April 12, 2012 1:47 am

Barclays probed over California electricity

Barclays and four former traders are being investigated for allegedly manipulating Californian electricity markets, according to US regulators.

The bank is alleged to have bought and sold electricity in enough volume to move exchange prices up or down to benefit parallel swap positions, the Federal Energy Regulatory Commission said in a notice published last week.

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Ferc, which last month agreed a $245m settlement with Constellation Energy for alleged manipulation of power markets, is seen as taking a more forceful approach to possible trading violations.

Lawyers at Winston & Strawn said in a blog that the notices “indicate that the agency is taking a more aggressive position on activities that some would view as ordinary hedging”.

They said Ferc’s enforcement attorneys were “examining the interplay between physical energy trades and futures markets in search of uneconomic trades in one market that may be designed to boost profits in the other market” and “demonstrate the commission’s expanded view of its jurisdiction, as the commission has traditionally been limited to jurisdiction over physical sales rather than financial swaps”.

The allegations, which are denied by Barclays, date back to 2006-08.

Ferc said that “Barclays assembled substantial physical positions in the opposite direction of Barclays’ fixed-for-floating financial swap positions and that Barclays flattened those physical positions in the next-day fixed-price physical markets to move the ICE daily index settlement up if buying and down if selling”.

The bank said: “We believe that the allegations made by Ferc against Barclays and its former staff are without basis.

“We have co-operated fully with the Ferc investigation, which relates to trading activity that occurred several years ago.

“We are reviewing our options with respect to Ferc’s announcement.”

In December Ferc said Deutsche Bank’s energy trading business may have engaged in market manipulation in the California power market from January 2010 through to March 2010.

The most famous example of market manipulation came in 2000 and 2001 when Enron, the now defunct energy company, helped cause surges in the wholesale price of electricity, which in turn saw rolling blackouts in California.

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