US FERC filing sets in motion Powhatan trial; statute of limitations argument expected

Washington (Platts)--31 Jan 2018 742 pm EST/042 GMT

The US Federal Energy Regulatory Commission this week restated its case against Powhatan Energy Fund and others for allegedly manipulating PJM Interconnection's electricity markets in 2010, jumpstarting district court action on the matter after a long procedural fight over the scope of de novo review under the Federal Power Act.

FERC has alleged that Powhatan, Houlian "Alan" Chen and two firms Chen founded manipulated the market by executing large volumes of "wash trades" to collect excessive amounts of marginal loss surplus allocation payments, also called transmission loss credits (IN15-3). The up-to congestion trades at issue have since been barred from being eligible to receive MLSA credits.

Powhatan and the others have consistently denied that they engaged in market manipulation and, during FERC's investigation, mounted a public campaign involving leading energy market thinkers, including former FERC officials and well-known power market experts, to defend their name. Powhatan even released non-public documents linked to the commission's investigation.

FERC Monday filed an amended complaint, again asking the US District Court for the Eastern District of Virginia in Richmond to affirm its finding of market manipulation and assessment of $29.8 million in fines as well as disgorgement of roughly $4.7 million of unjust profits (FERC v. Powhatan Energy Fund, et al., 3:15-cv-00452).

The amended complaint was filed in accordance with a December 28 court order that followed District Judge M. Hannah Lauck's decision that same day, finding that Powhatan and the other respondents in the case were "entitled to a trial de novo governed by the Federal Rules of Civil Procedure and the Federal Rules of Evidence." FERC 0 FOR 6 ON DE NOVO RULINGS

In recent years, companies embroiled in power market manipulation battles in federal district courts have pushed for discovery rights and full jury trials, while FERC's attorneys held to the argument that the judges already had everything they needed to rule from the investigative or administrative record submitted to the court by the commission.

Lauck's decision gives Powhatan and the others an opportunity to use discovery to obtain testimony and cross-examine witnesses. It also marks the sixth defeat in court for FERC on that issue.

Powhatan, Chen and the two firms he founded have 30 days from FERC's filing to submit responsive pleadings, after which FERC will have 21 days to respond followed by a 14-day window for replies from the respondents.

"The whole thing is completely nuts on pretty much every level," Kevin Gates, one of the principals at Powhatan, said Wednesday. "We're 7.5 years deep into an investigation, and FERC has done everything in its power to deny us basic due-process rights and bully us into a settlement. Powhatan is blessed to have the resources and will to fight."

Gates said his attorneys would be submitting a motion to dismiss the amended complaint that would likely raise a statute-of-limitations argument.

Chen's attorney made such an argument in a motion to dismiss FERC's original complaint in 2015. That motion was denied without prejudice as Lauck sought to first focus on firming up the contested meaning of a de novo review.

With the procedural battle behind them, Gates said: "We can resubmit our motion to dismiss. Since the statute-of-limitations argument has been validated by the Barclays judge, I'm guessing that our attorneys will be quite keen to put that argument back in front of Judge Lauck." OTHER COURTS HAVE YET TO WEIGH IN ON STATUTE OF LIMITATIONS

Gates comments refer to the US District Court for the Eastern District of California's dismissal of a defendant in the long-running power market manipulation case against Barclays Bank and several former traders after finding that FERC's actions against him were time-barred by the five-year statute of limitations found in 28 U.S.C. 2462, a federal statute on timing of enforcement proceedings.

That court's September 29 decision on the statute of limitations found that FERC's issuance of an order to show cause and notice of proposed penalty did not satisfy the statute of limitations in enforcement cases. The Barclays case has since been settled (FERC v. Barclays Bank, et al., 2:13-cv-02093).

An industry attorney said if a similar statute-of-limitations ruling were made in the Powhatan case, it would eliminate a significant portion of the days upon which misconduct allegedly occurred that could be considered at trial and, in turn, lessen the penalty FERC could impose.

But Lauck is not bound by the California district judge's decision, and could make a statute-of-limitations interpretation that finds FERC's order to show cause is indeed sufficient, the attorney said.

Nevertheless, Powhatan's legal team previously asserted that FERC was attempting to retroactively impose a penalty on trading behavior that benefited from a flaw in PJM's tariff design, but was otherwise legal in the summer of 2010 when undertaken. The consequences of bad market design and ambiguous standards should be borne by FERC, not Powhatan, the 2015 motion to dismiss insisted.

Further, their attorneys argue that all money is green, so as long as traders are following the rules of the market, they can make money without concern for the source of the money.

FERC, they say, has instead tried to pretend that there are permissible green dollars and forbidden purple dollars. And those purple dollars are forbidden for no defensible reason "but simply because FERC says so after the trading at issue has already occurred, which raises obvious constitutional due process/fair notice problems," they said in a court filing. -- Jasmin Melvin,

-- Edited by Valarie Jackson,

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