Federal regulators charged on Wednesday that BP manipulated the price of propane two years ago by cornering the market through its dominant position, 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. They sought to make at least US$20 million in profits, it said.
Also, the justice department said on Wednesday 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 Mocek, the 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. "We are prepared to make and to prove that case in the courts."
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 complaint still work for BP. The others were fired.
According to the lawsuit filed at a US District Court in Illinois, BP's market manipulation caused prices to spike briefly in February 2004, a 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 Abbott, 34, pleaded guilty to conspiring to manipulate the propane market, the justice department said. He faces up to five years in prison and a fine of US$250,000, according to Bryan Sierra, a Justice Department spokesman.
Abbott, who was fired by BP, could not be reached for comment.
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, it said.
In February 2004, the price of propane rose from US$0.63 a gallon to US$0.94, a jump of more than 50 percent, according to the complaint.
According to the complaint, the traders had conducted a "trial run" in April 2003, following a similar strategy of building up a dominant market position.
As evidence, the government cites 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.
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