explicit Rule Violations: Fraud is 

determined by all the circumstances of a case, “not by a mechanical rule limiting 

manipulation to tariff violations.”25

 22 See, e.g., Order No. 670, FERC Stats. & Regs. ¶ 31,202 at P 42 (explaining that 

it would apply securities law on a case-by-case basis as “appropriate under the specific 

facts, circumstances and situations in the energy industry”); Barclays Bank PLC, 144 

FERC ¶ 61,041, at P 58 (2013) (Barclays) (application of securities law cases is not 

always appropriate because “[t]he energy industry is not in all ways equivalent to the 

securities industry,” and the Commission’s “statutory mandate, unlike that of the SEC, is 

to ensure that rates for jurisdictional transactions are just and reasonable”).

23 Order No. 670, FERC Stats. & Regs. ¶ 31,202 at P 50. The Commission has 

explained that “the term ‘well-functioning market’ is not limited just to consideration of 

price or economically efficient outcomes in a market,” but also broadly includes “the 

rates, terms, and conditions of service in a market.” City Power Mktg., LLC, 152 FERC 

¶ 61,012, at P 59 (2015) (City Power) (internal citations omitted).

24 Houlian Chen, 151 FERC ¶ 61,179, at P 136 (2015) (Chen) (rejecting argument 

that transactions cannot be fraudulent if executed in “an open, transparent manner”); 

FERC v. Barclays Bank PLC, 105 F. Supp. 3d 1121, 1147 (E.D. Cal. 2015) (rejecting the 

argument that “trades which involve willing counterparties made on the open market 

cannot be actionable” (citing securities law cases)). Also, reliance is not a required 

element of the Anti-Manipulation Rule. See Barclays, 144 FERC ¶ 61,041 at P 37 n.130; 

Competitive Energy Servs., LLC, 144 FERC ¶ 61,163, at P 74 (2013) (CES).

25 In re Make-Whole Payments & Related Bidding Strategies, 144 FERC ¶ 61,068, 

at P 83 (2013) (JP Morgan). Manipulation and tariff violations are conceptually distinct. 

Congress provided the Commission separate anti-manipulation authority in EPAct 2005 
9

• Artificial Price is Not Required: A finding of fraud under the Anti-Manipulation 

Rule does not require proof that the conduct resulted in an artificial price.

26

• Harm is Not Required: The Anti-Manipulation Rule contemplates cases based 

on attempted fraud.27 

• Proof of Scienter from Circumstantial Evidence: Proof of scienter under the 

Anti-Manipulation Rule does not require speaking documents or other types of 

direct evidence.28 Instead, it can be “established by legitimate inferences from 

circumstantial evidence. These inferences are based on the common knowledge of 

the motives and intentions of men in like circumstances.”29 Also, a manipulative 

purpose satisfies the scienter element even if combined with a legitimate 

purpose.30

• Jurisdiction over Conduct Affecting FERC-Jurisdictional Transactions: 

Under its “in connection with” jurisdiction, the Commission can exercise 

 

and the Commission fashioned its Anti-Manipulation Rule precisely because of the need 

to prohibit conduct that goes beyond the terms of a tariff. See id.

26 Barclays, 144 FERC ¶ 61,041 at P 59 (“Neither artificial price nor market 

power, however, is a necessary element required to find a violation of the FPA or the 

Anti-Manipulation Rule.”).

27 Maxim Power Corp., 151 FERC ¶ 61,094, at n.5 (2015) (Maxim Power) 

(holding that “manipulation, fraud, and misrepresentations to market monitors are 

unacceptable in Commission-regulated markets even where such behavior is caught 

before it causes harm to consumers”); see id. (noting that Maxim Power’s conduct was 

caught before it could cause harm and holding that “[c]ourts have long recognized that 

attempted manipulation and fraud are worthy of punishment in the same manner as 

successful schemes”); FERC v. City Power Mktg., LLC, No. 15-1428, 2016 WL 4250233, 

at *13 (D.D.C. Aug. 10, 2016) (holding that the Anti-Manipulation Rule “covers even 

unsuccessful schemes that harm no one”); 18 C.F.R. §§ 1c.1(a)(3), 1c.2(a)(3) (2016) 

(making it unlawful “[t]o engage in any act, practice, or course of business that operates 

or would operate as a fraud or deceit upon any entity” (emphasis added)).

28 Barclays, 144 FERC ¶ 61,041 at P 7; ETRACOM & Michael Rosenberg, 155 

FERC ¶ 61,284, at P 129 (2016) (ETRACOM). 

29 Barclays, 144 FERC ¶ 61,041 at P 75 (citations and quotations omitted); accord

Maxim Power, 151 FERC ¶ 61,094 at P 88 (holding that scienter “is often proven through 

circumstantial evidence”).

30 Barclays, 144 FERC ¶ 61,041 at P 70.
10

jurisdiction over conduct that affects a jurisdictional transaction.31 While the D.C. 

Circuit Court of Appeals has held that the Commodity Futures Trading 

Commission (CFTC) maintains exclusive jurisdiction over manipulative conduct 

occurring solely on futures exchanges,32 the Commission has jurisdiction over 

manipulative transactions in FERC-jurisdictional markets or directly affecting 

FERC-jurisdictional prices even if those transactions benefited positions traded in 

a CFTC-jurisdictional market.33 

• Individuals are “Entities” Subject to the Anti-Manipulation Rule: The 

Commission and multiple United States district courts have decided that 

individuals count as “entities” subject to the Anti-Manipulation Rule.34

III. Indicia of Fraud Under the Anti-Manipulation Rule

When adopting the Anti-Manipulation Rule, the Commission explained that 

“[f]raud is a question of fact that is to be determined by all the circumstances of a case.”35 

In numerous orders since then, the Commission has provided guidance to industry by 

identifying and describing some of the key indicia it has determined to be relevant to this 

determination.36 These orders are consistent with long-standing precedent in similar 

 31 Order No. 670, FERC Stats. & Regs. ¶ 31,202 at P 22 (explaining that “in 

committing fraud, the entity must have intended to affect, or have acted recklessly to 

affect, a jurisdictional transaction”).

32 Hunter v. FERC, 711 F.3d 155, 157 (D.C. Cir. 2013). 

33 See, e.g., Barclays Bank PLC, 105 F. Supp. 3d at 1142 (“Defendants have not 

shown why swaps, as the benefiting position, are relevant to jurisdiction, as opposed to 

the trades involving physical products, from which the swaps were priced.”); FERC v.

Elec. Power Supply Ass’n, 136 S. Ct. 760, 774 (2016) (conduct that “directly affects” 

wholesale electric prices is within FERC jurisdiction). 

34 See, e.g., Order No. 670, FERC Stats. & Regs. ¶ 31,202 at P 18; Richard 

Silkman, 144 FERC ¶ 61,164, at P 93 (2013) (Silkman); Chen, 151 FERC ¶ 61,179 at P 

187; Kourouma v. FERC, 723 F.3d 274 (D.C. Cir. 2012) (upholding Commission’s 

assessment of civil penalty); FERC v. Silkman, Nos. 13-13054-DPW, 13-13056-DPW, 

2016 WL 1430009, at *20 (D. Mass. Apr. 11, 2016); Barclays Bank PLC, 105 F. Supp. 

3d at 1146; City Power Mktg., No. 15-1428, 2016 WL 4250233, at *15; FERC v. Maxim 

Power Corp., No. 15-30113, 2016 WL 4126378, at *14 (D. Mass. July 21, 2016). 

35 Order No. 670, FERC Stats. & Regs. ¶ 31,202 at P 50.

36 See, e.g., Barclays, 144 FERC ¶ 61,041 at P 32; Constellation Energy 

Commodities Grp., Inc., 138 FERC ¶ 61,168, at PP 7–10 (2012) (Constellation); CES, 

144 FERC ¶ 61,163 at PP 43–54; Deutsche Bank Energy Trading, LLC, 142 FERC ¶ 

61,056, at PP 19–20 (2013) (Deutsche Bank); Chen, 151 FERC ¶ 61,179 at PP 69–93; 
11

contexts, as courts have considered many of the same indicia for years in interpreting 

anti-fraud statutes in securities and commodities law. By describing these indicia, the 

Commission has provided valuable guidance to market participants on the types of 

actions and behaviors that can lead to a finding of energy market manipulation. Such 

guidance allows market participants to better monitor, detect, cease, and report 

potentially manipulative conduct. Although it is not possible to provide an exhaustive list 

of indicia of fraudulent conduct for the reasons described below (in section IV), this 

section highlights the Commission’s discussion of three of these indicia.

A. Illicit Purpose of Conduct

The Commission considers the purpose of an entity’s actions as a critical factor in 

determining whether conduct is fraudulent under the Anti-Manipulation Rule. The 

Commission has focused on this factor since issuing Order No. 670, explaining that fraud 

includes “any action, transaction, or conspiracy for the purpose of impairing, obstructing, 

or defeating a well-functioning market.”37 In subsequent orders, the Commission built on 

this language, making clear that the purpose underlying market behavior can determine 

whether that behavior is fraudulent or lawful.38 

For example, in Brian Hunter, the Commission found that sales of natural gas 

futures contracts on NYMEX were fraudulent because they were executed “for the 

 

City Power, 152 FERC ¶ 61,012 at PP 92–114; Coaltrain Energy, L.P., 155 FERC ¶ 

61,204, at PP 122-144, 149-168, 174-193 (2016) (Coaltrain); ETRACOM, 155 FERC ¶ 

61,284 at PP 97-131. These indicia are not legal elements or claims, but, rather, general 

factors the Commission has considered in determining whether conduct meets the fraud 

element.

37 Order No. 670, FERC Stats. & Regs. ¶ 31,202 at P 50 (emphasis added).

38 See, e.g., Coaltrain, 155 FERC ¶ 61,204 at P 5 (“Respondents’ OCL Trades 

were manipulative because they were executed for the sole or primary purpose of 

targeting and garnering MLSA payments.”); City Power, 152 FERC ¶ 61,012 at P 103; 

Chen, 151 FERC ¶ 61,179 at P 80. This focus on purpose parallels years of precedent 

under anti-fraud provisions in the securities and commodities contexts. See, e.g., Koch v. 

SEC, 793 F.3d 147, 153–154 (D.C. Cir. 2015) (“And intent—not success—is all that 

must accompany manipulative conduct to prove a violation of the Exchange Act and its 

implementing regulations.”); Markowski v. SEC, 274 F.3d 525, 529 (D.C. Cir. 2001) 

(holding that conduct can be manipulative “solely because of the actor’s purpose”); City 

Power Mktg., No. 15-1428, 2016 WL 4250233, at *12 (citing Koch and Markowski in 

recognizing that “securities traders are not free to trade for whatever purpose they wish”); 

In re Amaranth Natural Gas Commodities Litig., 587 F. Supp. 2d 513, 534 (S.D.N.Y. 

