U.S. sues BP over corner on fuel

Suit alleges its traders drove up propane prices for millions of people at depth of 2004 winter

June 29, 2006|By NEW YORK TIMES NEW SERVICE

Federal regulators charged yesterday that a subsidiary of BP PLC manipulated the price of propane two years ago by cornering the market, pushing up heating costs for millions of households at the peak of winter demand.

The Commodity Futures Trading Commission charges that at least six current and former employees at a unit of BP North America squeezed the propane market in February 2004, according to a civil complaint filed in federal court in Chicago. They sought to make at least $20 million in profits, it said.

Also, the Justice Department said yesterday that one trader named in the lawsuit pleaded guilty to a conspiracy charge in a parallel criminal case. The plea is part of a continuing investigation by the FBI.

"BP cornered the market on physical propane," said Gregory G. Mocek, director of the enforcement division of the CFTC, a federal regulator that oversees commodity markets. "They used their financial power to drive up prices."

BP has denied any wrongdoing and has indicated it will fight the charges in court, according to a spokesman, Ronnie Chappell. The company said it had cooperated with federal regulators and would assist the Justice Department in its investigation.

"Market manipulation did not occur," BP said in a statement.

The company said it had taken disciplinary action, including firing some of its employees for failing to adhere to internal policies. The company also said it had taken steps to strengthen supervision of its trading activities.

Three of the six employees named in the civil complaint still work for BP. The others were fired.

According to the suit filed yesterday in Chicago, BP's market manipulation caused prices to spike briefly in February 2004, during the peak season for propane use.

Propane is a natural gas liquid used for domestic heating by about 7 million households, mostly in the Northeast. BP is the largest supplier of natural gas liquids in North America.

The allegations come as oil companies are facing strong criticism for high gasoline prices.

BP has a large trading desk where it buys and sells commodities on the market, in addition to its main business of extracting oil and natural gas.

One defendant named in the lawsuit, Donald Cameron Byers, is the president and chief executive officer of BP Products North America. He was chief operating officer of that unit at the time of the manipulation charged in the complaint.

A former BP trader, Dennis N. Abbott, 34, of Houston, pleaded guilty in federal District Court in Washington to conspiring to manipulate the propane market, the Justice Department said. He faces five years in prison and a $250,000 fine.

Abbott, who was fired by BP, could not be reached for comment.

Besides Abbott, Byers and the company itself, the commission filed charges against former trader Mark Ridley, whom the commodity commission alleged was a key architect of the plot; Martin Marz, BP's compliance manager; James Summers, the vice president of natural gas liquids; and Cody Claborn, another propane trader.

Senior executives in charge of BP's North American natural gas liquids trading desk cornered the market by buying large quantities of propane, starting in January 2004, and holding onto them to push up prices, the complaint said.

After its buying spree, BP eventually ended up holding 90 percent of all propane supplies to be delivered through the Teppco products pipeline from Mont Belvieu, Texas, to markets in the Northeast and Midwest, the commodity commission said.

In February 2004, the price of propane rose from 63 cents a gallon to 94 cents, an increase of more than 50 percent. The complaint said the traders had conducted a "trial run" in April 2003.

As evidence, the government quoted from a number of phone conversations between the traders in which they mention their strategy to "squeeze" the market in February. The conversations were taped by BP as a matter of policy, something the traders knew, the commodity commission said.

In one recorded conversation, Ridley said the market was "tight enough that if someone wanted to play games with it, potentially they could."

In the end, the strategy failed to reap the estimated gains because the cost of building up a dominant position was higher than the profits that were realized.

The Associated Press contributed to this article.

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