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By David Sheppard and Steve Slater
NEW YORK/LONDON, July 17 (Reuters) - Barclays willcontest a record $453 million fine imposed by a U.S. energyregulator against the British bank and four of its powertraders, setting up a likely federal court battle.
The fines, which were upheld by the Federal EnergyRegulatory Commission (FERC) on Tuesday, confirm the top U.S.energy cop will pursue its most ambitious market manipulationcase to date.
For Barclays, the sanction is the latest of a series ofscandals that include a $450 million fine by U.S. and UKregulators for rigging global benchmark interest rates lastyear.
But unlike its settlement over Libor (London InterbankOffered Rate), where the bank accepted wrongdoing, it has foughtthe FERC allegations from the start.
FERC first proposed the fines in October 2012 over allegedmanipulation of Californian and other western power markets bythe British bank in the last decade.
Tuesday's ruling said FERC commissioners agreed with earlierfindings by regulatory staff, which said the bank deliberatelylost money in physical power markets to benefit its financialpositions between 2006 and 2008, and that the Barclays tradersknew their activity was unlawful.
FERC also ordered Barclays to hand back $34.9 million in"unjust profits" to low-income home energy assistance programsin Arizona, California, Oregon and Washington to benefitelectricity customers there.
"We have cooperated fully with the FERC investigation,"Barclays spokesman Marc Hazelton said in a statement on Tuesday."We intend to vigorously defend this matter."
The case will likely now move to a federal court.
The bank said on Wednesday it believed its trading "waslegitimate and in compliance with applicable law" and thepenalty assessed by FERC is without basis.
Barclays Chief Executive Antony Jenkins, who took the helmlast year, is trying to rebuild the bank's battered reputationand repair testy relationships with regulators.
One of his first moves was to tackle the investment bankingbusiness criticised for a free-wheeling culture and accused ofpaying staff too much.
Jenkins said in April he wanted his bank "to become a modelof constructive engagement with regulators", but has admittedturning the bank around could take at least five years.
Barclays shares were up 0.5 percent at 309.8 pence by 1542GMT, in line with a firmer European banking index.
TEST OF POWERS
The U.S. case is expected to be a major test of FERC'senforcement powers, expanded by Congress in 2005 legislationthat had its genesis in the Enron electricity manipulationscandals in the western United States earlier in the decade.
FERC has also told U.S. bank JP Morgan it intends totake action against it and some staff over alleged power tradingmanipulation, which the bank has said it will vigorously defend.
Deutsche Bank paid $1.7 million in January tosettle allegations it manipulated electricity markets inCalifornia in 2010.
Ron Wyden, the chairman of the Senate's Energy and NaturalResources Committee, said FERC sent a strong message to tradersand banks.
"Consumers have the right to heat and power their homeswithout fear that traders are stacking the deck against them torack up unjust profits," Wyden said in a statement.
The FERC order said the bank must pay $435 million within 30days, while the managing director of the power trading team,Scott Connelly, must pay $15 million.
FERC said three other traders involved in the scheme mustpay fines of $1 million each.
The FERC initial investigation uncovered emails and instantmessages that Barclays has termed "unfortunate." The fourtraders boasted how "fun" it was to "crap on" physical powerprices on the West Coast.
They no longer work at the bank, for reasons unrelated tothe investigation, a source familiar with the matter said.Barclays effectively quit the energy trading business in theWestern United States in 2011.
A former FERC enforcement director said that if Barclaysrefuses to pay the fine, agency staff will likely file an actionin a U.S. District Court.
It would be the first time an energy market manipulationcase from FERC would be considered in such a venue, said SusanCourt, FERC's director of enforcement from 2005 to 2009.