2008) (holding that “a legitimate transaction combined with an improper motive is 

commodities manipulation”). 
12

purposes of controlling prices.”39 In reaching this conclusion, the Commission explained 

that the “difference between legitimate open-market transactions and illegal open-market 

transactions may be nothing more than a trader’s manipulative purpose for executing 

such transactions.”40 Similarly, in Barclays, the Commission found the bank’s 

uneconomic power trades to be fraudulent because the company entered into the trades 

for the “purpose of moving the Index price at a particular point so that Barclays’ financial 

swap positions at that same trading point would benefit.”41 

Most recently, in three orders addressing Up-To Congestion (UTC) trades in PJM 

Interconnection, LLC (PJM), the Commission made its most pronounced statement on 

the importance of purpose in its fraud determinations. The Commission explained the 

purpose of UTC trading in PJM—to arbitrage day-ahead and real-time congestion 

prices—and then examined the purpose behind the respondents’ UTC trades, finding that 

their trades “were neither consistent with how the UTC product historically traded nor 

aligned with the arbitrage purpose of those trades.”42 The Commission elaborated,

Speculative UTC trades placed to arbitrage price spreads will 

have as their sole or primary price signal the price risk of the 

underlying UTC spread and will be placed with the purpose 

of profiting based on the direction of the spread. Yet, despite 

the market purpose behind UTCs and despite [Respondents’] 

articulated understanding of that purpose, Respondents 

engaged in round-trip UTC trades that had no relationship to 

this purpose.43

 39 Brian Hunter, 135 FERC ¶ 61,054, at P 49 (2011), order denying reh’g, 137 

FERC ¶ 61,146 (2011), rev’d on other grounds sub nom, Hunter v. FERC, 711 F.3d 155 

(D.C. Cir. 2013).

40 Id. P 50.

41 Barclays, 144 FERC ¶ 61,041 at P 2. 

42 Coaltrain, 155 FERC ¶ 61,204 at PP 166, 191; City Power, 152 FERC ¶ 61,012 

at P 103; Chen, 151 FERC ¶ 61,179 at P 80. See also In re PJM Up-To Congestion 

Transactions., 142 FERC ¶ 61,088 (2013) (approving settlement with Oceanside Power, 

LLC and trader Robert Scavo related to UTC trading).

43 Chen, 151 FERC ¶ 61,179 at P 80. “‘Round-trip’ UTC trades canceled each 

other out by placing the first leg of the trade from locations A to B, and simultaneously 

placing a second leg of equal volume from locations B to A.” Id. P 3. See also

Coaltrain, 155 FERC ¶ 61,204 at P 103; City Power, 152 FERC ¶ 61,012 at P 103. The 

U.S. District Court for the District of Columbia in City Power Marketing also highlighted 

the importance of purpose, noting that “the same conduct may or may not be deceptive 
13

Given the Commission’s guidance that purpose is a critical factor in determining 

fraudulent behavior, entities should consider requiring employees to document and 

articulate the purpose behind any conduct that is likely to raise red flags so that 

compliance departments can vet the conduct and ensure that employees have a legitimate 

reason for it.44 For example, in Constellation, a case that involved trading virtual 

products for the purpose of influencing day-ahead prices, the company agreed in a 

Commission-approved settlement to institute a new procedure “to document the purpose 

of virtual transactions.”45 

B. Uneconomic Conduct

The Commission considers the uneconomic nature of conduct as another important 

factor in its determinations of what constitutes fraud. Uneconomic conduct occurs when 

an entity knowingly engages in behavior that loses money on a stand-alone basis—or is 

indifferent to whether it loses money—but engages in the behavior anyway to serve an 

ulterior purpose (e.g., to move prices in a way that benefits related financial positions). 

As with other indicia, the Commission explains that “standing alone [profitability] is 

neither necessary nor dispositive,” but “is an indicium to be considered among the overall 

facts that the Commission examines when considering a potential violation of its AntiManipulation Rule.”46 The Commission has considered the uneconomic nature of 

conduct as one of the bases for finding fraud in several orders assessing penalties for 

different types of manipulative conduct.47 The Commission has also approved multiple 

 

depending on an actor’s purpose.” City Power Mktg., No. 15-1428, 2016 WL 4250233, 

at *12. 

44 See Compliance Practices White Paper at section IV.B.1.

45 Constellation, 138 FERC ¶ 61,168 at P 23. 

46 Barclays, 144 FERC ¶ 61,041 at P 43. See also Deutsche Bank, 142 FERC ¶ 

61,056 at P 20 (“Deutsche Bank’s physical transactions were not profitable. Even if these 

physical transactions had been profitable, however, profitability is not determinative on 

the question of manipulation and does not inoculate trading from any potential 

manipulation claim (although profitability may be relevant in assessing the conduct).”).

47 See, e.g., BP America, Inc., 156 FERC ¶ 61,031, at PP 22, 131-34 (2016) (BP)

(holding that uneconomic trading is one indicia of manipulative activity and finding 

relevant to the manipulative scheme that Respondents lost money on certain physical 

trading and transportation until they became aware that compliance would be monitoring 

such trading, after which their trading became overall profitable); Coaltrain, 155 FERC ¶ 

61,204 at PP 135, 163, 188 (holding that Respondents’ trades were routinely unprofitable 

and quantifying the losses of the trades); City Power, 152 FERC ¶ 61,012 at P 101 

(holding in a matter involving gaming of market rules that respondents’ trading “was 

uneconomic, which supports the conclusion that a course of business and a scheme to 

defraud existed”); CES, 144 FERC ¶ 61,163 at P 43 and Silkman, 144 FERC ¶ 61,164 at 
14

settlements for violations of the Anti-Manipulation Rule where entities engaged in 

uneconomic behavior.48 These orders’ consideration of the uneconomic nature of 

conduct comports with anti-fraud precedent in other contexts.49 

Because uneconomic trading is one sign of fraudulent conduct, compliance 

departments at trading companies should consider monitoring and reviewing their 

traders’ profit and loss calculations, particularly for instances in which a trader is 

accepting persistent losses in a price-setting product while simultaneously having 

exposure to a position whose value is tied to such trading.50 Managers and compliance 

professionals should be concerned, or at least ask questions, about any behavior where 

the company appears indifferent to profit and loss considerations. 

 

P 43 (holding in parallel cases involving misrepresentations that a respondent’s decision 

to curtail power from a generator over a five-day period “was uneconomic given [its] 

ability and established practice of generating electricity [from that generator] at lower 

cost”); Lincoln Paper & Tissue, LLC , 144 FERC ¶ 61,162, at P 30 (2013) (Lincoln) 

(same holding in similar case); Barclays, 144 FERC ¶ 61,041 at P 43 (holding in crossmarket manipulation case that “Respondents’ trading was generally uneconomic and this 

factor is considered among all of the circumstances of the case in reaching the conclusion 

that a fraudulent scheme existed”).

48 See, e.g., Constellation, 138 FERC ¶ 61,168 at P 8 (noting that traders’ virtual 

and physical transactions “were routinely unprofitable”); JP Morgan, 144 FERC ¶ 61,068 

at P 43 (explaining that JP Morgan “lost millions of dollars at market rates,” but profited 

overall based on external payments); MISO Virtual & FTR Trading, 146 FERC ¶ 61,072, 

at P 4 (2014) (noting that traders experienced “losses on heavy virtual trading”).

49 See, e.g., Markowski, 274 F.3d at 529 (affirming Securities and Exchange 

Commission’s market manipulation determination based, in part, on finding that the 

company’s “prospects of losing some money . . . in the short run . . . was worth the 

benefit of keeping its customers and preserving confidence in its other stocks”); Crane 

Co. v. Westinghouse Air Brake Co., 419 F.2d 787, 795 (2d Cir. 1969) (holding that 

company’s “massive buying . . . coupled with its concealed sales, was not consistent with 

the normal desire of an investor to buy at as low a price as possible” (internal citations 

and quotations omitted)).

50 See, e.g., Compliance Practices White Paper at section IV.B.2 (“[I]f a trader is 

engaging in a scheme that involves losing money in a price-setting product, such as 

virtual transactions in an organized electric market, to benefit a financial position that is 

settled off of the price being targeted, an effective way to identify this behavior might be 

to monitor the trader’s virtual PnL, at each location, for persistent losses or a pattern of 

losses.”).
15

C. Conduct Inconsistent with Market Fundamentals 

 The Commission’s fraud determinations also consider whether conduct is 

consistent with market fundamentals of supply and demand. As is true in other markets, 

prices in energy markets are driven by certain underlying factors affecting the supply and 

demand for a product. The Commission has made clear that participants in energy 

markets should have as their price signal these supply and demand fundamentals, not 

ancillary considerations that bear no relation to underlying market fundamentals. For 

example, participants in the physical markets should be aiming to maximize their returns 

on the primary energy product based on supply and demand factors, not on secondary 

considerations, such as make-whole payments. Similarly, participants speculating in the 

financial markets should express a market view based on their knowledge of market 

forces and conditions—including weather, outages, and supply and load forecasts—not 

based on a desire to capture some unrelated revenue stream.51 Likewise, arbitrage should 

be aimed at anticipated prices of underlying products based on trading acumen and

market fundamentals, not at market rules that can be exploited to profit with little to no 

risk.52 In short, competitive energy markets exist to provide products at competitive rates 

based on fundamental factors of supply and demand, and participants should be trading 

consistent with this purpose. 

In Barclays, for example, the Commission found that the traders entered into daily 

power transactions “not based on normal supply and demand fundamentals, but rather on 

the intent to . . . benefit [their] Financial Swaps.”53 The Commission explained that this 

type of trading, devoid of supply and demand considerations, is fraudulent because it 

“inject[s] inaccurate information into the market and impair[s] the functioning of the 

Commission-regulated physical markets.”54 Similarly, in approving a settlement in 

Deutsche Bank, the Commission noted that the company’s “physical trades were not 

consistent with the fundamentals underlying the market price . . . e.g., supply and 

 51 Staff recognizes that market participants engage in hedging transactions to offset 

the risk of another position such as an asset already owned by the market participant. 

Transactions that are undertaken without manipulative intent and with a legitimate 

hedging purpose are not manipulative.

52 See, e.g., Chen, 151 FERC ¶ 61,179 at P 80 (“Speculative UTC trades placed to 

arbitrage price spreads will have as their sole or primary price signal the price risk of the 

underlying UTC spread and will be placed with the purpose of profiting based on the 

direction of the spread.”); City Power, 152 FERC ¶ 61,012 at P 103 (same); Coaltrain, 

155 FERC ¶ 61,204 at P 103 (same).

53 Barclays, 144 FERC ¶ 61,041 at P 57; accord City Power, 152 FERC ¶ 61,012 

at P 129 (finding that traders placed UTC trades “without regard to market fundamentals 

of supply and demand”). 

54 Barclays, 144 FERC ¶ 61,041 at P 57. 
16

demand, but rather were undertaken with the intent to change the value of [its related 

positions]. Deutsche Bank thus injected false and deceptive information into the 

marketplace . . . .”55

The Commission’s view on the relevance of market fundamentals in energy 

trading is consistent with securities cases that have held that deception occurs when 

participants artificially affect the market by injecting false supply and demand 

information.56 

IV. Types of Market Manipulation

It is not possible to provide an exhaustive list of all types of manipulation because 

determining whether certain conduct constitutes manipulation is a fact-specific inquiry. 

Moreover, market participants are increasingly sophisticated, and “[t]he methods and 

techniques of manipulation are limited only by the ingenuity of man.”57 Manipulative 

schemes are ever-changing and, as a result, the Commission cannot detect all forms of 

manipulation in advance. Similarly, the tariffs that establish and govern complex energy 

markets do not and cannot cover all forms of conduct to be prohibited in advance.58

Thus, a static list of prohibited types of conduct would not work for energy 

markets. This is why Congress granted the Commission a flexible, broad, and dynamic 

 55 Deutsche Bank, 142 FERC ¶ 61,056 at P 19. 

56 See, e.g., Gurary v. Winehouse, 190 F.3d 37, 45 (2d Cir. 1999) (“The gravamen 

of manipulation is deception of investors into believing that prices at which they purchase 

and sell securities are determined by the natural interplay of supply and demand, not 

rigged by manipulators.”); Crane, 419 F.2d at 794 (“[H]onest markets are made by the 

balancing of investment demand and investment supply.”); SEC v. Kwak, No. 3:04-cv1331, 2008 WL 410427, at *4 (D. Conn. Feb. 12, 2008) (holding conduct “plainly . . . 

deceptive under section 10(b) because it tricks investors into believing that the reported 

prices for [the] stock reflect transactions that are solely the product of independent forces 

of supply and demand”); see also City Power Mktg., No. 15-1428, 2016 WL 4250233, at 

*12 (noting that securities traders “are presumed to be trading on the basis of their best 

estimates of a security’s underlying economic value”).

