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Shell and Scottish Power guilty of energy fraud and market manipulation in the US

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By Alex Brummer For Daily Mail, In San Francisco

Shell and Iberdrola-owned Scottish Power have been found guilty of fraud and market manipulation which led to power blackouts in the San Francisco bay area.

The finding by a Federal Energy Regulation Commission (FERC) judge alleges that Shell and Iberdrola made £809million of illegal profits which may now have to be repaid to the citizens of California.

Evidence presented during the hearings says that energy traders at Shell and Iberdrola used similar tactics to the collapsed energy firm Enron to drive up the prices which Californian residents had to pay on their long-term contracts.

As a result Shell received £548million in excessive profits and Iberdrola £261million. At the time Scottish Power, which has previously won Money Mail’s Wooden Spoon Award for poor customer service, was a quoted UK company and owner of PPM Energy in California.

It was heavy losses in the US which weakened the Scottish firm and led to it being sold to the Spanish power giant Iberdrola in 2007.

The case has been a long-running sore in San Francisco and done nothing to enhance Shell’s reputation in the US. Newly-released transcripts of telephone conversations are reminiscent of some of those recorded during the Libor fixing scandal.

As the blackouts were taking place across the area 15 years ago, one trader said to another: ‘I don’t know how honest that is, but we are not in the honesty game are we?’

Another replies: ‘It’s not a question of honesty … it’s a question of optimization.’

Under another scheme allegedly deployed – known as ‘ricochet’ or ‘megawatt laundering’ – the companies involved would buy electricity in California to sell out-of-state and simultaneously buy it back at a higher price.

The initial decision and the call for redress must still be approved by the full FERC board.

Shell is not the first UK company to fall foul of the American authorities over energy market rigging. 

In 2013 US regulators imposed a fine on Barclays and four traders of £300million for allegedly manipulating energy markets over a two-year period.

A Shell spokesman said: ‘Shell Energy has received and is reviewing the administrative law judge’s initial decision in the long-term contract case currently before FERC. We take our business and compliance with regulations very seriously.’

Scottish Power did not respond to requests for comment.

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