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Market Power and Market Manipulation in Energy Markets
Market Power and Market Manipulation in Energy Markets
Public Utilities Reports, Inc.

Market Power and Market Manipulation in Energy Markets

Regular price $139.00 $0.00

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.


"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:


ISBN: 978-0-910325-34-9
7 x 10 inches
293 pages

(c) 2015

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)


Manipulation Triggered by Outright Fraud

Demand Response Manipulation: Rumford Paper Company and Others

Circular Scheduling: Gila River Power, LLC

Chapter 12


Glossary of Terms