57 Cargill, Inc. v. Hardin, 452 F.2d 1154, 1163 (8th Cir. 1971); see also JP 

Morgan, 144 FERC ¶ 61,068 at P 83 (noting “the impossibility of foreseeing the ‘myriad 

means’ of misconduct in which market participants may engage” (citing Cargill)); Chen, 

151 FERC ¶ 61,179 at P 120 (citing Cargill). 

58 See JP Morgan, 144 FERC ¶ 61,068 at P 83 (“fraud is a question of fact to be 

determined by all the circumstances of the case, not by a mechanical rule limiting 

manipulation to tariff violations” (citation omitted)).
17

statutory framework to prohibit and penalize such conduct. As the Commission 

explained in the aftermath of the Western Energy Crisis: 

Enron (and others) would demand that a regulatory agency 

have the prescience to include in a rate schedule all specific 

misconduct in which a particular market participant could 

conceivably engage. That standard is unrealistic and would 

render regulatory agencies impotent to address newly 

conceived misconduct and allow them only to pursue, to 

phrase it simply, last year’s misconduct – essentially, to

continually fight the last war and deny the capability to fight 

the present or next one.59 

Nonetheless, this White Paper provides guidance on some of the types of conduct 

the Commission has determined, up to this point, constitute manipulation. Combined 

with sound judgment and an institutional commitment to compliance, this guidance, 

along with the Commission orders on which it is based, the Compliance Practices White 

Paper, and other sources such as the Office of Enforcement Annual Reports, should allow 

market participants and compliance departments to be able to detect manipulative 

conduct or, in closer cases, ask tough questions about conduct that appears problematic.60

 59 Am. Elec. Power Serv. Corp., 106 FERC ¶ 61,020 at P 45 (emphasis in original). 

Similarly, market participants do not get a “first bite” or “free pass” just because they 

discover and engage in a novel, unique form of manipulation. BP, 156 FERC ¶ 61,031 at 

P 46 n.87 (“[N]ovel schemes or methods do not provide immunity from the AntiManipulation Rule in the Commission-regulated markets” (citations omitted)); see also

United States v. Arcadipane, 41 F.3d 1, 5 (1st Cir. 1994) (“Fair warning . . . does not 

mean that the first bite is free, nor does the doctrine demand an explicit or personalized 

warning.”); Superintendent of Ins. v. Bankers Life & Cas. Co., 404 U.S. 6, 10 n.7 (1971) 

(“[We do not] think it sound to dismiss a complaint merely because the alleged scheme 

does not involve the type of fraud that is ‘usually associated with the sale or purchase of 

securities.’ We believe that § 10b and Rule 10b-5 prohibit all fraudulent schemes in 

connection with the purchase or sale of securities, whether the artifices employed involve 

a garden type variety of fraud, or present a unique form of deception. Novel or atypical 

methods should not provide immunity from the securities laws.” (citation omitted)).

60 Entities can also consult with Enforcement staff before engaging in conduct that 

they understand poses a risk of manipulation. See, e.g., Chen, 151 FERC ¶ 61,179 at P 

186 n.408 (explaining that the respondent did not seek guidance from staff about their 

round-trip trading and holding that he “reasonably knew or should have known that his 

round-trip trading scheme raised potential compliance concerns and, at a minimum, 

should have inquired further into the lawfulness of his behavior”). Although 

Enforcement staff cannot provide formal decisions that bind the Commission, it can in 
18

A. Cross-Market Manipulation Schemes

Cross-market manipulation involves trading in one market with the intent to move 

prices in a particular direction to benefit positions in a related market. This type of 

scheme occurred during the Western Energy Crisis and continues today in securities and 

commodities markets, as well as both the electric and natural gas markets. For example, 

recent electric cross-market cases have involved trading physical or virtual power to 

influence Financial Transmission Rights (FTR), also known as financial Congestion 

Revenue Rights (CRR), financial swap positions, or a market participant’s overall 

generation fleet. Cross-market manipulation cases in the gas context have involved 

trading physical gas to affect published index prices that benefit related financial 

positions tied to those same index prices. 

1. Pre-EPAct 2005 Cross-Market Manipulation Schemes

During the Western Energy Crisis, market participants misreported price and 

volume trade data for certain price-setting products in physical natural gas markets (e.g., 

physical fixed-price or physical basis gas) to move published index prices in order to 

benefit a financial position. For example, five trading companies admitted to reporting 

false information to index publishers during the Western Energy Crisis regarding their 

trading volumes and prices for certain price-setting physical natural gas products.61 

These companies took these actions in the physical markets for the purpose of moving 

prices to “enhance the value of financial positions” in a related market.62 

 

most instances at least informally discuss its views, including factors it might consider in 

determining whether it believes the relevant conduct constitutes manipulation. Moreover, 

the Commission provides a No Action Letter process, which provides entities an 

opportunity to obtain written advice as to whether staff would recommend that the 

Commission take no enforcement action with respect to specific conduct. See 

Interpretative Order Regarding No-Action Letter Process, 113 FERC ¶ 61,174 (2005); 

Interpretative Order Modifying No-Action Letter Process, 117 FERC ¶ 61,069 (2006); 

Obtaining Guidance on Regulatory Requirements, 123 FERC ¶ 61,157 (2008). In 

addition, entities may file a petition for a declaratory order to obtain more formal, binding 

guidance from the Commission. 

61 Final Report on Price Manipulation in Western Markets, at ES-6.

62 Id. See also In re Dynegy Mktg. & Trade & West Coast Power LLC, CFTC 

Docket No. 03-03, at *3 (Dec. 18, 2002) ($5 million settlement with CFTC for 

misreporting price and volume data in the physical market to benefit related financial 

positions); In re El Paso Merch. Energy, L.P., CFTC Docket No. 03-09, at *2 (Mar. 26,

2003) ($20 million settlement with CFTC for misreporting trade information and 

withholding information about actual trades).
19

2. Post-EPAct 2005 Cross-Market Manipulation Schemes

Following EPAct 2005, both electric and gas cross-market manipulation cases 

have involved interrelated markets in which market participants trade in one market with 

the intent to move prices in a particular direction to benefit positions in a related market. 

In these cases, companies have exhibited some or many of the following warning signs, 

which have been relevant to the Commission’s finding of manipulation: large market 

shares in price-setting instruments; trading in the physical markets in a direction that 

benefits a simultaneously held position in a related market; benefiting positions that have 

exposure to related physical trading; trading large volumes in the physical market without 

accumulating much of a net position; and physical trading with consistent losses or an 

indifference to price. The Commission has used its anti-manipulation authority and 

enhanced penalty authority to sanction this harmful conduct. In the process, the 

Commission has provided valuable guidance on the warning signs indicative of a crossmarket scheme.

a. Electric Cases

Recent cross-market manipulation schemes in electric markets generally fall into 

two categories: (1) physical trading for the purpose of benefiting financial swap 

positions or congestion-related financial positions (such as FTRs); and (2) virtual trading 

for the purpose of benefiting financial swap positions or congestion-related financial 

positions. Outside either of these categories, one case involved trading a physical 

product to benefit the entity’s generation fleet.

In Barclays, illustrating the first “physical-for-financial” cross-market 

manipulation category, the Commission found that Barclays engaged in manipulative 

physical trading to benefit its financial swap positions.63 Specifically, the Commission

found that Barclays’ traders built substantial monthly physical index positions in the 

opposite direction of their financial swap positions they assembled at the same points. 

Then, to “flatten” their physical index obligations at those points, they traded a next-day 

fixed-price or “cash” product to increase or lower the daily index (to which their next-day 

fixed-price trades contributed). Thus, Barclays made its physical fixed-price trades not to 

profit from the relationship between market fundamentals of supply and demand, but as 

part of a scheme to move the daily index price by injecting false supply and demand 

information to benefit its financial swap positions.64 The 2014 MISO Cinergy Hub 

Transactions investigation involved a similar strategy of scheduling and trading physical 

power into and out of Midcontinent Independent System Operator (MISO)-operated 

 63 Barclays, 144 FERC ¶ 61,041.

64 Id. P 2.
20

markets to benefit related financial swap positions that settled off of real-time MISO 

prices.65

Deutsche Bank also involved a physical-for-financial electric cross-market 

manipulation scheme.66 In that case, the Commission approved a settlement based on 

staff’s finding that Deutsche Bank traded its physical exports at the Silver Peak intertie 

with the intent to benefit its financial CRR positions at Silver Peak. In doing so, staff 

found that Deutsche Bank injected false and deceptive information into the marketplace 

and affected the price at Silver Peak, thus hindering the proper functioning of the 

physical market at Silver Peak as well as the CRR market.67 As described by the 

Commission, prior to engaging in the physical transactions at issue in the case, the CRR 

traders had focused exclusively on bidding on CRRs and had no responsibility for 

physical trading.68 Further, Deutsche Bank lost money on its physical transactions on 

every day that it traded at Silver Peak during the relevant period.69 

Constellation highlights the second category of electric cross-market 

manipulation—using virtual trades to benefit financial positions. In that case, 

Constellation entered into virtual and physical transactions to impact day-ahead prices in 

the New York Independent System Operator (NYISO) and ISO-New England (ISO-NE) 

markets to benefit its financial positions that included financial swaps, FTRs, and 

transmission congestion contracts.70 As described in the Commission order approving 

the settlement agreement, Constellation’s virtual and physical transactions at issue were 

“routinely unprofitable.”71 In addition, staff found relevant to its determination of 

manipulation that such transactions exhibited a “repetitive pattern” of being scheduled in 

a direction that benefited Constellation’s financial positions, and that the size of 

Constellation’s swap positions was significant, thus incentivizing the manipulative 

 65 MISO Cinergy Hub Transactions, 149 FERC ¶ 61,278 (2014). As stipulated in 

the settlement agreement (attached to the Order approving it), the traders consistently 

flowed physical power in the direction of their financial swaps with the intent to move 

prices. Also, the traders’ physical flows were occasionally profitable but lost significant 

money over time, and on days of manipulative trading, gains from the swaps exceeded 

the losses from the physical flows—further incentivizing the manipulative scheme. Id.,

Settlement Agreement at PP 20–23.

