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Fourth Circuit Rejects Statute of Limitations Challenge to FERC Electricity Market Manipulation Suit

On Feb. 11, 2020, the United States Court of Appeals for the Fourth Circuit decided that the Federal Energy Regulatory Commission (FERC) did not overstep the statute of limitations in its effort to impose more than $29 million in civil penalties over alleged wholesale electricity market manipulation carried out by Dr. Houlian Chen and other associated financial entities, including Pennsylvania-based hedge fund Powhatan Energy Fund LLC (collectively herein referred to as “Powhatan”).

Affirming the District Court for the Eastern District of Virginia (Lower Court), the Fourth Circuit rejected arguments from Powhatan that the enforcement suit was time-barred because the manipulative activity alleged by FERC happened outside a five-year statute of limitations.

Powhatan argued that the statute of limitations began when the alleged manipulative trades ended in August 2010. FERC argued that its claim did not accrue until it completed the Federal Power Act’s (FPA) prerequisites for filing a lawsuit to enforce civil penalties. The Fourth Circuit agreed, saying that FERC is bound by Congress to provide a notice of the proposed penalty and wait for 60 days of nonpayment before it can file a claim.

FERC did not file its complaint until July 2015, which would have excluded all but four days from civil penalties. The Fourth Circuit sided with FERC and determined that the statute of limitations was not triggered until Powhatan failed to pay the penalties within the 60 days after FERC imposed them. FERC may impose fines up to $1 million per day per violation of the FPA, which prohibits manipulation of interstate energy markets.

In 2015, FERC asked the Lower Court to enforce its FPA penalties against Powhatan, after concluding that Powhatan violated FERC’s anti-manipulation rule by engaging in a fraudulent up-to-congestion trading scheme. This scheme involved a hedging mechanism against transmission system congestion charges designed to appear to be spread trades to collect payments known as marginal loss surplus allocation in the PJM Interconnection, LLC market during 2010.

Further, the Fourth Circuit held that forcing FERC to speed up its enforcement timeline would risk imposing civil penalties against investigation targets based on potentially slipshod investigations, hastily undertaken to protect against the effect of a premature limitations period. In this sense, ensuring that FERC has enough time to thoroughly vet each alleged instance of market manipulation before filing suit would benefit the investigation targ

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About this Author

Rabeha Kamaluddin Shareholder DC Energy & Natural Resources Litigation Federal Regulatory & Administrative Law
Shareholder

Rabeha Kamaluddin has deep experience in a broad range of administrative, judicial, and transactional matters, primarily in the energy industry.  She focuses her practice on energy regulation, compliance, and enforcement matters, regularly representing clients before the Federal Energy Regulatory Commission (FERC) and various state public utility commissions.  

Rabeha represents energy clients, including interstate oil and natural gas pipelines and storage providers, liquefied natural gas (LNG) exporters, refiners, jet fuel shippers, public utilities, transmission owners,...

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Gregory Lawrence, Greenberg Traurig Law Firm, Energy, Crorporate and Finance Litigation Law Attorney
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Gregory K. Lawrence focuses his practice on the electricity and natural gas industries. He is experienced appearing before the Federal Energy Regulatory Commission (FERC) and multiple state utility commissions regarding regulatory proceedings, compliance and enforcement, capacity and energy market structure, transactions and negotiations, asset transfers, and governmental affairs. Greg’s clients include financial institutions and funds, marketers, traders, renewable and other project developers, municipal and investor-owned utilities, and large energy consumers.

Recognized as a leading energy and electricity lawyer by Chambers USA, Greg is a frequent speaker at energy industry conferences and a contributor to a wide range of publications, includingThe Electricity Journal, Electric Light & PowerEnergy RiskBloomberg Law ReportsProject Finance InternationalCorporate CounselWindpower Engineering, and EnergyLaw 360. He also authored a quarterly column in Electric Energy T&D Magazine and "Rationalizing Supply with Demand: Electricity Demand Response in U.S. Wholesale Electricity Markets," a book chapter inU.S. Law and Taxation.

In addition, Greg has taught energy seminars at the Massachusetts Institute of Technology Sloan School, Cornell Law School, and Syracuse University. Greg regularly presents at The Harvard Kennedy School, Harvard Electricity Policy Group, regarding electricity market structure as well as manipulation legal issues.

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Thomas O. Lemon ASSOCIATE Boston Litigation Energy & Natural Resources
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Thomas O. Lemon focuses his practice on litigation and regulation in the energy sector. After receiving his J.D. from Washington University in St. Louis in 2011, Tom worked as an attorney-advisor in the Federal Energy Regulatory Commission’s (FERC) Office of Enforcement. In his time at the Commission, Tom worked on nearly every type of FERC Enforcement matter, and has extensive experience with natural gas and electricity market fraud and manipulation claims, NERC reliability standards violations, wholesale demand response, and LMP and capacity price formation. He has done investigatory and...

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