But Wait! There's More!

(Editorial cartoon by Joel Pett / Lexington Herald-Leader (September 17, 2012) and featured at McClatchy DC.  Click on image to enlarge and then get back here.)

Yes, yes, I know:  I used this cartoon before.  But it continues to be a great illustration of how life is rigged against most of us.  Besides, this post is an update from an earlier post, one that reported on how the banksters of JP Morgan Chase are scamming those of us in California.  In that post I noted how our energy costs were being manipulated by JP Morgan, based on a very nice column from Michael Hiltzig.  Well, Hiltzig has updated  his column and it appears that the banksters are still at it.

We all know what corporate law firms are for, right? To represent their clients' interest fairly and professionally, of course. To obfuscate, obstruct, delay, misdirect — sometimes that too.

So the saga of JPMorgan Ventures Energy Corp. and a slick little two-step it engaged in with its two law firms to fend off the Federal Energy Regulatory Commission bears exceptional interest, not least because its outcome may hint at a new approach to enforcement by that long-overmatched agency.

To put things in a nutshell, JPMorgan's electricity trading operation was accused of bid-rigging by the California Independent System Operator, which manages much of the state's wholesale power market through regular auctions. We explained in an earlier column how the alleged scheme in 2010 and 2011 may have cost California ratepayers as much as $200 million.

California's ISO and FERC decided to do more than issue a gentle "tsk-tsk, bad bankster" slap on the wrist, so JP Morgan's lawyers decided to play nasty (see Hiltzig's summary) and filed a lawsuit against FERC.  They did something stupid, however.  They misstated the law in their pleadings.

This month FERC opened a new front in this battle. The commission charged that JPMorgan, with the assistance of its lawyers, gave it the runaround when it asked for financial information in connection with its investigation. According to FERC public documents, JPMorgan dodged the request for months and then provided misleading and incomplete information.

How ticked off is FERC? It's proposing not to fine JPMorgan over the information exchanges, but to suspend its right to participate in the California auction. To an electricity trading firm, that's a nuclear attack. The last electricity wholesaler that got its trading rights revoked was Enron — after it went bankrupt.

If FERC follows through, JPMorgan would still be allowed to sell electricity in California, but would be allowed only to collect its costs plus a nominal profit. That's likely to be a fraction of what it could make by bidding in the open auction, and it could drive JPMorgan out of the market.

"When a company is faced with significant sanctions, not just a financial slap on the wrist, it's going to take it seriously," says Tyson Slocum, director of the energy program at the Washington public interest group Public Citizen. "No longer is a violation just a calculated risk, and a cost of doing business if they get caught."   [Emphasis added]

Well, hallelujah!  About freakin' time!

Of course, all of this could have been avoided with a reasonable regulatory scheme in California that would have allowed providers to "collect ... costs plus a nominal profit", but apparently our owners are not willing to allow that to happen (see Hiltzig's current column).  Our owners much prefer the "open market" approach  (for obvious reasons).  The next best option is to remove the opacity from the process, which is the least we should be pushing for.

...even if one accepts that auctions are the best way to set wholesale rates, California's system of allowing bidding to take place in secret is a failure.

"Everything should be totally public, with none of the intense secrecy in California, and the track record is not all that good," says Robert McCullough, a Portland, Ore.-based energy consultant. He says the secrecy of bidding in California has made this state's power prices consistently higher than in states that require public bids, like his own.

Are you listening,  Sacramento?  And Washington DC?