66 Deutsche Bank, 142 FERC ¶ 61,056.

67 Id. P 19.

68 Id. P 3. 

69 Id. P 15. 

70 Constellation, 138 FERC ¶ 61,168. 

71 Id. P 8.
21

conduct.72 Similarly, in MISO Virtual & FTR Trading, Louis Dreyfus Energy Services 

L.P. made virtual supply offers or demand bids at a loss to benefit related FTR 

positions.73 In the order approving settlement,“[t]he Commission emphasize[d] that 

using virtual trades to create artificial congestion in the Day-Ahead market for the 

purpose of enhancing the value of FTR positions violates the Commission’s AntiManipulation Rule.”74

The Commission’s recent order assessing civil penalties in ETRACOM also falls 

into this category of cross-market schemes: ETRACOM submitted $0 or negativelypriced virtual supply offers to lower the day-ahead price and increase the profitability of 

its related financial CRR positions.75 In finding manipulation, the Commission rejected 

ETRACOM’s arguments that CAISO’s flawed market design and software errors 

rendered their virtual trading behavior permissible, finding instead that “market design 

flaws do not excuse manipulative conduct and sometimes provide the context for it.”76 

While most electric cross-market cases fall into the foregoing two categories, 

another type of scheme, addressed in Gila River Power LLC and also discussed infra at 

section IV.C.2, involved manipulating physical products to benefit the company’s 

generation fleet which sold its power as imports into the CAISO at the Palo Verde 

intertie. In conjunction with bidding its generation in the day-ahead market at the Palo 

Verde intertie, the company scheduled physical wheeling-through transactions into 

CAISO.77 Gila River used the wheeling-through transactions to increase the amount of 

generated power it could import at Palo Verde as sales and to increase the corresponding 

sales price of those generation imports by alleviating congestion.78 Once the day-ahead 

market settled, Gila River bought back the wheeling-through transaction, effectively 

cancelling it. The scheme allowed Gila River to import the maximum amount of power 

possible across the intertie and raised the prices at which it sold those imports.79 

b. Natural Gas Cases

In the natural gas arena post EPAct 2005, cross-market manipulation schemes 

have involved trading physical fixed-price or basis gas to affect published index prices 

 72 Id. PP 5, 7.

73 MISO Virtual & FTR Trading, 146 FERC ¶ 61,072 at PP 4-5.

74 Id. P 13.

75 ETRACOM, 155 FERC ¶ 61,284.

76 Id. PP 118-127.

77 Gila River Power LLC, 141 FERC ¶ 61,136, at PP 8-10, 13 (2012) (Gila River).

78 Id.

79 Id.
22

that benefit related financial positions tied to those same index prices. The Energy 

Transfer Partners L.P. case provides an example of such conduct.80 In 2009, the 

Commission approved a settlement based on staff’s finding that ETP sold monthly fixedprice gas at the Houston Ship Channel (HSC) during bidweek to suppress the Platts 

Inside FERC (IFERC) HSC monthly index price to benefit ETP’s physical and financial 

positions that profited from a lower HSC IFERC index. 

The recent BP America, Inc. (BP) case is another example of a natural gas crossmarket manipulation scheme.81 In that case, the Commission found that BP engaged in 

physical next-day fixed-price trading at HSC with the intent to suppress the Platts HSC 

Gas Daily index to benefit its related financial spread positions that profited from a lower 

HSC Gas Daily index.82 The Commission found that BP’s traders changed their trading 

and transportation patterns (including using transportation uneconomically and engaging 

in early, volume-heavy selling at aggressively low prices) in a way that benefited those 

financial positions and incurred losses, with “no reasonable explanation for the[]

changes.”83 

Direct Energy involved another fraudulent scheme to manipulate the Gas Daily

index price.84 Direct Energy self-reported that certain of its traders sold next-day fixedprice gas to lower the Gas Daily index, while simultaneously holding financial positions 

that benefited from this lower index price.85 Direct Energy also reported that it lost 

money on those transactions, and that most of that trading occurred very early in the day 

when the markets were relatively illiquid.86

Most recently, the Commission approved two settlement agreements based on 

Enforcement staff’s findings that National Energy & Trade, L.P. (National Energy) and 

one of its traders engaged in a cross-market scheme by trading physical natural gas 

 80 Energy Transfer Partners L.P., 128 FERC ¶ 61,269 (2009). Staff sought 

penalties against ETP under the anti-manipulation rule at the time, 18 C.F.R. § 

284.403(a) (2005), which was promulgated under the NGA after the Western Energy 

Crisis, but was subsequently rescinded by the Commission in 2006 after Congress passed 

EPAct 2005. Id. P 14.

81 BP, 156 FERC ¶ 61,031.

82 Id. PP 2-3, 16.

83 Id. PP 140-141.

84 Direct Energy Servs., LLC, 148 FERC ¶ 61,114 (2014) (Direct Energy); see 

infra section V.A. (further discussion of Direct Energy in the context of compliance and 

the Penalty Guidelines).

85 Direct Energy, 148 FERC ¶ 61,114 at P 9.

86 Id. PP 8–9.
23

products to benefit related financial positions at the Tetco M3 trading location.87 

Enforcement staff found that National Energy and its trader lost money on their physical 

transactions, but that such losses helped to lower index prices to their benefit.88 As part 

of the settlement agreement, the trader agreed to a one-year trading ban.89

B. Gaming of Market Rules

Gaming is another type of conduct that the Commission has determined can 

constitute market manipulation, and has prohibited for years. The Commission has 

described gaming strategies in orders stemming from the Western Energy Crisis and 

more recent manipulation cases. In those orders, discussed further in this section, the 

Commission has made clear that gaming includes behavior that circumvents or takes 

unfair advantage of market rules or conditions in a deceptive manner that harms the 

proper functioning of the market and potentially other market participants or consumers. 

This is reflected in the Commission’s broad definition of fraud. 

1. Pre-EPAct 2005 Gaming Schemes

The Commission found many of the schemes that occurred during the Western 

Energy Crisis to be “gaming,” as that term was defined in the CAISO and California PX 

tariffs under their tariffs’ Market Monitoring and Information Protocol (MMIP). The 

MMIP defined gaming as “taking unfair advantage of the rules and procedures set forth 

in the PX and ISO tariffs, Protocols or Activity Rules . . . to the detriment of the 

efficiency of, and of consumers in, the ISO Markets.”90 For example, the Commission, in 

its 2003 Gaming Order, recognized several congestion-related practices as gaming 

behavior such as circular scheduling, or “Death Star,” which involved scheduling a 

counterflow to receive a congestion relief payment, and then simultaneously scheduling 

 87 National Energy & Trade, L.P., 156 FERC ¶ 61,154 (2016) (National Energy); 

In re David Silva, 156 FERC ¶ 61,155 (2016) (Silva). National Energy’s settlement also 

covered its trading at HSC, Transco Zone 6 (New York), and Henry Hub. National 

Energy, 156 FERC ¶ 61,154 at P 1.

88 National Energy, 156 FERC ¶ 61,154 at P 10; Silva, 156 FERC ¶ 61,155 at P 

10.

89 Silva, 156 FERC ¶ 61,155 at P 17.

90 ISO MMIP 2.1.3. The MMIP also defined gaming to include “taking undue 

advantage of other conditions that may affect the availability of transmission and 

generation capacity . . . or actions and behaviors that may otherwise render the system 

and the ISO Markets vulnerable to price manipulation to the detriment of their 

efficiency.” Id. The MMIP formed part of the CAISO and PX tariffs. Gaming Order, 

103 FERC ¶ 61,345 at PP 16–17. The Commission found that the MMIP put parties on 

notice as to what practices would be subject to monitoring and potentially corrective or 

enforcement action. Id. P 23.
24

flow outside the CAISO control area (which the CAISO could not “see”) to complete a 

“loop” with the counterflow such that no actual power was moved and congestion was 

not relieved.91 The practice thus entailed scheduling transactions that, taken together, 

eliminated any risk (with no net flow) for the purpose of obtaining a congestion relief 

payment. The Commission found that such congestion schemes involved “false 

schedules,” “fraudulent[] recei[pt of] congestion relief payments,” and “false 

representations.”92

Another type of gaming behavior, called Paper Trading (and referred to by market 

participants generally as “Get Shorty”) involved market participants’ sales of ancillary 

services into the day-ahead market without first procuring the necessary capacity to 

provide such services. If called upon by CAISO to provide such services, the entities 

would purchase the ancillary services at a lower price in the real-time market, profiting 

by buying the services at a lower real-time price than their day-ahead market bid. The 

Commission reasoned that this behavior constituted gaming because the market 

participants took unfair advantage of the market rules by using false representations 

and/or receiving payments for services they did not have the capacity to provide.93

Following the 2003 Gaming Order, the Commission prohibited additional gaming 

practices through its Market Behavior Rules that sellers were required to comply with as 

a condition of their market-based rate authority.94 Market Behavior Rule 2 expressly 

prohibited wash trades, defined as “pre-arranged offsetting trades of the same product 

among the same parties, which involve no economic risk and no net change in beneficial 

ownership.”95 The rule also prohibited transactions predicated on submitting false 

information to transmission providers or other entities responsible for operating the 

 91 Gaming Order, 103 FERC ¶ 61,345 at P 43; San Diego Gas & Elec. Co., 149 

FERC ¶ 61,116 at P 186 n.416.

92 Gaming Order, 103 FERC ¶ 61,345 at P 46.

93 See id. PP 48–51. The Commission also suggested ways that market 

participants could potentially show that the Paper Trading transactions were legitimate 

transactions, for example, by showing that the resources to provide the ancillary services 

sold in the day-ahead market were actually available to the bidder. Id. P 68. In 2014, the 

Commission identified additional conduct during the Western Energy Crisis that was not 

identified in its 2003 Gaming Order but that also violated CAISO’s MMIP “gaming” 

provision. That conduct included certain anomalous bidding behavior and sales of 

ancillary services without first procuring the underlying capacity. San Diego Gas & 

Elec. Co., 149 FERC ¶ 61,116 at PP 86, 94, 99.

94 Investigation of Terms and Conditions of Public Utility Market-Based Rate 

Authorizations, 105 FERC ¶ 61,218. 

95 Id. P 52.
25

transmission grid. Additionally, the rule addressed some of the congestion-related 

gaming that occurred during the Western Energy Crisis by prohibiting transactions in 

which an entity first creates artificial congestion and then purports to relieve such 

artificial congestion.96 Finally, the rule extended beyond gaming behavior, generally 

prohibiting collusion with another party for the purpose of manipulating market prices, 

market conditions, or market rules for electric energy or electricity products.97

2. Post-EPAct 2005 Gaming Schemes 

The Commission has recognized that one of the primary objectives of EPAct 2005 

was to deter the type of gaming schemes that occurred during the Western Energy Crisis. 

Specifically, the Commission has recognized that one of its core responsibilities under 

EPAct 2005 is “detecting, preventing, and appropriately sanctioning the gaming of the 

energy markets.”98 In Order No. 670, the Commission expressly stated that it was 

incorporating Market Behavior Rule 2, which addressed the prohibited behavior and 

transactions described above, including gaming behavior, into its Anti-Manipulation 

Rule.99 As the Commission reasoned, “these are examples of prohibited manipulation, all 

of which are manipulative or deceptive devices or contrivances, and are therefore 

prohibited activities under this Final Rule.”100 As described below, following EPAct 

2005, the Commission has carried out Congress’s intent to use the new anti-manipulation 

authority to prohibit and sanction the type of gaming schemes that plagued energy 

markets during the Western Energy Crisis. 

Since EPAct 2005, the Commission has ruled in several cases that provide 

guidance on the types of trading behavior that are considered gaming and prohibited 

under the Anti-Manipulation Rule. These Commission orders are consistent with the 

Commission’s pre-EPAct 2005 findings on gaming practices, which emphasize that 

gaming includes effectively riskless transactions executed for the purpose of receiving a 

collateral benefit;101 conduct that is inconsistent or interferes with a market design 

 96 Id. PP 76–77. 

97 Id. P 85.

98 See, e.g., JP Morgan, 144 FERC ¶ 61,068 at P 87.

99 See Order No. 670, FERC Stats. & Regs. ¶ 31,202 at PP 58–59.

100 Id. P 59. The following year, the Commission rescinded Market Behavior Rule 

2 as unnecessary, citing Order No. 670: “As we stated in issuing the new antimanipulation rule, the specifically prohibited actions in Rule 2 . . . all are prohibited 

activities under new section 1c.2 of our regulations . . . .” Investigation of Terms & 

Conditions of Pub. Util. Market-Based Rate Authorizations, 114 FERC ¶ 61,165 at P 24.

