From Bloomberg, March 23:
Some of the UK’s biggest energy companies have received £525 million from a practice that regulators say drives prices higher.On the morning of Dec. 12, as plunging temperatures left poorer Britons struggling to heat their homes, traders for Vitol Group’s VPI Power Ltd. abruptly served notice that one of the London area’s largest power stations would begin turning off just after midday.
This change of plans left Britain’s power grid at risk of running low on electricity. But the traders had another offer on the table: They’d keep running their plant for as much as £6,000 ($7,340) per megawatt-hour, four times more than the regular market rate. With little choice, the grid operator paid up, an £11 million tab that was ultimately passed to UK consumers, many of whom are already contending with prices that have more than doubled in the last two years.
Traders at firms including Vitol’s VPI, Uniper SE and SSE Plc have frequently announced they would cut off electricity capacity — sometimes with just a few hours’ notice — ahead of the busiest evening periods. At the same time, they offered power from their plants in a special side market where they charged higher prices to meet the shortfalls they helped create. Traders dramatically increased their use of this practice — and the prices they charged — as the lifting of Covid restrictions and then Russia’s war in Ukraine brought turmoil to the UK electricity market, a Bloomberg News investigation has found. Current rules do not prohibit such off-on maneuvers.
An analysis of more than 100 million market records shows that firms rang up more than £525 million in inflated revenue using this practice between 2018 and 2022. Nearly 90% of that amount came in just the last two years. Plants controlled by VPI and Uniper together accounted for £321 million of the total.
The data analysis can’t account for why, on any individual occasion, a company acted in this way — and whether there were circumstances involved other than the pursuit of revenue. But in interviews, 13 current and former traders said that off-and-then-on-again supply-gaming is a widespread tactic that’s aimed at maximizing profit. A source familiar with VPI’s move on Dec. 12 said the firm raised its price in response to tight market conditions.
“Something is broken here,” said Fred Smith, the managing director of H&E Smith Ltd., a glazed tile manufacturer in the northern English city of Stoke-on-Trent. The firm has struggled with a 150% jump in its power costs as energy inflation hammers the UK economy. Around the time of VPI’s big payday in December, Smith was asking his 20 employees to take a week off work after Christmas to save on operating costs....
....MUCH MORE
From "The Trouble With Cap-and-Trade" :
....And this from a former Goldman Sachs trader:
The whole reason for the existence of traders is to make as much money as possible, consistent with what's legal...I lived through this: if you didn't manipulate the market and manipulation was accessible to you, that's when you were yelled at.
—New York Times, May 8, 2002
For the much more egregious Enron in California story:
March 2008
California's cap-and-trade won't work
Here at Climateer Investing the comparison between California electricity deregulation and carbon trading seemed self-evident, based, if for no other reason, on the fact that the pals and alumni of Enron are the ones pushing the trade. Now the media is picking up on where the trade part of cap-and-trade is going. The LA Times gets it....
September 2007
Blackout: Enron and the California Power Crisis (Transcript)
August 2009
Enron:The Musical (ENE)
February 2011
Enron Lives! Were Texas Utilities Gaming the System to Gouge Customers?
And finally a visit to the big daddy of market manipulations, corners and squeezes, Professor Craig Pirrong—you may know him as The Streetwise Professor—has a snappy little paper linked in our "How to Manipulate Non-storable Commodities Markets.
