>FERC built a terrible box, and the box had some buttons that were labeled “push here for money,” and JPMorgan pushed them and got money. You can understand the category mistake very easily:
>FERC thought the box was for generating electricity at market prices but with a robust backup system to ensure reliable supply, and
>JPMorgan thought the box was for dispensing money.
>It’s a perfectly understandable mistake to make if you have spent your career building and operating boxes that dispense money, as JPMorgan global commodities head Blythe Masters has. What else could the box be for?
That was a really interesting read, but I'm not familiar with a lot of the terminology so it was a bit hard to follow. Any chance you might be able to explain a bit more of what was happening there?
I get that they found a loophole that rewarded them for producing more of the less efficient energy, but I'm a bit unclear on what the actual rules were, the roles of the various players in this, and how the transactions were taking place.
The rules say that they choose the best rate that satisfies demand, then pays all accepted bids that rate.
But bids change over time, and you can't just buy one hour's energy: plants take time to "boot up" which have costs. So they pay in 3 hour increments. If your bid for time t is accepted, they pay you for t,t+1, and t+2.
JPMorgan set prices at {Good price, outrageous price, outragous price}
JPMorgan got an average of 2/3*outrageous price, which made them an obscene amount of profit.
The stupid system didn't notice.
As I understand it the players submit bids to a central computer that decides who to order from.
Thanks for clarifying. Just to make sure I'm following then--the system was essentially looking at the bid price for just the first hour, and ignoring hours two and three despite the fact that time needed to be sold in three hour commitments due to the boot up time, which let JPMorgan jack bids two and three up and have them automatically accepted since the bids for hours two and three were never considered in the bid selection logic?
If so that's one major oversight for whomever built the system. I honestly could see why JPMorgan would be going "so...you're sure these are the rules? Really? Mmmm...ok....well, if you say so." I'm sure they didn't exactly telegraph how they would abuse this, but I find it a bit hard to hold them responsible for what is essentially negligence on the behalf of whomever was in charge of designing the system logic.
>As set forth below, Enforcement has determined that, through the 12 strategies
investigated here, JPMVEC violated the Commission’s Anti-Manipulation Rule,
18 C.F.R. § 1c.2, by intentionally submitting bids to CAISO and MISO that falsely
appeared economic to CAISO and MISO’s market software but that were intended to,
and in almost all cases did, lead CAISO and MISO to pay JPMVEC at rates far above
market prices.
Legally, they seem to have lied at one point when asked, and anyway this is a settlement which doesn't mean their actions were found illegal.
I'm not sure if it's the previous two hours or the next two hours, but either way yields the same result. Also, they may not be doing 3 hour increments, but just having a buffer time. I only know what the article says.
Whoever built the system probably assumed that bids represented people's actual intentions, and tried to get the cheapest power given the inputs. They missed a loophole, yes.
Note that there are other strategies that did similar but different things.
Lawmaker logic astounds me. If they wanted to spur fiber laying in Oregon, why not (wait for it) incentivize fiber laying in Oregon. Nah, let's just introduce a wacky indirect property tax loophole.
> The bill, signed yesterday by Gov. Kate Brown, "exempts 'gigabit' Internet service like Google's from a thorny property tax that dates to the 1970s and was originally intended for microwave towers," The Oregonian reported. Until the change, there was "an unusual Oregon tax methodology that values companies based—in part—on 'intangible' assets such as the value of their brands.
> Oregon's first attempt to change the rule backfired, when Google told lawmakers that proposed legislation would only provide relief temporarily and that "after a certain time period tax rates would return to approximately double what they are in other states." Lawmakers said they would change the bill to address Google's concerns, and they did.
> Portland has approved a Google Fiber franchise "that exempts the company from some of the fees and service requirements Comcast faces" and "reworked transportation regulations to allow Google Fiber to put 200 utility cabinets along big city streets," The Oregonian article said.