101 The Commission has indicated that raising a mere theoretical risk is not 

sufficient, by itself, to defeat a market manipulation claim. See Chen, 151 FERC ¶ 

61,179 at P 104 (rejecting respondents’ argument that their UTC transactions had some 
26

function; and conduct that takes unfair advantage of market rules to the detriment of other 

market participants and market efficiency. 

For example, in 2013, the Commission found that JP Morgan violated the AntiManipulation Rule by engaging in twelve strategies over a two-year period in which it 

intentionally submitted bids to CAISO and MISO that falsely appeared economic to the 

market software, but were intended to, and in almost all cases did, lead CAISO and 

MISO to pay JP Morgan at rates far above market prices.102 One example of such 

manipulative bidding is a gaming strategy in which JP Morgan submitted -$30/MWh 

day-ahead bids to CAISO for the end of day 1, and then the next day submitted energy 

bids of $999/MWh for the hours between midnight and 2 a.m. for day 2. CAISO’s 

system evaluated only one day’s bids at a time, and thus gave JP Morgan large day-ahead 

awards for the final hours of day 1. However, because CAISO’s system also honors the 

physical limitations of power plants, the next day it gave JP Morgan ramp-down dayahead awards for the first two hours of day 2. Those awards were priced at JP Morgan’s 

$999/MWh bid price, even though market prices between midnight and 2 a.m. on day 2 

were only about $12/MWh.103

Consistent with its previous findings on gaming, the Commission found that JP 

Morgan took unfair advantage of market rules by submitting bids not for the purpose of 

making money based on market fundamentals of supply and demand, “but to create 

artificial conditions that would cause the CAISO system to pay JP [Morgan] outside the 

market at premium rates.”104 The Commission also emphasized the harm that JP 

Morgan’s bidding practices caused to the efficient operation of the CAISO and MISO 

markets.105

The Commission’s recent decisions addressing the UTC investigations also 

concern prohibited gaming behavior. A UTC product is a type of spread trade that allows 

market participants to arbitrage the difference between day-ahead and real-time 

congestion prices at two different locations with no obligation to buy or sell physical 

power. In Chen, the Commission found that the respondents engaged in fraudulent UTC 

transactions in PJM markets solely to garner excessive credit payments that PJM paid to 

 

“theoretical potential” for risk where evidence showed there was no “practical market 

risk”).

102 JP Morgan, 144 FERC ¶ 61,068 at P 4.

103 Id. PP 57-68.

104 Id. P 76. 

105 For example, the Commission noted the multiple CAISO and MISO 

Departments of Market Monitoring referrals to the Commission and multiple emergency 

tariff filings by CAISO or MISO that were prompted by JP Morgan’s bidding practices. 

JP Morgan, 144 FERC ¶ 61,068 at PP 7–8, 78, 81. 
27

transmission customers (known as MLSA payments).106 In finding that the respondents 

engaged in a device, scheme, or artifice to defraud the PJM market, the Commission 

found that their round-trip UTC trades were like Enron’s Death Star strategy in that they 

“involved offsetting pairs to capture revenues without providing the corresponding 

benefit to the market.”107 Additionally, the respondents’ trades “falsely appeared to PJM 

as legitimate arbitrage-related trades when in fact they were nullities placed to garner 

MLSA payments” that otherwise would have been allocated to other market 

participants.108 The Commission further found that the respondents’ round-trip UTC 

trades were wash trades, and therefore per se fraudulent and manipulative.109

The Commission made similar findings in City Power and Coaltrain. In City 

Power, as it did in Chen, the Commission likened the respondents’ round-trip UTC trades 

to Enron’s Death Star strategy and found them to be wash trades.110 In addition, in City 

Power and Coaltrain, the Commission identified two other types of UTC trades that were 

part of the manipulative scheme and the respondents’ course of business to defraud, 

which involved either mathematically equivalent pricing nodes that experienced no price 

spreads,111 or nodes that generated very small or negative price spreads that resulted in 

losses after accounting for the transaction costs associated with the trades, apart from the 

MLSA payments.

112 Although the respondents in City Power argued that their trades 

were not “gaming” because that term is too subjective and does not have a workable 

definition,113 the Commission in all three UTC cases found the trades fraudulent given 

the totality of evidence presented and the respondents’ purpose in making the trades.114

 106 Chen, 151 FERC ¶ 61,179 at PP 1–2.

107 Id. P 64.

108 Id. PP 69, 96.

109 Id. P 102. The Commission further clarified in Chen that the market risk 

associated with a wash trade need not be zero—“it only need be small enough so that the 

risk has no practical or expected impact on the transaction.” Id. P 104.

110 City Power, 152 FERC ¶ 61,012 at PP 7, 126. Citing Chen, the Commission 

also found that the respondents’ round-trip trades were contrary to the market design 

purposes for which PJM offered the UTC product. Id. P 100.

111 Id. P 6; Coaltrain, 155 FERC ¶ 61,204 at P 118.

112 City Power, 152 FERC ¶ 61,012 at PP 51-52; Coaltrain, 155 FERC ¶ 61,204 at 

PP 145, 147, 172.

113 City Power, 152 FERC ¶ 61,012 at P 63.

114 The Commission rejected similar arguments about “gaming” made by market 

participants in 2003 following the Western Energy Crisis. See, e.g., Gaming Order, 103 

FERC ¶ 61,345 at PP 21, 23.
28

In doing so, the Commission found that the transactions at issue were made for the sole 

or primary purpose of targeting MLSA payments and not made to hedge or arbitrage—

the market design purpose of UTC trades.115 Given this purpose, the Commission found 

the trades to be deceptive because “they falsely appeared to PJM as being placed for the 

market design purpose of arbitraging price spreads.”116

C. Misrepresentations

While cross-market manipulation and gaming are typically implemented through 

trading schemes, another category of conduct prohibited by the Commission’s AntiManipulation Rule involves misrepresentations and omissions of material factual 

information.117 This form of manipulation, like the cross-market and gaming schemes, 

dates back to the Western Energy Crisis when entities submitted false information to 

market operators and index publishers to take advantage of certain market rules and 

practices. In fact, the Commission incorporated language into the Anti-Manipulation 

Rule in response to the types of misrepresentations and omissions prevalent during the 

Western Energy Crisis. As stated in Order No. 670, “where an entity voluntarily 

provides information or where the entity is required by a tariff or a Commission statute, 

order, rule or regulation to provide information, and the entity then misrepresents or 

omits a material fact such that the information provided is materially misleading, there 

can be a violation of the Final Rule if all of the other elements of a violation are 

present.”118 

1. Pre-EPAct 2005 Misrepresentations and Omissions

During the Western Energy Crisis, one common type of misrepresentation 

involved the submission of false trade information to index publishers for the purpose of 

moving index prices to enhance the value of related positions tied to such prices. The 

index publishers, such as Platts and Natural Gas Intelligence, printed daily and monthly 

 115 Chen, 151 FERC ¶ 61,179 at P 80; City Power, 152 FERC ¶ 61,012 at PP 103, 

139, 158; Coaltrain, 155 FERC ¶ 61,204 at PP 5, 102, 104.

116 Chen, 151 FERC ¶ 61,179 at PP 5, 96; City Power, 152 FERC ¶ 61,012 at PP 6, 

126; Coaltrain, 155 FERC ¶ 61,204 at P 5.

117 See Maxim Power, 151 FERC ¶ 61,094 at P 50 (“A violation of section 1c.2 

may occur not only through a manipulative scheme, but through false statements and 

deceit.”); CES, 144 FERC ¶ 61,163 at P 43, Silkman, 144 FERC ¶ 61,164 at P 43, and 

Lincoln, 144 FERC ¶ 61,162 at P 30 (determining that the Commission’s AntiManipulation Rule includes “fraud’s definition under the common law, i.e., any false 

statement, misrepresentation, or deceit”).

118 Order No. 670, FERC Stats. & Regs. ¶ 31,202 at P 41. This statement echoes 

language of the rule prohibiting entities from “mak[ing] any untrue statement of a 

material fact or . . . omit[ting] to state a material fact . . . .” 18 C.F.R. Part 1c (2016). 
29

index prices based on the volume-weighted average price of reported trades. To 

improperly influence the index prices, many market participants simply reported lies, 

which included “fabricating trades, inflating the volume of trades, omitting trades, and 

adjusting the price of trades.”119 For example, in 2002, Dynegy entered into a $5 million 

settlement with the CFTC for “report[ing] false natural gas trading information, including 

price and volume information, to certain reporting firms.”120 It did this “in an attempt to 

skew . . . indexes to [its] financial benefit.”121 In another example of misrepresentations 

during the Western Energy Crisis, entities engaged in selling “Phantom Ancillary 

Services” in the CAISO market, dubbed “Get Shorty” by Enron and other market 

participants and discussed supra at section IV.B.1.

122 

2. Post-EPAct 2005 Misrepresentations and Omissions

Market participants have continued to harm energy markets through 

misrepresentations and omissions in the post-EPAct 2005 environment. To combat this

practice, the Commission has used its anti-manipulation authority to hold entities 

accountable. In doing so, the Commission has provided guidance on the types of 

misrepresentations and omissions that violate the Anti-Manipulation Rule and the harm 

that stems from these violations. For example, in a group of four cases involving ISONE’s Day-Ahead Load Response Program (DALRP), the Commission found that two 

entities misrepresented their typical load and their ability to reduce load by adjusting their 

energy use during an initial “baseline” period.123 Specifically, under the DALRP, ISONE compensated customers for load reductions, as measured against a baseline load 

amount established during a five-day period that was supposed to represent the 

company’s normal electricity usage.124 The Commission found that two paper mills in 

Maine misrepresented to ISO-NE that they had a higher load amount when they 

intentionally reduced their on-site generation and purchased more power from the grid 

 119 Final Report on Price Manipulation in Western Markets, at ES-6.

120 In re Dynegy Mktg. & Trade & West Coast Power LLC, CFTC Docket No. 03-

03, at *1.

121 Id; see also In re El Paso Merchant Energy, L.P., CFTC Docket No. 03-09, at 

*2 ($20 million settlement with CFTC for misreporting trade information and 

withholding information about actual trades). 

122 San Diego Gas & Elec. Co., 149 FERC ¶ 61,116 at P 186 n.414.

123 See Rumford Paper Co., 142 FERC ¶ 61,218 (2013) (settlement); CES, 144 

FERC ¶ 61,163 (order assessing civil penalty); Silkman, 144 FERC ¶ 61,164 (order 

assessing civil penalty); Lincoln, 144 FERC ¶ 61,162 (order assessing civil penalty); 

Lincoln Paper and Tissue, LLC, 155 FERC ¶ 61,228 (2016) (settlement). 

