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. Bloomberg News tells the story.

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.

Then, in 2014, he and two colleagues launched a company that began trading congestion contracts and quickly amassed a portfolio that dwarfed all others in the regional market in which it operated. In less than four years, that company, GreenHat Energy LLC, defaulted on its debts and lost almost $180 million. Kittell and his partners became targets of civil lawsuits and possible criminal action: The Federal Energy Regulatory Commission’s enforcement staff has alleged that GreenHat fraudulently exploited regulatory gaps to acquire its huge array of positions on credit with very little collateral. In simple terms, FERC says it pursued a strategy of buying a boatload of contracts, cashing out the best, and walking away from the rest. Other market participants, including utilities and their customers, were left to cover the losses.

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