U.S. judge rules Merced Irrigation District can sue U.K. bank over energy prices

A federal judge has ruled that the Merced Irrigation District may pursue a class-action lawsuit against a British bank accused of manipulating electricity prices, causing MID to overpay.

U.S. District Judge Victor Marrero of the Southern District of New York ruled Monday that MID can pursue three claims that Barclays violated federal antitrust law and California unfair competition law by manipulating prices in the electricity market. Marrero denied two additional claims made by MID.

MID alleges Barclays tampered with Intercontinental Exchange daily index prices in order to increase revenue from swap contracts, where parties agree to exchange payments depending on the daily index price on a specified settlement date, according to court documents. The alleged manipulation occurred from 2006 to 2008.

Barclays argued that MID’s complaint, filed in 2015, came too late. But Marrero said MID had no way of knowing about the deals until 2012, when the Federal Energy Regulatory Commission publicly indicated it suspected Barclays manipulated wholesale power markets and distorted market outcomes. That prompted MID to begin investigating and preparing its lawsuit.

In 2013, FERC ordered the British bank to pay a $435 million civil penalty, estimating that its manipulations had caused MID and others to lose at least $139 million by either overpaying for electricity or selling it to their customers at undervalued rates.

MID estimates the price manipulations forced it to pass on artificially high costs to its customers right as the housing market was collapsing, the job market tumbled and high numbers of homeowners lost their properties.

“As an electricity distributor, Merced was obligated to purchase electricity at the daily rates to fulfill its contracts with customers,” Marrero said in his ruling. “Those daily rates, in turn, were dictated by Barclay’s high-volume trading at non-market prices instead of the forces of supply and demand of electricity.”

MID contracts with the Turlock Irrigation District, and the districts’ electricity market prices are determined by a trading hub in which Barclays bought and sold electricity-related contracts.

Marrero noted facts suggesting Barclays intended to manipulate prices, such as instant messages exchanged between traders asking “how far did you move the index” and whether one was “going to have fun with the index all month.”

Mike Jensen, a spokesman for MID, said Thursday the public utility has asked the court to allow the matter to proceed as a class action to include other energy providers that are similarly situated.

The Merced Irrigation District began providing power in 1996. Currently, MID has 8,300 customers across an area of eastern Merced County stretching from Livingston to Merced.

Barclays – which has more than 300 years of experience in banking – moves, lends, invests and protects money for 48 million customers and clients worldwide.

Both companies declined to comment on the specifics of the case.

“Unfortunately, California consumers could write a book on market manipulation in the energy sector,” said Mindy Spatt, communications director for The Utility Reform Network, which has represented California consumers for more than 40 years. “Energy is absolutely essential to our lives. When large corporations come in and try to manipulate prices upward, consumers unfortunately pay the price.”

This story was originally published March 3, 2016 at 6:43 PM with the headline "U.S. judge rules Merced Irrigation District can sue U.K. bank over energy prices."