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FTR #420 The Destabilization of California Pt. 2

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Supplementing FTR 280, this program highlights the cynical, conspiratorial machinations of major energy companies, the Bush administration and the California Republican establishment in effecting California’s “energy crisis” of 2000-2001. Highlighting the interplay of Bush crony Ken Lay’s now disgraced Enron firm, an advisory task force headed up by Bush associate James Baker and the Bush administration energy commission headed by Dick Cheney, the program accesses a very important paper authored by Katherine Yurica. Be sure to check out this work at her web site. There are strong indications that California’s “energy crisis” was deliberately engineered in order to undermine Democratic governor Gray Davis, enrich the energy industry, and provide the rationale for the Bush administration’s foreign policy.

Program Highlights Include: Former governor Pete Wilson’s chairmanship of Arnold Schwarzenegger’s campaign; a very suspicious (probable) test of the California electricity-brokering infrastructure; the Baker advisory group’s citing of the California “crisis” as the basis for domestic and foreign policy recommendations; the Cheney group’s suspicious citing of the California energy crisis; highly suspicious and contradictory wording of the “National Energy Policy” drawn up by the Cheney commission; the Project for a New American Century’s discussion of the potential usefulness of “a new Pearl Harbor”; the destabilization of Jimmy Carter’s presidency by the oil industry, George H.W. Bush’s CIA and the Saudis.

1. A major contributing factor to incumbent governor Gray Davis’ unpopularity is the enormous increase in electricity prices due to the deregulation legislation effected by former governor Pete Wilson. Wilson is “outsider” Arnold Schwarzenegger’s campaign manager, giving the lie to Schwarzenegger’s claim that he will kick the special interests out of Sacramento. He is, in fact, a tool of those very same special interests.

“Admonished by his advisers not to make news out of the box, Mr. Schwarzenegger left his campaign chairman, Pete Wilson, the former California governor, to attack Mr. Davis as an incompetent spendthrift, and lesser political minions to explain his personal finances to a press corps demanding details, any details.”

(“In Full Field, It’s All About Schwarzenegger” by Charlie LeDuff and Alan Feuer; The New York Times; 8/11/2003;.)

2. Bush’s Svengali Karl Rove was apparently among those who helped to anoint Schwarzenegger as the standard bearer for California.

“. . . From what we’ve heard, the Republican hierarchy—especially those close to former Gov. Pete Wilson—would favor Schwarzenegger. At least that’s the word that came out of the Bohemian Grove this past weekend, where a number of state and national GOPers, including presidential adviser Karl Rove, happened to have gathered at a club getaway . . .”

(“Matier & Ross: Schwarzenegger to Decide”; San Francisco Chronicle; 7/23/2003; p. A21.)

3. Beginning the discussion of the deliberate manipulation of California’s deregulated electricity market, the program chronicles a startling fluctuation of rates in 1998. The author of this important, incisive article observes that this was apparently a test of the “power lifting” that destabilized Davis and boosted Schwarzenegger in a position to move to Sacramento. “This story begins with the California energy crisis, which started in 2000 and continued through the early months of 2001, when electricity prices spiked to their highest levels. Prices went from $12 per megawatt hour in 1998 to $2000 in December 2000 to $250 in January 2001, and at times a megawatt cost $1,000.” (“Fraud Traced to the White House: How California’s Energy Scam Was Inextricably Linked to a War” by Katherine Yurica; The Yurica Report; p. 1; available online at www.yuricareport.com/PoliticalAnalysis/FraudinWhiteHouse.htm .)

4.

“One event occurred earlier. On July 13, 1998, employees of one of the two power-marketing centers in California watched incredulously as the wholesale price of 41 a megawatt hour spiked to $9,999, stayed at that price for four hours, then dropped to a penny. Someone was testing the system to find the limits of market exploitation. This incident was the earliest indication that the people and the state could become victims of fraud. The Sacramento Bee broke the story three years later, on May 6, 2001. Today, Californians are still paying the costs of the debacle while according to state officials the power companies who manipulated the energy markets reaped more than $7.5 billion in unfair profits.”

