Posted by AzBlueMeanie:
Many of the states that went down the path of deregulation in the 1990s did an about-face when the results, typically, were not what was expected. The California Energy Crisis of the early 2000s and the Enron scandal -- remember them? -- led some states to reconsider deregulation. In Arizona, the Court of Appeals in 2004 ruled parts of the state’s deregulation rules were unconstitutional. Quick Reference Guide to Electricity Deregulation - Arizona's Energy Future (APS).
Unbridled greed and market manipulation in the commodities market is endemic. The banksters of Wall Streetare not to be trusted. Just last week, Goldman Sachs was disclosed to be manipulating the price of aluminum. Goldman Sachs's Aluminum Pile - NYTimes.com:
Unlike investors in the past that bought up the commodities they were trying to control, Goldman is not buying the world’s aluminum. Rather, it is storing the metal for other banks, traders and aluminum producers in a complex of warehouses outside Detroit that it acquired in 2010. The problem, as described in The Times by David Kocieniewski, is that since the bank entered this business, the time it takes buyers to get the metal from those warehouses has shot up to more than 16 months, from 6 weeks. Goldman has attributed the delays to a shortage of trucks and forklift drivers. But Goldman also pays incentives to owners of the metal to keep it in the bank’s warehouses.
Those delays have bolstered Goldman’s profits, because the bank earns more rent the longer metal stays in its warehouses. However, companies that use aluminum argue that the delays hurt them by making them wait for deliveries and can also raise the spot price of aluminum because that price is calculated by a formula that includes a premium based on storage costs. An official at MillerCoors told a Senate committee that the difficulty in getting metal supplies had cost it and other companies $3 billion last year.
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In recent years, big banks like Goldman Sachs, Morgan Stanley and JPMorgan Chase have aggressively pushed into the commodity business by buying up warehouses, oil refineries, power plants and other physical infrastructure. They have been able to do so because American lawmakers and regulators have removed many of the barriers that historically separated banking and commerce. (On Friday, JPMorgan said it was exploring selling or spinning out its physical commodity business.)
On Tuesday, JPMorgan Chase agreed to a record $410 million settlement of accusations by government regulators of manipulating electricity prices in California and the Midwest. JPMorgan subsidiary to pay $410 million penalty:
The Federal Energy Regulatory Commission said the bank’s subsidiary, J.P. Morgan Ventures Energy Corp., had charged electricity grids in those regions as much as 80 times the prevailing power prices at certain hours of the day through “manipulative bidding strategies” between September 2010 and June 2011.
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JPMorgan was able to game the system, FERC said. It bid very low (or even negative) prices one day, then jacked up rates extremely high and was reimbursed under rules that compensate power generators for the time it takes to ramp up or ramp down facilities as needed. People familiar with JPMorgan’s negotiations said the bank believed there was nothing wrong with that and that Caiso’s rules even set a bidding range from minus $30 per megawatt hour to $1,000 per megawatt hour.
“Power markets have gotten massively more complex, even relative to the days of Enron,” said James Bushnell, an associate professor of economics at the University of California at Davis. “The goal of all this complexity was to improve efficiency. However, the complexity also occasionally creates opportunities for traders to take advantage of idiosyncratic behavior of the market rules.”
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Under the agreement, JPMorgan will pay a civil penalty of $285 million to the U.S. Treasury and will return $125 million in what regulators described as “unjust profits.” The first $124 million of returned profits will go to ratepayers in California, and the other $1 million will go to ratepayers in the Midwest, FERC said in a news release. In addition, JPMorgan dropped claims that California’s electricity grid owed the bank $250 million. JPMorgan reported a profit of $21.3 billion last year.
Nancy Saracino, general counsel of the regional grid known as the California Independent System Operator (Caiso), said: “This is a historic settlement. California got back every penny. We’re very, very pleased.”
The FERC’s enforcement power was enhanced by the Energy Policy Act of 2005, a response to the California electricity crisis of 2000. That year, rolling blackouts and sharp rate spikes followed drought, supply shortages and manipulation, most notably by Enron, which had urged states to deregulate electricity markets.
The Arizona Corporation Commission is once again exploring energy deregulation in Arizona. Have they forgotten the past decade? Have they learned nothing from the Enron scandal, the collapse of the financial markets in 2008 under the weight of fraudulent mortgages, and the current ongoing schemes to manipulate the commodities market by the banksters of Wall Street?
Robert Robb of the Arizona Republic wrote the other day, Asking the wrong question about electricity deregulation:
The Arizona Corporation Commission has launched an interesting and important discussion of electricity deregulation. But it has started the discussion by asking the wrong question.
The commission opened a docket inviting interested parties to answer a series of questions. The first is: “Will retail electric competition reduce rates for all classes of customers – residential, small business, large business and industrial classes?”
This is, indeed, the grounds on which the debate about electricity deregulation largely takes place. Supporters claim that it brings about lower rates through competition. Opponents say it leads to price spikes, market havoc, and a cost shift from large industrial customers to residential and small business ones.
Human nature being what it is and years of damning evidence in courtrooms supports the opponents of electricity deregulation. Of course, Robert Robb is a libertarian utopian who believes in the invisible hand of the free marketplace producing the "right price." How naive is this:
But the true benefit of electricity deregulation isn’t that it lowers prices. And the true benefit doesn’t go away if it results in higher prices.
The true benefit of electricity competition is that it results in the right price – the price at which what producers are willing to produce most closely matches what consumers are willing to consume. And it is the best mechanism for keeping production and consumption matched over time.
Robb focuses on the "monoply utility," but somehow fails to mention the banksters of Wall Street who are speculators in the commodities market, trying to create a monopoly on supply and manipulating the price of metals, oil, electricity, etc., to their financial profit. More rose-colored glasses of libertarian utopianism from Robb:
In a competitive market, only transmission and distribution would be a monopoly subject to rate-of- return regulation. Generators would be free to come and go. Retailers would make deals for generation and sell it to end users. Ensuring balance on and fair access to the grid are very tricky regulatory issues. But it’s doable.
In a competitive market, consumers would no longer be spared the marginal cost of power production. Those willing to expose themselves to price variability would probably get lower prices as a result. Those wanting to contract away exposure to price variability would probably have to pay a premium for it.
So, some customers would probably pay less than they would from a monopoly provider and some would probably pay more. But overall, prices would balance supply and demand in a way monopoly providers charging prices set by politicians cannot.
Utopia! Dude, that world does not exist anywhere on this planet. Nor does it exist in the Arizona Constitution, which Robb is forced to concede:
Arizona is unusual in that regulation of utilities is set forth in the state Constitution. And the Constitution clearly contemplates monopoly providers and rate-of-return regulation. The commission is required to set “just and reasonable rates” for public utilities based in meaningful part on the “fair value” of their property.
Deregulation advocates believe the commission can negotiate the interstices of the Constitution to order competitive markets. That’s doubtful. The courts have struck down all previous attempts to do so.
And it’s not right. Those who want competitive electricity markets should propose changing the Constitution rather than trying to render its provisions essentially meaningless.
That would be a tall order, since a constitutional amendment would require voter approval. There’s nothing broken about Arizona’s current electricity market and the benefits of deregulation aren’t as obvious as its disruptive effects.
So we need to ask the right questions: Who are the powers that be who are trying to manipulate the Arizona Corporation Commission into disregarding the Arizona Constitution to deregulate energy in Arizona by fiat? And who stands to profit financially from such folly?
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