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.
* * *
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.
* * *
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
“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
* * *
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.
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
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
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?