(Idem.)

5. California’s “energy crisis” apparently served as a foundation for disgraced Enron chairman Kenneth Lay’s pivotal recommendations to Vice-President Dick Cheney’s energy policy task force.

“In April of 2001, Ken Lay handed Dick Cheney a two-page memorandum recommending national energy policy changes. The memo contained Enron’s positions on specific, rather technical issues, which were presented as a ‘fix’ for the California crisis. (Enron brazenly advised the administration not to place price caps on energy, which would be precisely the request California officials made to the president, and which the President and the Vice President would just as brazenly deny until public pressure forced them to capitulate.)”

(Ibid.; p. 2.)

6. Former Bush (Senior) secretary of state James Baker presided over an advisory report that also appears to have been central to Cheney’s energy directives.

“On October 6, 2002, a newspaper in the UK published a little known article about Mr. Cheney’s advisers. According to Neil MacKay, an award-winning journalist, writing for Scotland’s Sunday Herald, Dick Cheney commissioned an energy report from ex-Secretary of State James Baker III. The time of this ‘commission’ is not reported, but since the members of the appointed task force held three videoconferences and teleconferences in December, January, and February 2000-2001, Cheney therefore logically contacted Baker some time prior to the December 2000 meeting—during the presidential transition period.”

(Ibid.; p. 3.)

7. Baker’s law firm is the legal counsel for the Bin Laden-connected Carlyle Group. In addition, the firm is representing Saudi Prince Sultan in a trillion-dollar suit filed by the survivors of the victims of 9/11.

“James Baker was uniquely situated to fulfill Cheney’s commission, for among the many hats he wears, he is legal counsel to the Carlyle Group, one of the nation’s largest defense investment firms whose board consists of former high level government officials, including George Bush, Sr. Baker was also the ‘hired gun’ for George W. Bush’s campaign in Florida, along with Karl Rove. But among the hats he wears, none is more valuable than his ability to become invisible and leave no fingerprints behind. James Baker courts the press and is hailed a statesman; he also serves as the honorary chairman of the James Baker III Institute for Public Policy at Rice University, a think tank that was involved in aiding the George W. Bush presidential transition teams.”

(Idem.)

8.

“Equally intriguing is the fact that Baker has ties with both the Bushes and Ken Lay. Years earlier, in 1993, after Baker stepped down from his stint as Secretary of State, he and Robert A. Mosbacher—Bush senior’s commerce secretary—signed a joint consulting and investing agreement with Enron. The two men began a lucrative career making joint global investments with Enron on natural gas projects. Baker Botts LLC, James Baker’s law firm, flourished in its specialty of international oil and gas counseling.”

(Idem.)

9. Ken Lay was not the only energy-industry high roller to participate in the Baker task force.

“Since Baker walked in their circles, when he set out to select an energy team to advise the White House, he filled it with leaders of the oil, gas, and power industries. Three appointees stand out: Kenneth Lay from Enron, who was working on the Bush energy Transition team under Dick Cheney at the time; Chuck Watson, the then Chairman and CEO of Houston’s Dynegy Inc., and Dynegy’s General Counsel and Secretary, Kenneth Randolf. Both firms were deeply involved in illegally manipulating the California energy market at the time and eventually faced criminal investigations.”

(Ibid.; pp. 3-4.)

10. The California “energy crisis” appears to have played a key part in the recommendations of the Baker energy advisory group.

“The Baker energy task force produced a report titled, Strategic Energy Policy Challenges for the 21st Century, dated April 2001. There is no mistaking the fact that reasonable, detailed and important expert advice is meted out to the new president. However, this amazing 107-page report strikes a drumbeat for action that grabs the reader as it propels a picture of a naked, energy-scarce nation, subject to energy shortages and price fluctuations, across its pages. Contrasting the state of what is, against what should be, and mercifully making powerful recommendations that will ‘save our economy,’ it offers warnings such as: a sharp rise ‘in oil prices preceded every American recession since the late 1940’s.'”

