Posts Tagged Electricity Price Manipulation

Can Energy Suppliers Manipulate the price of electricity rates in energy markets?

Wednesday, December 8th, 2010 | Permalink

Commodities being traded is a typical task performed in the energy markets. For instance, a company that sells the raw fuel of natural gas, gasoline, oil, and so forth will need to buy these commodities on the futures market to lock in their prices.

The argument made sometimes is that prices on the futures market start going up in price with little relation to current energy commodity market conditions. This is when news organizations, politicians, and energy regulators come in to say something is amiss.

The accusations usually revolve around an evil energy company manipulating the price of a commodity such as natural gas in order to make more money on the actual raw commodity they own or on the electricity service they may produce through power generation facilities.

At this time the U.S. Commodity Futures Trading Commission v. Dizona, the United States Court of Appeals for the Fifth Circuit has just recently considered some commodity manipulation accusations.

The United States Commodity Futures Trading Commission has brought forth allegations that a natural gas trader had attempted to manipulate the price of natural gas by purposefully sending in false price and volume data to reporting services.

By controlling the data a natural gas trader can indeed control price when it comes to natural gas because of the limited ability to store natural gas and its high demand in some electricity markets in the US such as Texas.

When the data is received by the reporting agencies from the natural gas trader that is alleged to have manipulated the markets what is given is told to have been fabricated trading numbers.This adjusts index pricing that is used in electricity rates in states that rely on natural gas as a power plant electricity generation fuel.

Rather then the data being based on real trades that occured the trades and numbers are simply made up to cause natural gas prices to increase or decrease depending on if the trader wanted to make money going short or long.

The fifth circuit has agreed with the district court that there was not enough evidence after incriminating hearsay evidence had to be removed. So hearsay evidence showed some suspicious issues but for justice to be served this type of evidence simply cannot be used as it may convict an innocent party.

The U.S. Commodity Futures Trading Commission expert’s offered only general findings of biased reporting but could not give specifics.

The incriminating evidence was recorded on audiotape and suggested that the energy trader would set the natural gas price at a certain level but was unclear enough as to mean he was indeed manipulating anything.

Energy lawyers are suggesting however that this conspiracy of big brand energy companies using their traders to manipulate the price of natural gas could show potential for litigation if more evidence can be gathered to prove such.

We however would like to remark that too much government regulation and the limited number of large natural gas energy traders may superficially cause prices to go up. This price manipulation theory could be more related to artificial rules and measures in place by the US state and federal governments to prevent prices from spiking too high or too low while creating the opposite effect. This then paints a large target on the biggest players in the energy trading game who are only doing their jobs within the rules of government policies.

The energy law blog sees the writing on the wall for a potential win in litigation against energy traders attempting to manipulate natural gas market prices. Read below.

“In U.S. Commodity Futures Trading Commission v. Dizona, the United States Court of Appeals for the Fifth Circuit recently considered allegations by the United States Commodity Futures Trading Commission that a natural gas trader had attempted to manipulate the price of natural gas by knowingly delivering false and inaccurate price and volume data to reporting services. These data gathering services would solicit bid data at the end of each month and would analyze this data to postulate an index price for natural gas, which would in turn set the price for the following month. Supposedly, the data reported to the reporting service was not based upon actual trades but was instead fabricated by the defendant to affect these indices, either positively or negatively – By Michael A. Mahone, Jr.”

Electricity Suppliers