The intention wasn't to create a general incentive for laying fiber in Oregon. The purpose was to get rid of a weird property tax quirk that was standing in the way of getting Google Fiber to Portland.
Another article on this actually mentions a bit more detail about the tax break, and the hilarity that ensued. They built the tax break specifically for Google, so Google would build there. Problem is... the law they wrote excluded Google.
So they had to go back and REWRITE the law, to ensure Google, the company they made the break for, qualified for it. And then they're getting upset another provider is trying to get the advantage they wrote for Google to use.
When tax laws are being written specifically for a company, our government has a problem.
> When tax laws are being written specifically for a company, our government has a problem.
The government could've pursued the alternative: build out municipal broadband, and allow anyone to provide you service (competitively) at the CO/meetup room. But that's "socialism!"
The problem is not government. The problem is apathetic, uneducated, uninvolved knee jerk voters. And voters get what that deserve for being so.
Voters just don't care as much about wired internet as people on where would like to believe. My parents contemplated getting rid of their FiOS internet and going back to cable because the latter has a better selection of indian channels. Nobody in my building subscribes to FiOS because Verizon doesn't have a TV license here. If you had a rock-solid 50 mbps LTE-A service here in the U.S. that for licensing reasons couldn't access Facebook, nobody would subscribe to it.
Is it really a damn shame? I can only care about so many things. When it comes to local government I care about crime. I care about taxes. I care about overcrowding on the subway. I care about public schools.
It's hard to care about the policy details of broadband providers. My internet from Time Warner is pretty cheap, it almost never breaks, and it's plenty fast enough for Netflix to work. Why should I care much beyond that?
> It's hard to care about the policy details of broadband providers. My internet from Time Warner is pretty cheap, it almost never breaks, and it's plenty fast enough for Netflix to work. Why should I care much beyond that?
"I have healthcare. Why do I care about those who don't?"
Actually, a pretty large portion of our country (US), in fact, do not give a crud about healthcare beyond the notion that they, themselves, have it. People are incredibly selfish. Welcome to Earth. :)
Consumers don't view it as "socialism". If they did, the measure wouldn't have succeeded in the very-right-wing bastion of northern Utah (UTOPIA fiber).
Because then some construction company would lay fiber and not hook it up. Or hook it up, but put a 10/100 switch on the other end. Or hook it up, but throttle everything coming through it. Or ...
They're incentivizing "offering a service", and it's better for that to come as a discount on existing revenue rather than free money.
Why shouldn't all service providers benefit from the tax break? Is it ethical to give a tax break that unfairly gives one corporation a competitive advantage against another?
The idea is that service providers that provide gigabit internet benefit, as an incentive to build out gigabit internet. So Comcast offers gigabit internet (actually 2 gbps) at an outrageous price, just so they can qualify for the tax break. While the article says it's meant for Google Fiber, it is clearly for any provider who wants to start providing fast internet to people. This would all be fine if the tax break was for companies providing gigabit internet for under a certain price.
Would the law really be better if the government set a certain price? Sounds like a lot of hassle to determine what a "fair" price is and keep it updated over time. The price for gigabit will certainly go down over time.
> Why shouldn't all service providers benefit from the tax break? Is it ethical to give a tax break that unfairly gives one corporation a competitive advantage against another?
They should. As the law is written there's nothing wrong with what Comcast is doing. There's no shame in taking advantage of tax breaks, whether by a large heartless corporation, a different large heartless corporation, or a small time individual.
The answer to this isn't to rail on Comcast for taking advantage of tax breaks. It's to get lawmakers to fix the law by adding a price cap or equivalent on it so it has its intended purpose.
"But the rule change didn't specify that companies have to offer gigabit service at any particular price in order to qualify for the tax break"
The idea for the tax break was to bring affordable high speed to the state whereas Comcast is qualifying by offering anything but 'Comcast's 2Gbps service costs $300 per month, with $1,000 in startup fees.'
comcast doesn't always deploy gigabit even to people willing to pay the $300 / month (like me). Don't know anyone in houston who has been able to get it successfully. Does anyone actually have comcast gigabit anywhere ?