(Ibid.; p. 4.)

11.

“The California energy crisis is raised again and again, along with the prophecy that America can expect ‘more California-like incidents’ in the future. There’s even a connection made between the California crisis and the Middle East, which according to the report, ‘will remain the world’s base-load supplier and least expensive source of oil for the foreseeable future.’ With that prophetic utterance, the stage is now set for a new actor, a new villain, and a new energy policy. . . .”

(Idem.)

12. Although it is not covered in detail in the broadcast, the Bush energy policy also had profound foreign policy recommendations, focusing on Iraq, among other issues. The broadcast reviews the disturbing observations about the potential usefulness of “A New Pearl Harbor” in a paper by the Bush-connected Project for a New American Century.

“‘The history of the 20th Century should have taught us that it is important to shape circumstances before crises emerge and to meet threats before they become dire.’ In fact, on pages 51 and 67 of the institution’s intellectual centerpiece, Rebuilding America’s Defenses, the authors lament that the process of transforming the military would most likely be a long one, ‘absent some catastrophic and catalyzing event—like a new Pearl Harbor.’ (How unfortunate for Americans, they got their needed event on September 11, 2001.)”

(Ibid.; p. 5.)

13.

“One of the most striking facts about the national report is that it makes 110 references to California’s energy crisis, which was ninety-nine more than the Baker report makes. Clearly, someone in the White House needed an impressive energy crisis to tout. How unfortunate that the crisis cited was fraudulently induced. Like the Baker report, the national report states, ‘The California experience demonstrates the crippling effect that electricity shortages and black outs can have on a state or region.’ Warnings abound: ‘America in the year 2001 faces the most serious energy shortage since the oil embargoes of the 1970’s.’ The 110 repetitions of the word ‘California’ linked with words like ‘energy crisis,’ and ‘energy shortages and price spikes,’ could turn the national energy report into an ad man’s prized primer.”

(Ibid.; p. 6.)

14. Reversing direction, the author (s) of one of the passages in the report reveals the he (or she) is aware of the true nature of California’s manufactured energy crisis.

“Notwithstanding its importance as an example of what could happen to other states, the author of a passage (at page 5-12) of the national report suddenly yields to an impulse to relate what really happened in California. In doing so, he completely contradicts at least 105 references to California throughout the report. The significance of this contradictory entry into the National Energy Policy must not be underestimated.”

(Idem.)

15.

“In the process of reversing the carefully construed ‘California experience,’ the author’s grasp exceeds his knowledge in that his understanding of the events in California go beyond what he should have reasonably known at the time of its writing. For he wrote, ‘The risk that the California experience will repeat itself is low, since other states have not modeled their retail competition plans on California’s plan.’ This is an astounding statement. If the California crisis was caused by a supply shortage as the author claims a line above this sentence, surely other states could suffer similar shortages. But no, the author is actually making an admission here: he is admitting the energy crisis in California can’t be replicated in other states because certain market means do not exist in the other states. How could the author know this? The writer of that sentence would have to be someone intimately involved in the California system; know the real cause of the state’s crisis; and be familiar with all the other state rules and market infrastructures.”

(Idem.)

16. Ms. Yurica discusses yet another revealing reversal of direction by the author of the report.

“But our knowledgeable author is not done. In trying to amplify what he just revealed, he tried to hide the true actors in the next sentence by misdirecting the reader away from the culprits to blame the state. This is a formula for incoherence. Nonetheless, the writer’s sentence found its way into the national energy report where it spoke for the Bush administration: “California’s failure to amend its rules, along with the flawed rules themselves, somehow had an independent power to ‘drive up wholesale prices,’ without an intervening acting agent. The only sensible reading left to us is that the flawed rules allowed power brokers to manipulate the system. But how could our author and his administration editors know this to be true without being in collusion with the wrongdoers? If they were not in collusion they would have reported the crime. But if they remained silent when they had a duty to report or stop the commission of a crime, they became accessories.”

(Ibid.; pp. 6-7.)