124 CES, 144 FERC ¶ 61,163 at P 11; Silkman, 144 FERC ¶ 61,164 at P 11; 

Lincoln, 144 FERC ¶ 61,162 at P 12.
30

during the five-day baseline period.125 Then, after the baseline period, the mills resumed 

normal use of their on-site generation and purchased less energy from the grid, thus 

creating the illusion that they had reduced electricity consumption.126 As a result, the 

mills received DALRP payments from ISO-NE that were for nonexistent demand 

response reductions. The mills’ misrepresentations resulted in ISO-NE paying millions 

of dollars (on behalf of its customers) for what amounted to phantom load reductions.127

Similar to the behavior in DALRP, the Commission found in Enerwise Global 

Technologies, Inc. that a demand response aggregator had misrepresented a demand 

response customer’s potential load reduction capability by basing the potential reduction 

quantity on the simultaneous operation of two backup generators when reliable operation 

of both generators in parallel with the grid was not possible.128 Enerwise also engaged in 

misrepresentations to the RTO by instructing its customer to inflate its electricity 

consumption baseline prior to certain events to make the supposed reduction in electricity 

consumption appear larger than it actually was.129

 125 CES, 144 FERC ¶ 61,163 at P 43; Lincoln, 144 FERC ¶ 61,162 at P 30.

126 In DALRP, the Commission considered the respondents’ departure from their

prior practices as an indicium of fraud. See CES, 144 FERC ¶ 61,163 at P 49 (holding 

that the paper mill’s departure from routine use of on-site generation, among other 

factors, “demonstrates . . . fraudulent actions”); Silkman, 144 FERC ¶ 61,164 at P 43; 

Lincoln, 144 FERC ¶ 61,162 at P 30. A departure from prior practices does not 

necessarily indicate a fraudulent motive, but, combined with other factors and absent 

legitimate explanations for the difference, can create a reasonable inference of fraud. The 

Commission has also considered this potential indicium in cross-market manipulations. 

See Barclays, 144 FERC ¶ 61,041 at P 32 (considering “the difference in Respondents’ 

trading behavior in the Manipulation Months from those months where manipulation was 

not alleged”); Deutsche Bank, 142 FERC ¶ 61,056 at P 3 (noting that traders had not 

done any physical trading “until they undertook the physical trades at issue in this 

matter”); MISO Virtual & FTR Trading, 146 FERC ¶ 61,072 at P 4 (noting differences in 

company’s FTR positions and virtual trading between manipulation and nonmanipulation periods).

127 CES, 144 FERC ¶ 61,163 at P 90 and Silkman, 144 FERC ¶ 61,164 at P 84 

(finding that ISO-NE paid more than $3 million for non-existent demand response 

reductions across a six month period attributable to the Rumford paper mill’s artificially 

inflated baseline); see also Lincoln, 144 FERC ¶ 61,162 at P 68 (finding that ISO-NE 

paid more than $445,000 for non-existent demand response reductions across a six-month 

period attributable to the Lincoln paper mill’s artificially inflated baseline). 

128 Enerwise Global Techs., Inc., 143 FERC ¶ 61,218, at P 6 (2013).

129 Id.
31

Other misrepresentations have involved false statements or omissions regarding 

basic factual information. For example, the Commission found in Maxim Power that the 

company falsely represented in its energy offers and statements to the independent 

market monitor (IMM) that it was running its generator on high-price fuel oil when in 

fact it was burning cheaper natural gas.130 The Commission found that Maxim did this in 

an attempt to obtain payments from the ISO “based on burning oil that were substantially 

higher than if its payments were based on using natural gas.”131 Maxim’s 

misrepresentations included its offers that were based on oil prices, as well as misleading 

statements to the market monitor that pipeline flow restrictions prevented Maxim from 

obtaining natural gas.132 Maxim also failed to tell the market monitor that it had been 

burning natural gas after it submitted offers based on oil prices.133 The Commission 

found that Maxim’s “careful omission of this information, which was essential to 

protecting Maxim’s significant profits, was not accidental.”134 The Commission held that 

“[t]hese statements and omissions were intended to impede the IMM’s review of 

Maxim’s behavior and hampered the IMM’s ability to mitigate Maxim’s offers.”135

Another example of a factual misrepresentation violating the Anti-Manipulation 

Rule is the 2011 Commission settlement with Holyoke Gas and Electric Department, in 

which Holyoke admitted that it neither notified ISO-NE of three planned outages nor 

scheduled them consistent with the ISO’s tariff requirements.136 Holyoke also stipulated 

that it offered the out-of-service units’ energy into the market, despite knowing that they 

could not have provided the energy if dispatched.137 Holyoke committed fraud on the 

market by accepting more than $300,000 in capacity payments for out-of-service 

resources.138

In another case involving a misrepresentation of basic factual information, Gila 

River falsely labeled transactions in CAISO to avoid congestion impacts at the Palo 

Verde intertie.139 Gila River preferred to sell power at Palo Verde because of low 

 130 Maxim Power, 151 FERC ¶ 61,094 at PP 3–4.

131 Id. P 49.

132 Id.

133 Id.

134 Id. P 91.

135 Id. P 49.

136 In re Holyoke Gas & Elec. Dep’t, 137 FERC ¶ 61,159, at P 3 (2011).

137 Id.

138 Id. P 10.

139 Gila River, 141 FERC ¶ 61,136.
32

transmission costs, but congestion at that point limited the amount of imports there.140 

The CAISO tariff allowed entities with a resource and load outside of CAISO to avoid 

congestion impacts by designating their transactions as “Wheeling-Through,” indicating 

that power was wheeled through California from a linked import point to a linked export 

point.141 Despite the fact that Gila River’s transactions did not meet CAISO’s definition 

of “Wheeling-Through” because they lacked a resource and load outside of CAISO, it 

falsely designated its transactions as Wheeling-Through, thus allowing it to continue 

selling power at Palo Verde without being negatively impacted by congestion there.142 

This action “undermined the proper functioning of the CAISO market.”143 

More recently, in a 2016 Commission settlement involving misrepresentations and 

omissions, Berkshire Power Company LLC (Berkshire Power) and Power Plant 

Management Services LLC (PPMS) admitted that Berkshire Power engaged in a 

fraudulent scheme, directed by the Projects General Manager, to perform unreported 

maintenance work and to conceal that work and associated maintenance outages from 

ISO-NE.144 The companies acknowledged that individuals at the natural gas-fired plant 

scheduled maintenance work for times when the plant was unlikely to be dispatched and 

then failed to notify ISO-NE about the work or the plant’s associated unavailability at 

least sixteen times during a period just over three years.145 And there were at least six 

instances in which employees falsely represented to ISO-NE dispatchers that the plant 

was starting up or able to start up when, in fact, the plant was unavailable due to ongoing 

maintenance or technical problems.146

V. Mitigating and Aggravating Factors Relevant to Market Manipulation

In various policy statements and in its Penalty Guidelines, the Commission has 

described the various mitigating and aggravating factors affecting penalties for violations 

of its rules, including the Anti-Manipulation Rule.147 The Commission has also provided 

 140 Id. P 3.

141 Id. P 5.

142 Id. PP 5, 12–13.

143 Id. P 15.

144 Berkshire Power Co. LLC & Power Plant Mgmt. Servs. LLC, 154 FERC ¶ 

61,259, at P 8 (2016) (Berkshire Power).

145 Id. 

146 Id. P 11.

147 See, e.g., Enforcement of Statutes, Orders, Rules, and Regulations, 113 FERC ¶ 

61,068, at PP 21–27 (2005) (2005 Policy Statement on Enforcement); Enforcement of 

Statutes, Regulations, and Orders, 123 FERC ¶ 61,156, at PP 55–71 (2008) (Revised 
33

valuable notice on mitigating and aggravating factors in its orders approving settlement 

agreements and orders assessing civil penalties in specific market manipulation matters. 

These factors, which are relevant to the Commission’s statutory mandate to consider the 

seriousness of violations and efforts to remedy them, include entities’ commitment to 

compliance, self-reporting, cooperation, prior history of violations, involvement of 

senior-level employees, obstructionist conduct, and acceptance of responsibility.

This section focuses on three such factors—commitment to compliance, selfreporting, and cooperation—which have played a significant role in shaping penalty 

determinations in multiple market manipulation cases. These factors can have a 

substantial impact on the applicable penalty range under the Penalty Guidelines as well as 

where within the range the Commission determines to set the ultimate penalty. Entities 

have control over each of these factors and can take steps before violations occur, when 

they occur, or after the commencement of an investigation to lessen their culpability and 

resulting penalty. 

A. Commitment to Compliance

The Commission has consistently emphasized the importance of compliance in its 

enforcement program. In fact, on the first page of its Penalty Guidelines, the 

Commission highlights that “[a]chieving compliance, not assessing penalties, is the 

central goal of the Commission’s enforcement efforts.”148 True to this policy objective, 

the Commission provides substantial penalty reductions to entities that have effective 

compliance programs and has outlined certain factors that are helpful in achieving 

effective compliance. 

Under the Penalty Guidelines, entities can receive up to a three-point credit to 

reduce their culpability score for an effective compliance program.149 This reduction is 

substantial. As the Commission explained when issuing the Penalty Guidelines, “even if 

an organization fails to receive any reduction other than compliance credit, the 

compliance credit alone could still reduce a penalty by sixty percent, for example, from 

$5 million to $2 million.”150 Conversely, the Commission has made clear that a lack of 

 

Policy Statement on Enforcement); Compliance with Statutes, Regulations, and Orders, 

125 FERC ¶ 61,058, at PP 13–21 (2008) (Policy Statement on Compliance); Enforcement 

of Statutes, Orders, Rules, and Regulations, 132 FERC ¶ 61,216 (2010) (Revised Policy 

Statement on Penalty Guidelines attaching the FERC Penalty Guidelines).

148 FERC Penalty Guidelines § 1A1.1.2.

149 Id. § 1C2.3(f).

150 Revised Policy Statement on Penalty Guidelines, 132 FERC ¶ 61,216 at P 109. 

The Commission has also stated that, when combined with other elements, the 

compliance credit can even eliminate civil penalties. Policy Statement on Compliance, 

125 FERC ¶ 61,058 at P 23.
34

compliance can aggravate a penalty determination, explaining that it could “assess a 

penalty that falls on the higher side of the penalty range” or “depart from applying the 

Penalty Guidelines” in cases when an entity lacks effective compliance.151

The Commission has given entities the opportunity to obtain compliance credit by 

outlining the factors relevant to effective compliance. The Penalty Guidelines devote an 

entire chapter to compliance, detailing seven factors required for an effective compliance 

program.152 These factors, which are consistent with the Commission’s previous policy 

statements, include, among others, establishing standards and procedures to prevent and 

detect violations, taking reasonable steps to respond appropriately after a violation has 

been detected, and periodically evaluating the effectiveness of the organization’s 

compliance program.153

The Commission often grants compliance credit in its market manipulation 

matters, with the 2014 Direct Energy case providing a notable example of the ability of 

effective compliance to significantly reduce a company’s civil penalties.154 In Direct 

Energy, staff found that traders had engaged in a cross-market manipulation scheme by 

making fixed-price trades designed to suppress the Gas Daily index to benefit their 

related financial positions.155 In approving a $20,000 civil penalty—a low penalty for a 

market manipulation violation—the Commission emphasized Direct Energy’s robust 

compliance program, including the program’s effectiveness in promptly detecting and 

responding to the violations. Direct Energy caught the violations through two 

independent means: (1) a trader reported them after receiving training on the 

Commission’s Constellation settlement; and (2) the company’s back office flagged the 

trades as unusually large.156 After discovering the violations, Direct Energy took 

appropriate steps to self-report, investigate, and discipline the traders. All of these 

findings factored into the finding of an effective compliance program and the resultant 

substantial penalty credit.157 Also important, Direct Energy’s compliance program, by 

detecting and stopping the relevant conduct early, substantially reduced the market harm 

 151 Revised Policy Statement on Penalty Guidelines, 132 FERC ¶ 61,216 at P 131.

152 See FERC Penalty Guidelines § 1B2.1.

153 See id. 

154 Direct Energy, 148 FERC ¶ 61,114.

155 Id. P 15.

156 Id. PP 4–5.

157 Id. PP 12, 20. 
35

from the manipulative conduct that would have continued into the future if left 

undetected.158

Companies should use the Direct Energy case as a guide when building an 

effective compliance program. Direct Energy’s compliance plan was more than just a 

written document; it was a program, supported and followed at all levels of the 

organization, that worked in practice to detect, cease, and respond to violations quickly 

and effectively. In contrast, the Commission has refused to provide any compliance 

credit to some entities that had documented compliance programs but did not follow 

them.159

B. Self-Reporting

The Commission “place[s] great importance on self-reporting” because of the 

“significant value [it adds] to overall industry compliance.”160 The Commission explains 

this value as follows: “Providing credit for self-reporting gives organizations an 

incentive to detect and correct violations early. Self-reporting also assists the 

Commission’s review of violations and facilitates the process of providing remedies to 

 158 As with any violation, the impact of a robust compliance program on potential 

penalties depends on the interaction with a number of other factors as discussed in the 

Penalty Guidelines, and staff will continue to consider and recommend settlements or 

penalties to the Commission on a case-by-case basis. 

