On September 5, 2012, FERC issued an Order to Show Cause and Notice of Proposed Penalty to Deutsche Bank Energy Trading LLC (“Deutsche Bank”) concerning alleged manipulation and submission of false information in connection with trading in the California Independent System Operator Corporation (“CAISO”) market. The Commission directed Deutsche Bank to show cause within 30 days of why it should not be found to have violated FERC’s anti-manipulation rule and accuracy requirements of FERC’s regulations, along with parallel provisions in the CAISO tariff. The Commission also directed Deutsche Bank to show cause why it should not face a civil penalty of $1,500,000 and disgorge $123,198 in profits.
FERC’s Office of Enforcement (“Enforcement”) alleges that between January 29, 2010 and March 24, 2010, Deutsche Bank manipulated the market by scheduling exports from CAISO at the Silver Peak intertie with the intent to reduce import congestion and benefit its Congestion Revenue Rights (“CRR”) position at Silver Peak. CRRs are similar to Financial Transmission Rights in other markets and are used as a hedge against transmission costs or a speculative investment, tied to the difference between pricing at two points. In addition to manipulation violations, Enforcement alleges that Deutsche Bank designated particular exports and imports as Wheeling-Through transactions, even though Deutsche Bank was not wheeling power. Furthermore, the transactions did not meet necessary tariff requirements.
Enforcement investigated Deutsche Bank after receiving a report from the CAISO Department of Market Monitoring. Enforcement found that after a derate of the Silver Peak intertie in January 2010, Deutsche Bank’s CRR position became unprofitable. According to Enforcement, Deutche Bank traders then engaged in a “scheme” to regain the value of their CRR position at Silver Peak by scheduling physical power to mitigate inbound congestion. Enforcement’s report compared Deutsche Bank’s trades to those seen by Constellation Energy Commodities Group and energy trader Brian Hunter, finding they were “entered into solely with the intent to impact energy prices to benefit its related financial positions.” (see March 12, 2012 and April 25, 2011 editions of the WER).
The Commission’s Show Cause Order is available here.