Shining a light on Wall St's power role Most people think about banks when they borrow or save money, not when they flip a light switch. But a recent set of investigations by an obscure energy watchdog highlights how some of the world's biggest lenders stand in the middle of the $140bn-plus wholesale US electricity market. Late last year, the Federal Energy Regulatory Commission accused Barclays and Deutsche Bank of manipulating electricity markets and in November curtailed JPMorgan Chase's rights to sell power for half a year. The cases, falling electricity prices and new banking regulations are now throwing Wall Street's role into doubt. Deutsche Bank argues in a filing that if government enforcers succeed they could "fracture the foundation of organised power markets." The banks" rise followed the collapse of Enron and retreat of merchant power companies about a decade ago. Market participants say they serve a critical purpose, enabling generators and consumers to hedge costs years into the future. Critics ask why too-big-to-fail institutions should be risking capital in the most volatile commodity market. The banks had the balance sheet, but the reality was it was the taxpayers that were giving them the balance sheet. It's not clear we want the taxpayer subsidising proprietary trading in electricity or even hedging in electricity," says John Parsons, an MIT economist and former consultant to energy companies. JPMorgan was America's fifth-biggest power wholesaler in the third quarter of 2012 with sales of 36.6m megawatt hours, according to Platts Megawatt Daily. Five years ago the industry publication ranked it 49th. Bank of America-Merrill Lynch, Deutsche Bank, Morgan Stanley and Citigroup are among the 25 top sellers. The ranking covers sales of physical megawatts powering homes and businesses. Barclays, 68th in the ranking, is fighting FERC's proposed record penalty of $435m and $34.9m in disgorgement over alleged attempts to boost the value of its financial positions by suffering losses in California's physical electricity markets. In a formal response, Barclays rebutted FERC's case as based on an "economically irrational theory of alleged manipulation." Further, it outlined what attracted the British bank to power in the US west. Beginning in 2006, Barclays sought to increase the size of its risk-management business with clients - a business that entails selling derivatives that give generators or energy consumers steady prices. To do this, the bank said it needed to become active in physical power, not only derivatives. "We wanted them to look at us as a credible counterparty," said the former head of Barclays" US West power desk. FERC has accused Deutsche Bank of manipulation by scheduling exports of electricity from California to boost the value of financial contracts linked to congestion on transmission lines in early 2010. The allegations involved two transmission nodes called Silver Peak and Summit. The agency is seeking a $1.5m fine and $123,198 in disgorgement. In its filing, Deutsche Bank says: "The facts establish that the [Deutsche Bank Energy Trading] traders saw arbitrage opportunities - the chance to "buy low and sell high" - because prices at Silver Peak were significantly lower than prices at Summit." A spokeswoman says the transactions "were appropriate and beneficial to the energy markets and consumers." JPMorgan not only trades electricity but controls output from California power plants. FERC is examining whether the bank manipulated markets . In response to a document dispute the regulator barred the bank from selling power at market rates for six months. Trading opportunities are shrinking as the falling price of natural gas, a power plant fuel, drives down electricity prices. Peak-hour prices at PJM West, a Pennsylvania trading hub, averaged about $47 per MW hour in 2012, 44 per cent lower than 2008. With banks facing new capital rules and other restrictions, some are cutting electricity desks. Amid the uncertainty, rivals see a chance to grab market share. "Dodd-Frank and increased capital requirements have tempered banks" appetite for longer-dated transactions," says Cody Moore, head of North American power at EDF Trading. We have tried to market ourselves as someone who is willing and very capable of entering the market previously taken by the banks.