Market Power and Market Manipulation in Energy Markets
In discussing the development of statutory and regulatory enforcement systems devised in the wake of the California Power Crisis, the book provides an analytical framework for understanding the legal and economic nuances associated with market manipulation in its various forms. Consistent with the logic of the manipulation enforcement actions recently brought by the FERC and CFTC, this framework provides perspective as to the future of manipulation compliance and enforcement under these agencies' continuing mandates.
This First Edition provides:
- An introduction to the similarities and differences between market power and market manipulation;
- A discussion of how market power may be diagnosed in electricity markets;
- An overview of the evolution of the Western Power Crisis;
- A chronicle of the litigation that stemmed from the Crisis;
- A study of the exercise of market power during the Crisis and the analytic techniques for identifying and measuring it in power markets;
- A discussion of Enron’s manipulative strategies that involved fraud rather than market power;
- An explanation of why the FERC’s then-existing regulatory systems were poorly suited to stop or remedy the Crisis;
- The evolution of the FERC’s Office of Enforcement and adoption of a fraud-based anti-manipulation rule;
- An economic framework for the analysis of market manipulation;
- A discussion of how to implement this framework for manipulation compliance and enforcement; and
- Application of the framework to recent manipulation cases prosecuted by the FERC and CFTC.
Details:
"Designed for attorneys, energy traders, compliance personnel, energy economists, regulators, and students, this book provides the reader with a unique understanding of market power and market manipulation in energy markets.”
-Peter Fox-Penner, Ph.D., Gary Taylor, J.D., Shaun Ledgerwood, Ph.D., J.D., Romkaew Broehm, Ph.D.
Details and Features:
AUTHORS: PETER FOX-PENNER, PH.D, GARY TAYLOR, J.D., SHAUN LEDGERWOOD, PH.D, J.D., and ROMKAEW BROEHM, PH.D
ISBN: 978-0-910325-34-9
7 x 10 inches
Paperback
293 pages
Table of Contents:
Part I: The Concepts of Market Power and Market Manipulation
Chapter 1
The California Crisis – A Market Experiment in Shambles
A New Era of Market Manipulation
The Purpose and Plan of this Book
Chapter 2
Market Power and Market Manipulation: Definitions and Comparison
Definitions of Market Power and Market Manipulation
Market Power
Market Manipulation
The Role of Intent
Distinguishing Between Market Power and Market Manipulation
Noncompetitive Prices versus “Artificial” or Fraudulent Prices
Chapter 3
Issues in Identifying and Diagnosing Market Power in Electric Power Markets
Special Features of Electricity Supply and Demand and Their Implications for Market Power and Manipulation
Unique Features of Electricity Supply
Unique Features of Electricity Demand
Implications for Defining Electric Power Markets
Product Market Definition
Geographic Market Definition
Other Market Power Related Issues
Supplier Entry
Information Availability and Repeat Games
Identifying Market Power in Wholesale Electricity Markets
Structural Approaches
The Herfindahl-Hirschman Index (HHI)
The Pivotal Supplier Index (PSI)
Performance-Based Measures
Scarcity’s Effect on Markets
Scarcity in California’s Market Design
Conduct-Based Measures
Part II: Market Power and Manipulation in the Western Crisis
Chapter 4
Overview of the California Markets and the Western Power Crisis
Establishment of the California Markets
Basic Operations of PX and CAISO Markets
The Power Exchange (PX)
The California Independent System Operator (CAISO)
CAISO Transmission Markets
CAISO Ancillary Services Markets
CAISO Imbalance Energy Market
