In one of the biggest crackdowns since the 2000-01 energy crisis, a worldwide banking giant was fined $453 million by the federal government Tuesday for manipulating electricity prices in California and three other Western states.
The Federal Energy Regulatory Commission levied the fine against London's Barclays Bank and four of its traders.
In addition to the fine, Barclays was ordered to ship $34.9 million in "unjust profits" to low-income home energy assistance programs in California, Arizona, Oregon and Washington. Nearly two-thirds of that money is to go to California.
FERC said Barclays was "manipulating the energy markets in and around California through the use of a coordinated, fraudulent scheme." The scheme ran from 2006 to 2008.
Officials with Barclays couldn't be reached for comment.
The case involves a convoluted attempt to influence electricity-index prices on the Intercontinental Exchange, a worldwide commodities market based in Atlanta. The goal was to generate additional profits for Barclays through contracts known as "financial swaps."
While the manipulation occurred on the Atlanta exchange, the activities surely hurt utilities and other market participants in the West, said Robert McCullough, an independent energy consultant in Portland, Ore.
McCullough said the size of the fine is another encouraging sign that FERC, which was criticized for its hands-off approach during the energy crisis, is taking market manipulation seriously.
"These punitive fines are just excellent," said McCullough, of McCullough Research. "You really have to get to a half-billion dollars to get their attention to discourage this behavior."
In a separate case last month, FERC ordered JPMorgan Chase to refund tens of millions of dollars to California for manipulative trades between 2009 and 2011. Those funds were distributed among utilities and other market participants.
The $453 million Barclays fine is owed to the U.S. Treasury. The vast majority of it is to be paid by the bank itself. But trader Scott Connelly has to pay $15 million and traders Daniel Brin, Karen Levin and Ryan Smith have to pay $1 million each.
McCullough said the scheme is reminiscent of gambits employed by companies like Enron during the energy crisis, when traders used various tricks to manipulate prices and gin up additional profits.
"This is the power markets' version of a three-card monte," he said. "It's about as old a scam as anyone has ever seen."
He said Barclays traders made deceptive short-term trades to fool competitors into misreading long-term pricing trends. Then, the Barclays crew executed long-term trades to take advantage of the situation.
"They manipulated people's expectations," he said.
The fine was one of the biggest energy penalties imposed by FERC in years.
The energy crisis resulted in FERC ordering a host of power suppliers to make refunds to California totaling more than $3 billion.
Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.