17.

“Continuing his unexpected analysis, the author tells us, ‘Actions such as forcing utilities to purchase all their power through volatile spot markets, imposing a single-price auction system, and barring bilateral contracts all contributed to the problems that California now faces.’ This is nothing more than the author, and through him the White House, attempting to throw responsibility for any wrongdoing by energy companies in California squarely at the feet of the state.”

(Ibid.; p. 7.)

18. Philosopher George Santayana stated that, “Those who forget the past are condemned to repeat it.” Foreshadowing the actions of George W. Bush’s energy-industry cronies in California, the petroleum industry, the Saudis and George H.W. Bush’s CIA helped to destabilize Jimmy Carter’s Presidency.

“The sources we interviewed for this chapter say that the oil industry had a well thought out scheme to deceive the president and control U.S. policy in the Middle East. The first part involved intelligence falsification on a grand scale. This was no small-time Angleton Vessel forgery. This time, our sources insist, the president of the United States was to have his ‘pants scared right off him.’ The CIA was used to produce phony oil data to show that the world’s two greatest oil producers, the Soviet Union and Saudi Arabia, were running out of oil. The Soviets would be forced to fight the United States for control of Middle Eastern oil.”

(The Secret War Against the Jews; by John Loftus and Mark Aarons; Copyright 1994 by Mark Aarons; St. Martin’s Press; [SC] ISBN 0-312-15648-0; p. 332.)

19.

“It is hard to recall why he [Jimmy Carter] was so despised when he ws in office. Much of it has to do with the secret history of oil politics. Even during the 1976 election campaign, the oil companies viewed the Democratic candidate as Public Enemy Number One. Carter certainly had some radical ides about energy policy, which made the oil companies fearful for the future and their profit levels.”

(Ibid.; p. 333.)

20.

“‘The whole phony scheme—the oil shortages, the predictions about Soviet troops in the Middle East, the Saudi arms buildup—all of that crap started coming out of the agency back in ’76. The CIA told their boss what he wanted to hear, and in those days, the head of the CIA was an oil man.'”

(Ibid.; p. 334.)

21.

“According to several of our sources, the scheme to manufacture phony CIA estimates and push them on Carter began in the last days of Gerald Ford’s term. They claim that a cabal within the CIA realized that Carter would be the new president, produced the first phony report, and then promptly gave it to Carter as soon as he won, knowing how it would affect his view of the energy crisis. It should be recalled that George Bush was the director of the CIA at the time the oil scam was put in place in 1976. There is some evidence to suggest that it was Bush himself who passed the fake oil estimates to Carter. In the immediate aftermath of Carter’s win, Bush traveled to Plains, Georgia, to brief the incoming president.”

(Ibid.; pp. 334-335.)

22.

“‘Don’t you get it?” asked one of our sources. ‘The gas shortage during the Carter administration was as phony as the CIA’s prediction about the Soviet oil shortage. The god damn Middle East was swimming in oil during the Carter administration, but less and less of it ws shipped to America. For chrissakes, there was so much oil in South America that they had to shut down refineries I the Caribbean to keep it away from the U.S.”

(Ibid.; p. 353.)

23.

“Under the Republicans, lucrative arms factories sprouted in what had previously been rural democratic states. The votes went where the jobs were. In the course of the Reagan-Bush administrations, the defense budget was increased to a point where more money was spent on arms than in all the wars in U.S. history combined. To accomplish this massive defense buildup, the Reagan-Bush administrations borrowed three times more money than all U.S. presidents combined The largest debt in American history was based on the faulty premise that the Soviet Union was going to attack the Middle East.”

(Ibid.; p. 355.)