159 See, e.g., Deutsche Bank, 142 FERC ¶ 61,056 at P 25 (company’s compliance 

handbook discussed the type of trading at issue, but the trading was nonetheless not 

reviewed by management); Barclays, 144 FERC ¶ 61,041 at P 123 (ineffective 

compliance program); Constellation, 138 FERC ¶ 61,168 at P 27 (same); City Power, 

152 FERC ¶ 61,012 at P 248 (compliance credit not warranted even if it had a program in 

place “given that City Power’s founder and majority owner designed and directed the 

fraudulent trading conduct”); EnerNOC, Inc. & Celerity Energy Partners San Diego 

LLC, 141 FERC ¶ 61,211, at P 13 (2012) (order approving settlement finding that 

Celerity, which failed to comply with certain Commission filing requirements, had no 

compliance procedures regarding regulatory filing obligations); Berkshire Power, 154 

FERC ¶ 61,259 at P 21 (order approving settlement in which neither company had an 

effective compliance program in place); BP, 156 FERC ¶ 61,031 at PP 397-398, 402 

(agreeing with ALJ’s findings that BP’s compliance program was deficient in operation, 

in part, because it was not consistently followed).

160 Revised Policy Statement on Penalty Guidelines, 132 FERC ¶ 61,216 at P 141. 

In the 2015 fiscal year, staff closed 78 self-reports from that and prior years with no 

action. FERC Office of Enforcement, 2015 Report on Enforcement, Docket No. AD07-

13-009, at 15 (2015), available at http://www.ferc.gov/legal/staff-reports/2015/11-19-15-

enforcement.pdf. (2015 Report on Enforcement).
36

affected parties.”161 Because of this value, the Commission provides a two-point selfreporting credit under the Penalty Guidelines, which, alone, can result in a forty percent 

reduction in base penalty amount.162

The Commission has also described what it expects of entities in order to secure 

the full two-point credit. To receive credit, the Commission requires prompt disclosures 

of potential violations about which it would otherwise not be aware.163 Thus, the 

Commission provides self-reporting credit for disclosures made “(A) prior to an 

imminent threat of disclosure or government investigation; and (B) within a reasonably 

prompt time after becoming aware of the violation.”164 

Direct Energy again provides a good example of self-reporting that warranted and 

received full credit under the Penalty Guidelines. In May 2012, very soon after 

discovering potential violations, Direct Energy contacted staff to make an initial, verbal 

self-report. Counsel proposed to conduct an internal investigation and then submit a 

written self-report. After assessing the circumstances, staff agreed to this proposal. 

Counsel periodically updated staff on the company’s internal investigation and, in August 

2012, met with staff to describe the results of the investigation and submit a written selfreport.165 A number of other companies have taken this useful and effective approach to 

self-reporting (and addressing) potential violations. 

In contrast to Direct Energy’s approach, some companies might opt not to make a 

prompt self-report of market manipulation, deciding instead to wait until they are certain 

a violation occurred. Or, they might decide to forego market manipulation-related selfreports altogether, reasoning that there is too much risk of external exposure from market 

manipulation findings. However, companies should consider a few factors before 

making such decisions. First, there is real value in prompt self-reports, and entities may 

lose full self-reporting credit if they delay too long.166 Prompt self-reports, for example, 

 161 Revised Policy Statement on Penalty Guidelines, 132 FERC ¶ 61,216 at P 141. 

In 2005, the Commission explained that “[c]ompanies are in the best position to detect 

and correct violations of our orders, rules, and regulations, both inadvertent and 

intentional, and should be proactive in doing so.” 2005 Policy Statement on 

Enforcement, 113 FERC ¶ 61,068 at P 24.

162 FERC Penalty Guidelines § 1C2.3(g)(1).

163 Id.; see also Revised Policy Statement on Enforcement, 123 FERC ¶ 61,156 at 

PP 61-64. 

164 FERC Penalty Guidelines § 1C2.3(g)(1).

165 Direct Energy, 148 FERC ¶ 61,114 at P 3.

166 In fact, a long delay could result in the lack of any credit if, for example, staff 

discovers the potential violations through other sources, such as from a whistleblower. 
37

allow staff to provide guidance and directives to reporting entities on factors to consider 

in their internal investigations. Second, submitting a self-report does not necessarily 

mean that staff will open an investigation. Each matter, whether self-reported or not, is 

assessed on its own merits, and many matters are not opened. Even if staff does open an 

investigation, it may or may not lead to a finding of violations and subsequent sanctions. 

Finally, a self-report does not amount to an admission of a market manipulation violation 

(or any violation).167

C. Cooperation

The Commission also places great importance on good-faith and consistent 

cooperation throughout an investigation because that “help[s] provide Enforcement staff 

with sufficient information to understand the circumstances of how and why the violation 

occurred as well as the identity of the relevant personnel involved in the violation.”168 

“As is the case with good-faith self-reports, this type of cooperation should lead to a 

better informed and prompt conclusion of staff’s inquiry.”169 Therefore, the Commission 

provides a one-point credit for cooperation to reduce a company’s culpability score and 

has provided extensive guidance on what is required to achieve this credit. To receive the 

credit, the cooperation must be timely and thorough, meaning that it begins at the time an 

entity is notified of an investigation and results in the disclosure of information 

“sufficient for the Commission to identify the nature and extent of the violation and the 

individual(s) responsible for the violation.”170

There are positive examples of timely and thorough cooperation in market 

manipulation investigations, and also examples where the failure to cooperate was an 

important factor in the Commission’s penalty determination. Most entities cooperate 

with staff’s investigative efforts by timely producing pertinent information and 

witnesses.

171 For example in Gila River ̧ the Commission found that “Gila River and its 

 167 See, e.g., Direct Energy, 148 FERC ¶ 61,114 at P 2 (neither admitting nor 

denying violations after making a good-faith, prompt self-report). If an entity does admit 

to a violation, however, that can reduce its civil penalty under the Penalty Guidelines. 

See, e.g., MISO Cinergy Hub Transactions, 149 FERC ¶ 61,278 at PP 2, 11 (receiving 

credit for admitting to market manipulation violations); Gila River, 141 FERC ¶ 61,136 

at P 1 (receiving credit for admitting to market manipulation violations).

168 Revised Policy Statement on Penalty Guidelines, 132 FERC ¶ 61,216 at P 142.

169 Id.

170 FERC Penalty Guidelines § 1C2.3(g), Application Note 11.

171 Of course, to receive cooperation credit the production of information and 

witnesses must also be in good faith. For example, cooperation credit would not be 

warranted for producing a witness that is coached to be uncooperative or to provide false 

or misleading testimony.
38

employees provided exemplary cooperation in the investigation and were productive and 

diligent in assisting staff at all phases of its investigation. Further, Gila River’s 

cooperation made staff’s fact-finding efficient and productive and thereby helped 

conserve Commission resources.”172 As discussed in the settlement agreement in that 

matter, Enforcement found that “[t]ogether with its attorneys, Gila River employees 

worked with Enforcement staff to bring to light salient facts and to develop a sound 

method to analyze and calculate Gila River’s profits from its conduct. In agreeing to a 

penalty amount, Enforcement favorably considered this conduct of Gila River and its 

employees.”173

In stark contrast, the Commission recently denied mitigating credit for cooperation 

in City Power, finding that the company and individual trader made “very serious” 

intentional misrepresentations to staff about the existence of relevant instant messages. 

The Commission considered such misrepresentations as obstructionist conduct and an 

aggravating factor in its penalty calculations.174 Similarly, the Commission denied 

cooperation credit in Coaltrain based on the company’s “fail[ure] to acknowledge the 

existence of or produce” relevant data to staff.175 In another example of a failure to earn 

cooperation credit, the Commission considered in Lincoln the respondent’s failure to 

supplement investigatory data requests regarding its financial condition and its 

subsequent submission of different financial information directly to the Commission as 

part of the Order to Show Cause proceeding.176 The respondent had also delayed 

production of a number of emails requested by staff and only agreed to provide those 

emails in a usable format after multiple requests.177 Finding the respondent’s cooperation 

was neither timely nor thorough, the Commission denied cooperation credit in assessing 

 172 Gila River, 141 FERC ¶ 61,136 at P 16.

173 Gila River, 141 FERC ¶ 61,136, Settlement Agreement at P 3. 

174 City Power, 152 FERC ¶ 61,012 at PP 241–47 (“These violations caused OE 

Staff to waste valuable time and resources during their investigative process.”); see also

JP Morgan, 144 FERC ¶ 61,068 at P 89 (“[I]n light of the record here, we remind all 

persons under investigation of the importance of candor and accuracy during all stages of 

Market Monitor inquiries and Commission investigations.”).

175 Coaltrain, 155 FERC ¶ 61,204 at P 324.

176 Lincoln, 144 FERC ¶ 61,162 at P 74. 

177 Id.
39

penalties.178 The failure to cooperate, as highlighted in these cases, impedes staff’s 

ability to investigate and resolve matters timely and efficiently.

179

VI. Staff Decisions to Close Investigations of Allegations of Market Manipulation

While the Commission’s settlements, orders to show cause, orders assessing civil 

penalties, and staff notices of alleged violation often receive the most public attention, 

staff closes a significant number of its market manipulation investigations with no action 

after finding no violation. 

Staff’s publicly available Annual Reports on Enforcement provide illustrative 

examples of market manipulation investigations that were opened but later closed.

180 

Staff also provides its reasons for closing the investigations. Like the Commission’s 

guidance on what constitutes manipulation, describing conduct that does not warrant 

penalties provides useful notice and guidance to industry. It provides valuable 

information to market participants, for example, on developing effective preventative and 

mitigation measures.

As an example from staff’s Annual Report on Enforcement in fiscal year 2015, 

staff investigated whether a financial trading firm had engaged in cross-market 

manipulation on one day in 2014 by submitting virtual bids with the intent to benefit its 

existing FTR position.181 The bids themselves lost money, and they caused the value of 

the firm’s FTR position to increase substantially. After requesting documents and taking 

testimony of the relevant trader, staff found insufficient evidence of manipulative intent. 

