* FERC asks Deutsche to pay $1.5 million fine
* Energy regulator alleges manipulation at other banks
* FERC sought to fine Barclays $435 million
Nov 7 Deutsche Bank AG's energy
trading arm told U.S. regulators that it did not manipulate the
California power market and should not have to pay a $1.5
million fine and give up $123,198 in profits.
The fine that the U.S. Federal Energy Regulatory Commission
is seeking from Deutsche Bank is much smaller than the record
$435 million that the energy regulator sought last week from
British bank Barclays Plc, also for allegedly
manipulating the power markets in California.
FERC's enforcement arm issued a "show cause" order to
Deutsche Bank in September, asking the German bank to explain
why the agency should not fine the bank's trading arm.
In its response filed with FERC on Nov. 5, Deutsche said:
"The allegations in the Show Cause Order never should have been
brought. If the Commission does not abandon those deeply flawed
allegations now, they will be overturned by a federal district
FERC's enforcement division has become much more aggressive
over the past few years, accusing several banks and energy
companies of manipulating power markets, mostly in California.
In December, FERC's enforcement staff said Deutsche Bank had
violated the law by "scheduling and trading energy in California
in order to benefit its Congestion Revenue Rights positions"
from January to March 2010.
A Congestion Revenue Rights position can be used as a
financial hedge to manage the cost of transmitting electricity.
"The legal position (FERC) Enforcement has taken here is
radical," Deutsche said in its response to the show cause order.
"Essentially, Enforcement's position is that knowingly trading
in two related markets is per se unlawful market manipulation,
even if the trading is profit-seeking in both markets."
Deutsche disputed FERC's allegation that the bank's traders
had manipulated the market by losing money in a physical power
market to make money in a financial market.
The California Independent System Operator, which oversees
the power market in the state, referred the case to the FERC
enforcement arm in June 2010.
PURSUING OTHER BANKS
In October, the FERC staff issued a "show cause" order to
Barclays, asking why the agency should not fine the bank's
trading arm a record $435 million and force it to give up $34.9
million in ill-gotten gains for allegedly manipulating the
California power market during 2006-2008.
Barclays said it would fight the allegations.
In September, the FERC staff issued a "show cause" order to
U.S. bank JPMorgan Chase and Co asking why the agency
should not take away the bank's market-based rate authority for
providing misleading information about its California market
If electricity traders cannot trade at market-based rates,
they must trade at much lower cost-based rates, potentially
driving them out of the market.
JPMorgan apologized to FERC in October and said it had made
an inadvertent mistake.
FERC was investigating JPMorgan following complaints that
its traders may have bid up electricity prices in California and
the Midwest by some $73 million.
In March, FERC won a $245 million fine from Constellation
Energy over charges of power market manipulation in and around