Discussion

6 comments for “FTR #420 The Destabilization of California Pt. 2”

  1. Is Schwazi tied in with the Hapsburg boy’s UNPO…. did he get Maria through the Dalai Lama gimmick, or seek her for the Dalai Lama politicization gimmick? Maybe you noticed how one of Schwazi’s first trips was to Taiwan to thank his EEasia-Underworld alliance backers who are riding pretty in California now, as they did under Chicago Mafia Peet Wilson. Did you already cover Schwazi’s connections to Fritz Companies who puppeteered Walmart for several years, and whose HQ was in Germany and which is now tied with the Nazifying Cal Green Party along with the German CIIS professor who played Bluebird/Ultra with Timothy Leary?
    Isn’t it likely that Pres Schwazi is the Hapsburg’s man in Sacto? He was at one time trying to buy the state’s new green technology from German manufacturers for a bloated price.

    Posted by Blake | January 30, 2009, 11:44 pm
  2. Ah, energy-market fraud: The Gentleman’s choice for sticker shock:

    Financial Times
    November 15, 2012 2:55 am
    JPMorgan power trading rights restricted

    By Tom Braithwaite in New York

    The US energy regulator has banned JP Morgan Chase from trading electricity at market rates for six months, accusing the bank of submitting false information to a continuing investigation into alleged market manipulation.

    JPMorgan, which has had run-ins with regulators all year including over its outsized lossmaking derivatives trades in London, was hit by an order from the US Federal Energy Regulatory Commission on Wednesday evening related to its activities in California.

    The regulator has been newly zealous in recent months in levying large fines against market players including Barclays.

    The order bars JPMorgan from selling electricity at market rates in California for six months from April 1 2013. However, the bank will still be able to trade electricity at prices determined by counterparties and it can continue to trade other energy products and derivatives. In essence, the order limits the bank’s profits while allowing it to continue operating in power markets.

    Wholesale electricity has attracted heightened regulatory attention since the California energy crisis of 2000-01, when Enron and other traders were accused of rigging supplies and causing blackouts. In the past year, Ferc has alleged that Barclays and Deutsche Bank manipulated electricity markets, and has compelled Constellation Energy to pay $245m to settle another case.

    Last month Ferc proposed a fine of $435m and disgorgement of $34.9m for Barclays for violating the anti-manipulation rule in the power trading market from late 2006 to 2008.

    Posted by Pterrafractyl | November 15, 2012, 9:17 am
  3. Oh no!!!! There’s a oil glut coming due to new refineries opening up around the world. No worries, though. The market is expected to ‘correct’ this problem with a series of refinery shutdowns:

    Oil product glut coming as refineries mushroom: IEA

    By Dmitry Zhdannikov and Christopher Johnson

    LONDON | Wed Jun 12, 2013 5:41am EDT

    (Reuters) – The world is heading for a glut of refined products as new Asian and Middle East refineries increase oil processing in a move likely to force less advanced competitors in developed countries to close, the West’s energy agency said on Wednesday.

    The International Energy Agency said in its monthly report it expected 9.5 million barrels per day (bpd) of new crude distillation capacity, representing more than a 10th of global demand, to come on stream in 2013-2018, substantially more than the forecast increase in crude production capacity and global demand growth.

    “While Europe’s economic woes are taking a toll on demand, there are mounting signs that China’s oil use, like its economy, may have shifted to a lower gear. Slower growth in demand than in runs could lead to product stock builds,” the IEA said.

    The agency said changes would be already felt from the third quarter of 2013 as global refinery runs may rise by more than 2 million bpd on the back of increased processing by China, Saudi Arabia and Venezuela.

    This spike in crude runs would exceed forecast product demand growth of 1.7 million bpd, the IEA said.

    It also added global crude supply could struggle to keep up with refining demand because of seasonal maintenance to North Sea production, Sudan’s struggle to resume production, the annual hurricane season in the U.S. Gulf and risks to Middle Eastern output due to the Syrian civil war.

    Shorter-than-expected crude supply and large refining volumes would undermine refining margins.

    “While that would normally prompt refiners to drop their throughputs, market participants may not be equally receptive to such price signals. New refining capacity would likely be the last to cut back on runs if refining economics turned south,” the IEA said.

    “On the other hand, older plants in mature markets, saddled with comparatively high costs, might feel the heat. That those plants should find it increasingly tough to compete is a widely anticipated outcome of the current downstream restructuring,” the IEA added.

