FERC's Market Manipulation Rule: Impact On FTRs And The Virtual Market

Presented to: Energy Bar Association
Midwest Chapter Annual Meeting

Objectives

This discussion should show us how to:

• Recognize the trading behavior related to FTRs and virtual bids that can trigger a FERC investigation
• Understand the economics behind the potential manipulation of FTRs with virtual bids
• Identify effective compliance policy regarding FTRs and virtual bids

Agenda

Behavior that can be Viewed as Manipulation

Economics of FTRs and Virtual Bids

Three types of behavior can trigger a manipulation

• Outright fraud:
  
  
  • Informational Fraud: lying to the market
    
    
    • Example: submitting a false report
  • Fictitious Transactions: selling "snake oil"
    
    
    • Example: circular scheduling to increase congestion
• Withholding:
  
  
  • Traditional concept of market power; reducing supply to increase price
    
    
    • Example: offering a unit above cost to increase LMPs
• Uneconomic behavior:
  
  
  • Intentionally "losing money" on a trade or position to realize a gain on a benefiting position
  • "Losing money" in the economic sense, not accounting sense
  • Trades lose money all the time; proving intent poses challenges
    
    
    • Example: loss-making virtual bids that benefit an FTR position

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