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Archive for June, 2015

Megabanks attempt to justify their presence in the wholesale electricity markets as providing a healthy dose of liquidity. If you believe that banks go into electricity markets for the same reasons that impelled Mother Theresa to treat sufferers of leprosy and tuberculosis in Calcutta, namely, in order to fulfill their altruistic missions on earth, I have for sale to you (and only to you) a bridge that connects Brooklyn to Lower Manhattan. It’s an antique, but it’s in wonderful condition, and very photogenic. Just think of the tolls you could charge.

The Sparkspread has previously written about the activities of banks in wholesale electricity markets. The Courthouse News reports that the Merced, California Irrigation District has filed suit against Barclays for the manipulations of its electricity traders between 2006 and 2008. FERC previously fined Barclays $435,000,000 for its violations of electricity market rules. Here’s the story:

Barclays Sued for Manipulating Energy Market

By ADAM KLASFELD

MANHATTAN (CN) – Nearly two years after federal regulators fined Barclays Bank $435 million, a California irrigation district filed a federal class action accusing the British bank of similar antitrust violations.
The Merced Irrigation District sued the British bank on Tuesday, claiming Barclays and four of its energy traders manipulated electric prices from November 2006 until Dec. 31, 2008.
The irrigation district seeks damages for the “supracompetive” prices it paid for electricity.
The 41-page lawsuit cites the July 16, 2013, findings of the Federal Energy Regulatory Commission, which said that traders Daniel Brin, Scott Connelly, Karen Levine and Ryan Smith engaged in an “affirmative, coordinated and intentional effort” to steer index prices published by InterContinental Exchange and Dow Jones at four major Western U.S. trading hubs to favor the British bank.
FERC took action against the bank and its traders, whose combined penalties came to $453 million.
Merced’s lawsuit targets only Barclays and does not specify the damages sought.
“Barclays’ traders knew their dailies trading was losing money and that it would prevent free market forces from operating in the relevant markets, but they were willing to accept such losses because the uneconomic dailies trading was part of their manipulative scheme to acquire and maintain monopoly power over daily index prices to benefit their related financial positions,” the complaint states.
“This willfulness and intent of Barclays is further demonstrated through direct evidence, such as emails and instant messages (‘IMs’), suspicious timing or repetition of transactions, execution of transactions benefiting derivative positions, and trading which would be economically irrational but for the manipulative scheme,” it continues. “Barclays’ traders coordinated their individual and collective actions in furtherance of the manipulative scheme.”
Quoting extensively from the FERC report, Merced’s complaint dives into “numerous written communications demonstrating Barclays’ traders’ knowing participation in the manipulative scheme.”
On Nov. 3, 2006, Smith bragged that he “totally fuckked [sic] with the Palo” Verde market index, according to the complaint.
Smith allegedly added that he “just started lifting the piss out of the palo.”
His colleague Connelly joked about regulators on Feb. 28, 2007, according to the lawsuit.
Responding to a colleague who called the market a “shitshow,” Connelly replied: “crazy -I love it … your boy started crying this morning … he sent me an ice [InterContinental Exchange] message -said he wass [sic] calling FERC … lol.” (Ellipses in complaint.)
The complaint says that exchange referred to a FERC order assessing penalties.
The proposed class includes “Any individual or entity that held any contract which settled against the ICE [InterContinental Exchange] or Dow Jones published daily index prices for peak or non-peak power at either Mid-Columbia, Palo Verde, South Path 15 or North Path 15” during the relevant time frame, and “was damaged by movements in such index prices caused by Barclays’ unlawful scheme.”
A subclass consists of class members “who reside or are incorporated in California.”
Merced seeks class certification, restitution, and damages for unjust enrichment and violations of the Sherman Act, and the California Business & Professional Code.
It is represented by Jeffrey Klafter with Klafter Olsen & Lesser, of Rye Brook, N.Y.
Barclays did not immediately respond to a request for comment.
The California energy crisis of 2000-2001 showed that electricity prices were fairly easy to manipulate, and that federal regulators, primarily FERC, were unable to keep up with the traders. Enron profited hugely during the crisis, for a while, then collapsed in an accounting scandal.

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