    Problem solved.

    Posted by Pterrafractyl | June 14, 2013, 2:35 pm
  4. But, but, but they did nothing wrong!

    The Wall Street Journal
    Updated July 17, 2013, 3:19 p.m. ET

    J.P. Morgan, Energy Regulator Near Record Settlement
    Bank Set to Pay Hundreds of Millions of Dollars Over Allegations of Electricity-Market Manipulation

    By DAN FITZPATRICK And RYAN TRACY

    J.P. Morgan Chase & Co. and U.S. energy-market regulators are close to a settlement that could involve the largest payout in the history of the Federal Energy Regulatory Commission, said people familiar with the conversations.

    A deal isn’t final and could still fall apart. But the bank and the regulator, known by the acronym FERC, are exchanging drafts of an agreement that would resolve allegations that the largest U.S. bank manipulated electricity markets in California and the Midwest, these people said.

    A final amount to be paid by J.P. Morgan wasn’t known, but previous discussions involved a figure that was close to $1 billion, these people said.

    The conversations highlight an increasingly aggressive stance taken by a little-known federal agency that oversees transmission lines, natural-gas pipelines and the power trading markets that set utility bills for millions of businesses.

    On Tuesday FERC levied a record $435 million fine against British bank Barclays PLC over allegations it manipulated California energy markets from 2006 to 2008. FERC also asked for $18 million in fines from four former traders and the return of $34.9 million in “unjust profits.” Barclays on Wednesday said it wouldn’t pay the fines and intended to fight the matter in court.

    J.P. Morgan has disputed FERC’s allegations and some executives argued privately the bank shouldn’t settle because it did nothing wrong, said people familiar with the bank’s conversations with regulators. Blythe Masters, who runs J.P. Morgan’s commodities unit, resisted an earlier offer from FERC that involved banning three of her traders from the commodities markets, these people said. Her view was these employees and the bank did nothing wrong, these people added.

    FERC notified the New York bank in March that it intended to recommend an enforcement action against its power-trading unit, J.P. Morgan Ventures Energy Corp. The notice alleged the bank misrepresented the prices of electricity contracts with California and the Midwest that resulted in overpayments and that Ms. Masters and three other traders had made false representations under oath, according to a person familiar with the document.

    J.P. Morgan has said it disputes the allegations and defended its behavior aggressively in a formal response to FERC that ran hundreds of pages long, said a person familiar with that document.

    In the course of its investigation, FERC stripped the bank of its ability to sell power from three Southern California power plants where it had agreements to provide fuel and sell the output. J.P. Morgan inherited the electricity rights with its 2008 purchase of investment bank Bear Stearns Cos. It recently agreed to sell these rights to Southern California Edison.

    The accusations against J.P. Morgan surfaced in early 2011 when the California Independent System Operator, which oversees the daily trading that sets electricity prices in the state, saw bidding strategies it believed allowed J.P. Morgan’s energy-trading unit to extract excessive profits from the market, according to regulatory filings that FERC has said describe the allegations against J.P. Morgan.

    The filings don’t mention J.P. Morgan, but they show that market monitors in California and the Midwest focused on the alleged manipulation of “make-whole” payments that electricity providers are supposed to receive in the event that their revenue on a given day doesn’t cover the fixed costs for starting up a power plant.

    The filings describe the strategy this way: traders would submit a relatively low bid to deliver electricity in the “day-ahead” market, ensuring that system operators would schedule their power plant to turn on the following day. Then the traders would make an offer the next day to deliver electricity from that same plant at a relatively high price, causing the system operator to instead ask the power plant to deliver substantially less electricity than scheduled.

    While the traders might lose money on bids to deliver power at high or low prices, they would also be eligible for a “make-whole” payment because their power plant had been scheduled to deliver a substantial amount of electricity that wasn’t actually needed. The “make-whole” payment would cover any trading losses and also generate a profit, according to the filings.

