Photo Illustration: 731; Photographer: Andy A. Widmer/Eye Em/Getty Images
The Power Grid Is Just Another Casino for Energy Traders
When GreenHat Energy collapsed after blowing millions speculating on power prices, it became plain: Energy traders are essentially gambling, and ratepayers back every bet.
One morning in January, Andrew Kittell climbed into his gray Toyota pickup and drove to the top of the San Diego-Coronado Bay Bridge. He parked in the service lane and got out, leaving his driver’s license in the car. He walked toward the railing.
Kittell was a trader in the market for financial transmission rights, also known as congestion contracts. These are essentially bets that at specific places and times, demand for electricity will rise enough to create bottlenecks, or congestion, on the power grid, causing prices to jump. The tools of this trade are weather forecasts and demand curves and proprietary prediction models; the field tends to attract understated, cerebral people. But Kittell was an outlier, an extrovert prone to testing limits. A decade earlier, he’d helped JPMorgan Chase & Co. make more than $125 million in California’s and the Midwest’s electricity markets, only to have regulators accuse his team of gaming the system. The bank settled the case by paying $410 million in penalties and relief. Kittell himself wasn’t penalized, and nobody admitted any wrongdoing.