JP Morgan Manipulating Energy Prices...a question

It was all west power... In short the exported power and imported at a higher rate. The rate payers of Cali were the victims as it effected Casio

Correct me if I'm wrong...but they basically bought up everything they could, and then like monty said imported at higher rates, thus controlling the market and sticking it to Californians.

I am ex JPVE

Most of the manipulation with JPMorgan was actually from their power plants entering bid schemes that enabled them to receive extra payments when the units were "out of the money". In all organized wholesale electricity markets, power plants that generate power that do not receive enough payment to cover their operating expenses for a given day are "made whole". What this means is that if one of their power plants was operating at $40/MWh in a given hour, and the price of electricity (the payment that they receive for each MWh they produce) is only $30/MWh, they are "made whole" the additional $10/MWh to cover their expenses. The basic principal behind this is that all power plants should AT LEAST cover their operating expenses in order to maintain sufficient reliability of the power grid.

Companies that own generating assets often try to manipulate the market through the use of these payments by offering their power at prices well above their actual operating costs. If a plant actually only costs $40/MWh to operate (mostly from the cost of fuel), they could actually offer $200/MWh, because they know that they will be made whole to this amount. If a plant has market power, such as when they exist in a very congested area of the grid, and the grid operator absolutely needs the plant to run, they can easily exercise this market power. Generally, under "least cost dispatch" conditions, this plant would not be needed because it is too expensive, but since certain power plants are located in constrained areas, they are needed to run much of the time.

The "brilliance" of the way JP Morgan tricked the California operators to run their units were the strategies that they employed their bids in the daily market. It is much too complicated to explain on this forum, but they essentially found loopholes in order to get the California Market to run them and also receive outrageous payments that far exceeded their true operating costs. These additional unjust costs are paid for by other participants in the wholesale markets, such as the utilities that actually serve the load, as well as financial marketers (traders) that speculate on prices. One could argue that these prices are eventually passed on the the ratepayers (you and me), because the utility is paying much higher rates to purchase their load from the grid. This also justifies why financial speculators are a necessity in the market, because their "virtual megawatts" compete with these generators by increasing competition and hence forcing the physical owners to place offers more in line with their actual operating costs.

Unfortunately, this is a VERY common practice among companies that own generating assets, as they most definitely possess market power, it is very hard to detect by authorities, and rules are in place to benefit them. I am aware of this first hand because I used to work at the Market Monitoring Unit at a major ISO, and use to try and detect this manipulative behavior on a daily basis. There is currently a senior task force in PJM to attempt to modify the current rules as to how these "make whole payments" are allocated to different parties, and to try and minimize them.