No. I tried to sign up in SoMa San Francisco (and the site says "San Francisco Bay Area") and was told it was unavailable. The reps were unable to tell me anywhere in SFBA that could get service, or where the backbone is so I can figure out where is within the stated range.
Not sure you read the article. Comcast as expected created a new tier of service to qualify that was grossly expensive. They abused the system and the intent to spur investment in infrastructure was sidestepped.
I have a hard time seeing this as "abuse." If the people who wrote this law were so completely stupid that they didn't even specify a price requirement, well, what did they think was going to happen?
What's more, $300 for 2Gbps is not bad at all. It's not super cheap like Google's offering, but it's about what Verizon charges for 500Mbps, for example.
I propose an alternate headline: "Oregon legislators attempt to spur investment, fail to think through legislation, accidentally grant tax break to incumbent."
Right, but you can't really anticipate all the ways that people might technically comply with a law while eviscerating the purpose of it. So let's say they specified a minimum price. And then Comcast "complies" by offering the cheap gigabit service, but in order for it to work more than just on Tuesday and Thursday, you have to pay a huge premium.
Okay, so you say it has to be available 24/7 to comply, but then even Google can't meet that so you add another requirement. Or maybe you have to anticipate legitimate cases of hyperinflation...
At some point you have to just step back and say, "stop being a dick, that's pretty clear not what the law meant and you're just abusing it".
You may not be able to anticipate all the ways people might abuse the law, but you could at least try.
It's not hard to realize that if you say that a company can qualify for a tax break by offering a service, and you don't say what sort of price that offer must have, that the company might "qualify" without really offering the service by offering it at a really high price. That doesn't require being psychic, that just requires sitting down and thinking like the "enemy" for five seconds.
I agree that at some point you have to step back and say "you're just abusing this," I just think that failing to specify price requirements is way, way, way before that point. And thus I can't agree with calling Comcast's behavior here "abuse." Especially when their price is actually not all that unreasonable.
At the same time, Comcast is also run by adults who are perfectly capable of taking responsibility for their actions. They knew exactly what they were doing, so it's perfectly valid to also be angry at them for clearly abusing a loophole.
I was expecting to see a far higher figure. 2Gbps for $300 is certainly high, but not a joke in and of itself. What was the main intention of this law? If it was to spur higher bandwidth connections, it did so. If it was to lower costs, it seems obvious there should have been a cost factor to the law.
I'm not one to defend Comcast, but $300/month for 2Gbps fiber is NOT "grossly expensive." It's the exact same product (minus SLA) they sell business customers for thousands. I'm paying $210 a month for gigabit-that-isn't from a WISP, and would jump at the chance to pay Comcast instead.
The law should absolutely apply equally to everyone. However, given the purpose of the law, it should have been written along the lines of "offering gigabit Internet service for less than $100/month". Because gigabit Internet access has been possible for a long time, if you paid enough; the innovation is making it available to everyone.
It may not have been legal for them to set a price cap.
That said, I'm absolutely convinced that all laws must be written with the assumption that someone will try to abuse them, and after a law is written, a completely separate and independent group should "audit" it to find flaws/loopholes and fix them. Basically, treat it like security: never trust the user (i.e. the people and entities who must follow the law).
> Why shouldn't all service providers benefit from the tax break? Is it ethical to give a tax break that unfairly gives one corporation a competitive advantage against another?
Agreed, though I think this is a case of the headline being misleading. The issue is that the tax break is being provided to a company that's doing no actual investment in fiber or providing fiber at an affordable consumer price (which is what the tax break was intended to encourage).
In other words, the lawmakers didn't think this one through properly. That, or they knew exactly what they were doing, and Comcast lent a hand.
I agree with your sentiment, and as much as it leaves a bad taste in my mouth, the action taken thus far does seem correct.
