Unfinished Business

Four years later, in some glaringly obvious ways, we haven't progressed beyond Square 1:

To give plant owners an incentive to participate in these auctions, ISO guarantees to cover their costs for starting up or running their plants at a minimal level, even if their bids aren't accepted. This is known as "bid cost recovery." ISO rules allow bidders to claim payments of up to twice their real costs.

In simplest terms, JPMorgan submitted bids in the day-ahead market that were so low the firm was certain to be accepted onto ISO's roster of potential electricity suppliers---in fact, they were negative bids, essentially offering to pay ISO to take their electricity. The bidding is overseen by software, not human beings, and the automated program isn't smart enough to distinguish a real bid from a potentially fake one . . . ISO believes that JPMorgan never intended to make that sale, but the beauty of its low bids was that they made it eligible to collect bid cost recovery payments.

The next step was for JPMorgan to make sure that ISO didn't actually buy its electricity, presumably because the profit margin from the bid cost recovery claim was greater than from actually selling energy. So in the real-time market, it priced its electricity so high that ISO wouldn't buy it.

The bottom line, the ISO says, is that JPMorgan's traders never intended to sell it electricity via these bids. The scheme, it says, seems to have been designed purely to capture a bid cost recovery payment the bank didn't deserve, at a rate that was inflated anyway.

ISO says it first noticed that its auction was being gamed this way in August 2010, when bid cost recovery claims started creeping above the historical range of $3 million to $7 million a month. By February, the monthly bill hit $24 million. More than half the sum, it turned out, was draining out through the bidding loophole.

So in March last year, ISO put through an emergency request to FERC for permission to stamp out the practice by immediately revising its bidding rules. The request was granted, and the problem disappeared . . . for 10 days.

Then, the ISO found, the same perpetrators discovered another loophole and started squeezing that until it screamed for mercy. As a result, the ISO says, it incurred unnecessary costs of $5.3 million over a period of just five days in April 2011. The new scheme prompted the ISO to ask FERC for a second emergency rule change, also granted.

JPMorgan is one of the best managed banks there is," Obama said during a taped interview that will air on ABC's The View. "Jamie Dimon, the head of it, is one of the smartest bankers we got."

Yeah, yeah, I know, it's time to fall in line behind Team Democrat because Supreme Court abortion rights marriage equality right to work, etc. But as long as Team Democrat is running the executive branch and the Washington regulatory regime, I'm not going to stop bitching about this until the day these assholes have all been nationalized, then imprisoned---and neither should anyone else. I know this just makes me some irrational Firebagger, but I also happen to live in California, and these bastards stole money from me. So if you want me to shut up, kindly tell the smartest banker we got to mail me a refund check.

---Vitelius