By Rich Heidorn Jr.
FERC Office of Enforcement staff said last week that the presence of flaws in the CAISO market is irrelevant to their market manipulation case against ETRACOM and principal trader Michael Rosenberg.
FERC accused the company of submitting uneconomic virtual supply transactions at the New Melones intertie at the CAISO border to affect power prices and benefit its congestion revenue rights in a scheme that allegedly generated $315,000 in profits in 2011.
In their reply to the allegations last month, the company said “staff has no basis for claiming that ETRACOM defeated or obstructed a well-functioning market,” because of market design flaws and software pricing and modeling errors that scrambled trading at the intertie. (See “Traders to Seek De Novo Review in CAISO Manipulation Case,” Federal Briefs.)
Staff rejected ETRACOM’s “market flaw defenses,” saying the commission’s definition of fraud as including actions “for the purpose of impairing, obstructing or defeating a well-functioning market” does not absolve the company (IN16-2).
“Staff construes the use of ‘well-functioning market’ to refer to any commission jurisdictional market operating under a tariff that the commission has found to be just and reasonable and not, as respondents suggest, a qualitative limit on the reach of the Anti-Manipulation Rule to only those commission jurisdictional markets without flaws,” staff said.
“Indeed, not only is there no perfect market, but even a well-functioning market can have flaws and be susceptible to manipulation. Otherwise, no claim for manipulation could exist because any market susceptible to manipulation could, by implication, be considered not ‘well-functioning.’”
In a press release, ETRACOM attorneys Robert Fleishman and Paul Varnado challenged what they called staff’s “cursory dismissal” of the design flaws. “The alleged harms would not have occurred but for the phantom congestion caused by these flaws,” they said.