I'd focus my gaze on the legislators who wrote a tax break with holes so large you could drive a metaphorical truck through; frankly this is an issue (badly written tax and other code that allows sophisticated parties take advantage of the system in a way that wasn't semantically intended even if it is literally permissible) FAR more broad than just this one instance, and underpins a lot of the discussion I've seen on here lately.
Since I'm not a resident of that state, I don't know their laws but in my state, we regularly give competitive advantage to one company over another.
Municipalities restrict which companies can offer cable TV service within their boundaries based on which company is willing to pay the most money for the privilege of doing business there.
In general, you're probably right. But this is Comcast. I can't seem to imagine getting worked up about them being excluded from something like this after all they've done to fuck consumers.
I'm actually quite surprised to read that Comcast's offering is symmetrical: 2Gps upstream and downstream. According to http://www.xfinity.com/multi-gig-offers: "Will this be a symmetrical 2 Gbps service? Yes it will be symmetrical: Up to 2 gig download and up to 2 gig upload speeds."
Is there any good reading on why it isn't in the Bay Area yet? I think Google and Comcast both know a large % of the population here would switch overnight. I'm assuming there's weird laws that prevent progress like most of our other issues out here.
Comcast residential Gigabit service is basically the same as their Enterprise Metro-E product rather than GPON with Google Fiber, hence the higher cost/install fees. Comcast gives a 10 Gbe fiber hand off at the home.
There's no reason Comcast shouldn't benefit from it.
If they are giving them taxpayer money, what is the savings then?
Basically everyone is funding it for the percentage of them that will actually use it.
How about telling google, we'll guarantee X $$$ of account from low income people that we'll fund, instead of just throwing them free money for nothing.
For the life of me, and for this exact reason, I can't understand the net neutrality movement.
It's a bunch of people arguing that we have a problem and the most likely party to fix it is the government.
But this article is an example of exactly what the government does when you give them power to control things. They write in loopholes, pork, or they just flat out do a half assed job of drafting legislation. And then we see the deluge of unintended consequences
Wake up, People! The government is not here to fix your problems.
Private firms with monopoly power never last, unless that monopoly power is augmented by the government.
The Comcast "monopoly" is in the process of falling apart, on one side from Netflix, Amazon, and Hulu and on the other side from Google fiber, 5G wireless, mesh networking, and perhaps even the Elon musk LEO satellite Internet plan.
The Willis Graham Act nullified the Kingsbury Commitment by which the government had tried to stop the unfettered expansion of Ma Bell, since it hadn't actually worked the government shifted to trying to regulate Ma Bell itself through the ICC (and the FCC a few years later).
Either can exert good and bad influences. Neither business nor government is your friend. Both can be large and unwieldy, and large entities often step on smaller ones even if inadvertently.
Unfortunately, we just have to be vigilant and exert our own influence to push things in a favorable direction. No one else will.
"For the life of me, and for this exact reason, I can't understand the net neutrality movement."
We don't want a company deciding what we can and cannot view on the internet.
"It's a bunch of people arguing that we have a problem and the most likely party to fix it is the government."
They're the only party with enough power to do so.
"But this article is an example of exactly what the government does when you give them power to control things. They write in loopholes, pork, or they just flat out do a half assed job of drafting legislation. And then we see the deluge of unintended consequences"
And Comcast is blameless in this? Are they not run by adults, who know exactly what they're doing, and can take responsibility for their actions?
"Wake up, People! The government is not here to fix your problems."
Actually, that's kinda their entire purpose for existing.
>FERC built a terrible box, and the box had some buttons that were labeled “push here for money,” and JPMorgan pushed them and got money. You can understand the category mistake very easily:
>FERC thought the box was for generating electricity at market prices but with a robust backup system to ensure reliable supply, and
>JPMorgan thought the box was for dispensing money.
>It’s a perfectly understandable mistake to make if you have spent your career building and operating boxes that dispense money, as JPMorgan global commodities head Blythe Masters has. What else could the box be for?