    The agency’s current capabilities are more robust than at the time of the California energy crisis, in 2001, and the subsequent collapse of big energy trader Enron Corp. At the time, Congress lambasted the agency for lax enforcement. Following the energy crisis, FERC moved to explicitly prohibit manipulative behavior and it got authority from Congress to levy fines of up to $1 million per violation, compared with $10,000 per violation before the California market meltdown.

    In a recent interview, Mr. Wellinghoff, who formerly was a consumer advocate for the state of Nevada, said his goal was to levy fines against manipulators that “hurt enough, so they don’t do it again.”

    Maybe JP Morgan felt it was justified ripping off the public using an energy trading firm that it acquired during the Bear Stearns collapse given what a rip off that whole deal was? Not that it would revenge for the deal. Quite the opposite. Just business as usual.

    Posted by Pterrafractyl | July 17, 2013, 12:50 pm
  5. This is exactly the kind of bold regulatory enforcement that makes corrupt banksters everywhere shake in their boots. With glee:

    The New York Times
    JPMorgan Executive May Escape Penalty
    By JESSICA SILVER-GREENBERG
    July 18, 2013, 8:40 pm

    Even as the nation’s top energy regulator is poised to extract a record settlement from JPMorgan Chase over accusations that it manipulated power markets, the agency is expected to spare a top bank lieutenant who federal investigators initially contended made “false and misleading statements under oath,” according to people briefed on the matter.

    Blythe Masters, a seminal Wall Street figure who is known for developing exotic financial instruments, emerged this spring at the center of an investigation by the Federal Energy Regulatory Commission into accusations of illegal trading in the California and Michigan electricity markets.

    The regulator found that JPMorgan designed trading “schemes” that converted “money-losing power plants into powerful profit centers,” a commission document said.

    While the commission and JPMorgan are negotiating a settlement for about $500 million, the people briefed on the matter said, Ms. Masters is not expected to face a separate action. The move signals a pivot for the agency, which has been increasingly flexing its enforcement muscle, according to the people briefed on the matter, who spoke on the condition they not be named.

    Months earlier, investigators planned to recommend that the regulator find Ms. Masters, who holds a powerful position within JPMorgan as the head of its commodities business, “individually liable.” But as the investigation progressed, these people said, top energy regulatory officials have been leaning toward not pursuing any civil charges against Ms. Masters.

    The decision — which could change, according to the people briefed on the matter — would mean that Ms. Masters would escape the agency’s sweeping crackdown against big banks. After gaining enforcement authority because of a change in 2005 that allowed it to impose fines of $1 million a day for each violation, the energy regulator has taken a tougher stance with Wall Street.

    Within Wall Street, Ms. Masters is widely considered a pioneer for her use of credit derivatives, the complex financial products that played a central role in the 2008 financial crisis. Rising through the ranks of JPMorgan — she was the youngest managing director at 28 — Ms. Masters became one of the most powerful executives on Wall Street, propelled by a vision that the products could radically remake the banking industry.

    JPMorgan has argued that its trading was legal. In an earlier statement, a bank spokeswoman said the “bidding strategies were in full compliance with applicable rules.”

    But the energy investigators disagreed, the document shows. Duped by the manipulation, the investigators said, authorities in California and Michigan gave roughly $83 million in “excessive” payments to JPMorgan.

    When JPMorgan traders worked to systemically “cover up” the strategy, investigators initially found, Ms. Masters aided the obfuscation. Ms. Masters “personally participated in JPMorgan’s efforts to block” the state authorities “from understanding the reasons behind JPMorgan’s bidding schemes,” the document said.

    Posted by Pterrafractyl | July 19, 2013, 6:47 am
  6. Here’s an article about the ongoing drought crisis across the US Southwest that raises a very chilling possibility: The increasingly hands off nature of the private market for water sales is creating the kind of situation that is eerily reminiscent of Enron:

    In dry California, water fetching record prices
    In bone dry California, water fetching record prices as sellers cash in on drought
    Associated Press
    By Garance Burke, Associated Press Writer 7/2/2014

    SAN FRANCISCO (AP) — Throughout California’s desperately dry Central Valley, those with water to spare are cashing in.