Issues in the First Two Years of Operation
The Crisis—Phase I (May 2000-December 2000)
The Crisis—Phase II (January 2001 through June 2001)
Chapter 5
Litigation History
Phase I
August 23, 2000 Order
Commission’s Initial Attempt to Quell the Crisis: The Orders in November and December, 2000
Market Collapse
The Commission Restores Order to the Markets:
The Orders of April and June 2001
Phase 2
The Enron Orders
The Gaming Order
The Enron MBR Revocation Order
Ninth Circuit Remands
Proceedings under the CPUC Remand
Proceedings under the Puget Remand
Chapter 6
Market Power vs Scarcity in the California Crisis
Market Definition
The Relevant Product Markets
Relevant Geographic Markets
Structural Test Case Studies
FERC’s Hub-and-Spoke Test
Pivotal Supplier Tests
Other Views of PSI Tests
Conduct-Based Tests and “Two-Stage” Withholding
Two-Stage Withholding Mechanism
Withdrawals from the Day-Ahead Market
Real-Time Withholding
Withholding Via High (Anomalous) Bidding
Separating Undue Market Power from Efficient Scarcity
Sellers’ Objections to Our Market Power Tests
Viewing Scarcity From a Long-Term Perspective
The FERC’s Ruling On Scarcity vs. Market Power
Chapter 7
Fraud-Based Manipulation Strategies During the Crisis
Enron Manipulation
Fraudulent Entry into the RT Energy and Ancillary Services Markets
Ricochet and False Export
False Export Analysis and Evidence
Fat Boy
Analysis of Fat Boy Transactions
Fraudulent Collection of Congestion Revenues
Death Star/Circular Scheduling
Death Star Analyses
Cut Schedules
Load Shift
Analysis of Load Shift
Fraudulent Sales of Ancillary Services/Get Shorty
Analysis of Fraudulent Ancillary Services Sales
Chapter 8
Regulatory Handicaps Then and Now
Vagueness: Manipulation versus Pornography
Tariff s vs General Prescriptions
Weaknesses in Statutory Authority
Current Challenges
Part III: New Developments in Market Manipulation
Chapter 9
Market Power and Manipulation: A New Conceptual Framework
Manipulation Triggers
Market Power—Extensions Outside of the Primary Market
Traditional (or Outright) Fraud—Recognized in Common Law
Uneconomic Trading—Can Be Seen as “Transactional Fraud”
Manipulation Targets
Financial Derivatives Contracts
Physical Positions “Traded at Settlement” or “at Index”
Other Positions
Manipulation Nexuses
Market Features That Affect the Incentive to Manipulate
Avoiding False Positives and the Presumption of Legitimate Trading
Chapter 10
Implementation of the Framework in Practice
The Proof (or Disproof) of Suspected Manipulative Behavior
The Evaluation of Intent
The Detection of Potentially Manipulative Behavior
Informational Asymmetries and Challenges
Using the Framework to Investigate Specific Allegations
Using the Framework as “Clean-Sheet” Processes to Detect Potentially Manipulative Behavior
Stratification of the Rolled-Up Trading Data
Application of the Framework to the Stratified Triggers and Targets
Chapter 11
Recent Enforcement Actions and Their Links to The Framework
Uneconomic Trading
Index Manipulations
Amaranth Advisors LLC (Amaranth) and Brian Hunter
Barclays Bank PLC, et al. (Barclays)
BP America Inc., et al. (BP)
Optiver US, LLC, et al. (Optiver)
Energy Transfer Partners, L.P., et al. (ETP)
In the Matter of Anthony DiPlacido (DiPlacido)
Auction Manipulations
Constellation Energy Commodities Group, Inc. (Constellation)
Deutsche Bank Energy Trading (DBET)
Inefficient Dispatch: J.P. Morgan Ventures Energy Corp. (JPM)
Manipulation Triggered by the Exercise of Market Power
KeySpan-Ravenswood, et al. (KeySpan)
Parnon Energy Inc., et al. (Parnon)
E.ON SE (E.ON)
Manipulation Triggered by Outright Fraud
Demand Response Manipulation: Rumford Paper Company and Others
Circular Scheduling: Gila River Power, LLC
Chapter 12
Conclusion
Glossary of Terms
Bibliography