In particular, the trader provided a credible, legitimate explanation for his decision to 

place those virtual trades, and the company produced an email from the trader to his 

supervisor, noting that his virtual trades might have affected the company’s FTR position 

and explaining that this result was unexpected and that he would cease trading at those 

 178 Id.

179 See, e.g., Coaltrain, 155 FERC ¶ 61,204 at P 317; In Re Edison Mission, 123 

FERC ¶ 61, 170, at P 9 (2008) (considering that Edison Mission’s “acts that misled staff 

were protracted, related to core issues under investigation, and caused extensive 

misallocation of resources”). The Commission places great emphasis on cooperation to 

avoid such waste and delay during investigations. Revised Policy Statement on Penalty 

Guidelines, 132 FERC ¶ 61,216 at P 142 (explaining that good-faith, consistent, and 

continuing cooperation “should lead to a better informed and prompt conclusion of staff’s 

inquiry”).

180 See, e.g., FERC Office of Enforcement, 2016 Report on Enforcement, Docket 

No. AD07-13-010, at 31-32 (2016) (issued simultaneously with this White Paper and 

available on the Commission’s website).

181 2015 Report on Enforcement at 30. 
40

nodes in the future. Based on insufficient evidence of manipulative intent, the limited 

duration of the trading, the fact that the RTO/ISO might have been able to claw back any 

gains realized through these trades, and discussions with the company in which it 

identified new protective measures that it had taken to avoid problems with virtual trades 

in the future, staff closed this investigation without further action.182

As discussed in the same annual report, staff also investigated whether a demand 

response aggregator had violated the Anti-Manipulation Rule and the relevant RTO/ISO 

tariff by enrolling a resource in a yearly demand response capacity program while 

knowing the resource’s operating level could potentially vary widely during the delivery 

year.183 After taking testimony and reviewing written discovery, staff determined that 

although the aggregator received information regarding potential variations in the 

resource’s operating level before enrollment, it lacked sufficient details regarding the 

timing and extent of potential changes in the resource’s operating level to draw 

conclusions regarding its participation. In addition, staff found no evidence that the 

aggregator enrolled the resource intending to take advantage of potential changes in its 

operating level and closed the investigation after considering these factors.184

An example from staff’s 2014 Report on Enforcement is an investigation where 

staff examined whether a financial institution engaged in manipulation by increasing the 

quantities of CRRs held at two locations and proceeding to schedule price-taking physical 

import bids at one of the locations.185 Staff investigated whether those physical imports 

were part of an effort to exacerbate congestion at the intertie location to increase the 

value of the CRR position. After determining that the groups responsible for the CRRs 

and imports operated independently and that economic fundamentals supported the 

behavior, staff closed the investigation.186 In another example from the 2014 report, staff 

investigated an entity based on internal information showing a potential cross-market 

manipulation scheme at two California natural gas trading hubs.187 The entity was 

engaging in unusually large physical transactions and initially failed to provide consistent 

explanations for its conduct.188 After reviewing the relevant trade data and interviewing 

 182 Id.

183 Id. at 29.

184 Id.

185 FERC Office of Enforcement, 2014 Report on Enforcement, Docket No. 

AD07-13-008, at 27 (2014), available at http://www.ferc.gov/legal/staff-reports/2014/11-

20-14-enforcement.pdf.

186 Id.

187 Id.

188 Id.
41

the relevant traders, staff closed the matter because the facts showed legitimate trading 

activity and did not indicate intent to benefit the entity’s financial positions.189

In another example from staff’s 2013 Report on Enforcement, a financial 

institution self-reported that it discovered an instant message between two of its traders 

potentially indicating the intentional use of virtual bidding to affect locational marginal 

prices in an RTO/ISO and thereby influence the value of related financial positions.190

After analyzing company trades and documents and taking testimony, staff determined 

there was insufficient evidence of a manipulative trading scheme. Staff also found that 

the company self-reported the matter promptly and took immediate remedial steps and 

that the matter involved an isolated trading period. Because of all of these factors, staff 

closed the investigation with no action.191 Finally, in an example from staff’s 2012 

Report on Enforcement, staff investigated allegations that a market participant in an 

organized electric market engaged in manipulation by executing virtual transactions at or 

near nodes where it owned financial transmission rights for the purpose of artificially 

inflating the value of those rights.192 Staff closed the investigation because there was 

insufficient evidence to prove that the virtual transactions were aimed at manipulating 

prices.193

VII. Conclusion

As described in this White Paper, since EPAct 2005 and the implementation of the

Anti-Manipulation Rule, the Commission has taken significant steps to carry out its 

statutory obligation to effectively and vigorously police and sanction manipulative 

conduct. This is reflected in the number of market manipulation settlements and 

enforcement proceedings the Commission has pursued and approved, the civil penalties 

and disgorgement the Commission has imposed to deter and remedy manipulative 

conduct, and the compliance program enhancements the Commission has required 

entities to adopt to help avoid future instances of manipulation. In addition, the 

Commission has become more proactive in its efforts to detect manipulation, most 

significantly, by creating the Division of Analytics and Surveillance to conduct complex 

 189 Id.

190 FERC Office of Enforcement, 2013 Report on Enforcement, Docket No. 

AD07-13-006, at 26 (2013), available at http://www.ferc.gov/legal/staff-reports/2013/11-

21-13-enforcement.pdf.

191 Id.

192 FERC Office of Enforcement, 2012 Report on Enforcement, Docket No. 

AD07-13-005, at 23 (2012), available at http://www.ferc.gov/legal/staff-reports/11-15-

12-enforcement.pdf.

193 Id.
42

forensic analyses of market data to determine whether manipulation is occurring. This is 

the type of strong enforcement program Congress expected when passing EPAct 2005. 

Indeed, in the aftermath of the Western Energy Crisis, the Senate Governmental Affairs 

Committee told then-Chairman Patrick Wood III that “[m]embers of both parties on the 

Committee [share the interest] that FERC learn . . . from the Enron scandal and . . . [be] 

as aggressive and sophisticated as the players out in the deregulated energy market. ”194

The Commission has worked vigorously to detect, pursue, and sanction market 

manipulation while ensuring a fair and thorough enforcement process.

195 And the 

Commission has also sought to be as transparent as reasonably possible (while always 

looking for opportunities to be more transparent) in providing guidance to market 

participants about what conduct constitutes market manipulation and what conduct does 

not.

 194 Asleep at the Switch: FERC’s Oversight of the Enron Corporation: Hearing 

Before the S. Comm. on Gov’t Affairs, 107th Cong. 59 (2003) (statement of Sen. Joseph 

Lieberman, Chairman, S. Comm. on Governmental Affairs).

195 2005 Policy Statement on Enforcement, 113 FERC ¶ 61,068 at P 1; see also 

Todd Hettenbach, Allison Murphy & Thomas Olson, The FERC Enforcement Process, 35 

Energy L. J. 283, 291-97 (2014); Hearing on Discussion Draft on Accountability and 

Dep’t of Energy Perspectives on Title IV: Energy Efficiency Before the H. Energy and 

Commerce Comm. Energy and Power Subcomm, 114th Cong. 34-37 (2015) (statement of 

Larry R. Parkinson, Director, FERC Office of Enforcement). 
43

APPENDIX A

Market Manipulation Matters Post-Anti-Manipulation Rule

Commission-Approved Settlements:

• In re Amaranth Advisors, 128 FERC ¶ 61,154 (2009)

• In re Jefferson Energy Trading, LLC, 126 FERC ¶ 61,040 (2009)

• In re Klabzuba Oil & Gas, F.L.P., 126 FERC ¶ 61,040 (2009)

• In re ONEOK, Inc., 126 FERC ¶ 61,040 (2009)

• In re Tenaska Mktg. Ventures, 126 FERC ¶ 61,040 (2009)

• N. Am. Power Partners, 133 FERC ¶ 61,089 (2010)

• In re Atmos Energy Corp., 137 FERC ¶ 61,190 (2011)

• In re Holyoke Gas & Elec. Dept., 137 FERC ¶ 61,159 (2011)

• Gila River Power, LLC, 141 FERC ¶ 61,136 (2012)

• Constellation Energy Commodities Grp., Inc., 138 FERC ¶ 61,168 (2012)

• In re Joseph Polidoro, 138 FERC ¶ 61,018 (2012)

• In re Make-Whole Payments & Related Bidding Strategies, 144 FERC ¶ 

61,068 (2013)

• Enerwise Global Technologies, Inc., 143 FERC ¶ 61,218 (2013)

• Rumford Paper Co., 142 FERC ¶ 61,218 (2013)

• In re PJM Up-To Congestion Transactions., 142 FERC ¶ 61,088 (2013)

• Deutsche Bank Energy Trading, LLC, 142 FERC ¶ 61,056 (2013)

• MISO Cinergy Hub Transactions, 149 FERC ¶ 61,278 (2014)

• Direct Energy Servs., Inc., 148 FERC ¶ 61,114 (2014)

• MISO Virtual & FTR Trading, 146 FERC ¶ 61,072 (2014)

• Berkshire Power Co. LLC & Power Plant Mgmt. Servs. LLC, 154 FERC ¶ 

61,259 (2016)

• Lincoln Paper and Tissue, LLC, 155 FERC ¶ 61,228 (2016)

• National Energy & Trade, L.P., 156 FERC ¶ 61,154 (2016)

• In re David Silva, 156 FERC ¶ 61,155 (2016)

• Maxim Power Corp., 156 FERC ¶ 61,223 (2016)

Matters Tried in Administrative Proceedings:

• Brian Hunter, 135 FERC ¶ 61,054 (2011), order denying reh’g, 137 FERC ¶ 

61,146 (2011), rev’d sub nom, Hunter v. FERC, 711 F.3d 155 (D.C. Cir. 2013)

• BP America, Inc., 156 FERC ¶ 61,031 (2016) (Order on Initial Decision and 

Rehearing)

Commission Orders Assessing Civil Penalties

• Lincoln Paper & Tissue, LLC, 144 FERC ¶ 61,162 (2013)
44

• Silkman, LLC, 144 FERC ¶ 61,164 (2013)

• Competitive Energy Servs., LLC, 144 FERC ¶ 61,163 (2013) 

• Barclays Bank, PLC, 144 FERC ¶ 61,041 (2013)

• Maxim Power Corp., 151 FERC ¶ 61,094 (2015)

• Houlian Chen, 151 FERC ¶ 61,179 (2015)

• City Power Mktg., LLC, 152 FERC ¶ 61,012 (2015)

• Coaltrain Energy, L.P., 155 FERC ¶ 61,204 (2016)

• ETRACOM & Michael Rosenberg, 155 FERC ¶ 61,284 (2016)

District Court Proceedings on Petition to Affirm Penalty Assessments:

• FERC v. Barclays Bank, PLC, No. 2:13-cv-2093-TLA-EFB (TEMP) (E.D. 

Cal.)

• FERC v. Silkman and Competitive Energy Servs., LLC, No. 1:13-cv-13054 (D. 

Me.)

• FERC v. Lincoln Paper & Tissue, LLC, No. 1:13-cv-13056 (D. Me.) (Settled 

on June 1, 2016)

• FERC v. Maxim Power Corp., No. 3:15-cv-30113 (D. Mass.) (Settled on Sept. 

26, 2016)

• FERC v. City Power Mktg., LLC, No. 1:15-cv-01428-JDB (D.D.C.)

• FERC v. Powhatan Energy Fund, LLC, No. 3:15-cv-0452 (E.D. Va.)

• FERC v. ETRACOM LLC, No. 2:16-at-01011 (E.D. Cal.)

• FERC v. Coaltrain Energy, L.P., No. 2:16-cv-732 (S.D. Ohio)

Pending Order to Show Cause (OSC) Proceedings at the Commission:

• Total Gas & Power N. Am., 155 FERC ¶ 61,105 (2016) (OSC and Notice of 

Proposed Penalty)

• BP America, Inc., 156 FERC ¶ 61,031 (2016) (Order on Initial Decision and 

Rehearing)