    As a third parched summer forces farmers to fallow fields and lay off workers, two water districts and a pair of landowners in the heart of the state’s farmland are making millions of dollars by auctioning off their private caches.

    Nearly 40 others also are seeking to sell their surplus water this year, according to state and federal records.

    Economists say it’s been decades since the water market has been this hot. In the last five years alone, the price has grown tenfold to as much as $2,200 an acre-foot — enough to cover a football field with a foot of water.

    Unlike the previous drought in 2009, the state has been hands-off, letting the market set the price even though severe shortages prompted a statewide drought emergency declaration this year.

    The price spike comes after repeated calls from scientists that global warming will worsen droughts and increase the cost of maintaining California’s strained water supply systems.

    Some water economists have called for more regulations to keep aquifers from being depleted and ensure the market is not subject to manipulation such as that seen in the energy crisis of summer 2001, when the state was besieged by rolling blackouts.

    “If you have a really scarce natural resource that the state’s economy depends on, it would be nice to have it run efficiently and transparently,” said Richard Howitt, professor emeritus at the University of California, Davis.

    Private water sales are becoming more common in states that have been hit by drought, including Texas and Colorado.

    In California, the sellers include those who hold claims on water that date back a century, private firms who are extracting groundwater and landowners who stored water when it was plentiful in underground caverns known as water banks.

    “This year the market is unbelievable,” said Thomas Greci, the general manager of the Madera Irrigation District, which recently made nearly $7 million from selling about 3,200 acre-feet. “And this is a way to pay our bills.”

    All of the district’s water went to farms; the city of Santa Barbara, which has its own water shortages, was outbid.

    Local TV crews and journalists flocked to the district’s office in February to watch as manager Maurice Etchechury unveiled bids enclosed in about 50 sealed envelopes before the cameras.

    During the last drought, the state Department of Water Resources ran a drought water bank, which helped broker deals between those who were short of water and those who had plenty. But several environmental groups sued, alleging the state failed to comply with the California Environmental Quality Act in approving the sales, and won.

    This year, the state is standing aside, saying buyers and sellers have not asked for the state’s help. “We think that buyers and sellers can negotiate their own deals better than the state,” said Nancy Quan, a supervising engineer with the department.

    Quan’s department, the U.S. Bureau of Reclamation and the State Water Resources Control Board have tracked at least 38 separate sales this year, but the agencies are not aware of all sales, nor do they keep track of the price of water sold, officials said.

    The maximum volume that could change hands through the 38 transactions is 730,323 acre-feet, which is about 25 percent of what the State Water Project has delivered to farms and cities in an average year in the last decade.

    That figure still doesn’t include the many private water sales that do not require any use of government-run pipes or canals, including the three chronicled by the AP. It’s not clear however how much of this water will be sold via auctions.

    Some of those in the best position to sell water this year have been able to store their excess supplies in underground banks, a tool widely embraced in the West for making water supplies reliable and marketable. The area surrounding Bakersfield is home to some of the country’s largest water banks.

    The drought is so severe that aggressive pumping of the banked supplies may cause some wells to run dry by year’s end, said Eric Averett, general manager the Rosedale Rio Bravo District, located next to several of the state’s largest underground caches.

    Farther north in the long, flat Central Valley, others are drilling new wells to sell off groundwater.

    “The maximum volume that could change hands through the 38 transactions is 730,323 acre-feet, which is about 25 percent of what the State Water Project has delivered to farms and cities in an average year in the last decade”. 38 transactions could transfer 25 percent of what the State Water Project delivers annually. That’s a rather huge chunk of a market a for an absolutely vital natural resource to be operating with less and less oversight, especially when entire towns are competing for that resource. So are rolling ‘blueouts’ going to replace the rolling ‘blackouts’ of yesteryear in California? Maybe, although the blueouts won’t exactly be replacing the blackouts…

    Posted by Pterrafractyl | July 2, 2014, 9:17 am

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