Barclays should “take its medicine” and pay the $435 million civil penalty to the U.S. Treasury and $34.9 million in unjust profits that federal regulators say it owes to low-income families primarily on the West Coast, whom it harmed through market manipulation for two years, seven organizations said today in a joint statement.
Barclays is one of several banks found by the Federal Energy Regulatory Commission (FERC) to have manipulated energy markets between 2006 and 2008. In July, FERC ordered Barclays to pay a penalty as well as a refund to families in California, Arizona, Oregon and Washington. Barclays has refused to pay.
FERC also imposed fines on JPMorgan Chase and Deutsche Bank as well for manipulating the California energy market; those banks paid their fines.Yesterday, FERC took Barclays to federal district court to force it to pay up. Some of the money owed is to go to help low-income families with energy bills.
“Millions of working families pay their bills on time. Why can’t Barclays?” asked Tyson Slocum, director of Public Citizen’s Energy Program. “Barclays should pay up and not drag this case out as the winter approaches, which is when families will face thin budgets and decisions between food and heat.”
FERC issued an 85-page order on July 16 describing how Barclays engaged in complex “financial swap” transactions by manipulating West Coast power prices for two years. It noted that Barclays’ physical trades weren’t responding to supply/demand fundamentals but rather allowing the bank to profit on artificially high prices from its related financial swap positions.
FERC also released excerpts from messages written by Barclays traders involved in the price-manipulation that reveal full intent and knowledge of the malfeasance. This message from 2006, for example, refers to the California market: “I just started lifting the piss out of the [P]alo [Verde Hub, a key price-point for the state’s electricity market].” The trader commented, “was fun. need to do that more often.”
The manipulation continued for at least another two years, with FERC estimating a market cost to consumers of $139.3 million. Despite costing the market so much, Barclays, worth about $2.4 trillion, has been told only to refund ratepayers $34.9 million, its profits during that time. The refund represents .0015 percent of Barclays’ net assets.
Recognizing the harm to consumers caused by Barclays’ market manipulation, FERC ordered all of the unjust profits to go to the four affected states’ Low Income Home Energy Assistance Programs (LIHEAP), which provides critical assistance for struggling families to help pay utility bills. This critical program has already suffered severe cuts of 36 percent in federal funding since FY 2010.
“There is an urgent need for LIHEAP to help to struggling low-income families pay their energy bills,” said National Consumer Law Center attorney Olivia Wein. “These funds will help the most vulnerable households in California, Arizona, Oregon and Washington, which include low-income elderly and families with small children at a time when the federal LIHEAP program is severely underfunded.”
“Barclays essentially defrauded countless families, and at the end of the day will get to keep much of the profits it made that way,” said Slocum. “If we allow banks like Barclays to simply make fines a cost of doing business, we can expect to continue being gouged by unscrupulous corporations engaging in market manipulation.”
“FERC should not allow unscrupulous energy traders to continue to prey on Californians,” said Mark Toney, executive director of The Utility Reform Network (TURN), California’s nonprofit consumer advocacy organization. “Barclay’s, one of the wealthiest companies in the world, owes California consumers millions of dollars and should return its ill-gotten gains immediately.”
Noting how many bank manipulation schemes have been revealed recently – reflected in recent FERC actions against Barclays, JPMorgan and Deutsche bank – the organizations signing the joint statement argue that FERC should undertake an evidentiary hearing to examine whether or not the organized markets deliver just and reasonable rates.
“There is nothing in these settlements that addresses whether the inherent structure of the markets is adequately protecting consumers,” the letter says.
The letter also calls for the creation of an office of consumer advocate at FERC that would authorize funding for groups that represent household consumers, thereby providing critical assistance for consumers and enhancing the representation of households before FERC.
The joint statement, written by Public Citizen; Americans for Financial Reform; Arizona Community Action; A World Institute for a Sustainable Humanity (AWISH); Citizens’ Utility Board of Oregon; National Consumer Law Center (NCLC), on behalf of its low-income clients;, The Utility Reform Network (TURN), and is available here.
Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on Twitter @TysonSlocum