JPMorgan Power-Trading Business Faces Suspension, FERC Says
The Federal Energy Regulatory Commission has accused J.P. Morgan Ventures Energy Corp. of misleading regulators and said its authority to sell electricity might be suspended.
FERC issued an order today that directs the unit of New York-based JPMorgan Chase & Co. (JPM) to show that it didn’t violate FERC regulations and explain why its authorization to sell electric energy and related services at market-based rates should not be suspended.
“That can be more serious than a penalty, that could be more serious than disgorging profits,” said Susan Court, principal at SJC Energy Consultants LLC in Arlington, Virginia, and a former FERC enforcement director. “That could entail a lot more money than just paying a penalty.”
The order is part of FERC’s effort to increase transparency and eliminate manipulation of the electricity market. The agency is investigating JPMorgan’s power trading in California and the Midwest. That investigation came to light when FERC went to court seeking internal e-mails from JPMorgan, saying the bids from the company might have resulted in at least $73 million in improper payments to generators.
FERC Chairman Jon Wellinghoff has pledged to expand oversight of the multibillion dollar energy-trading business. In February, the agency created a division within its enforcement office to police the markets where electricity is bought and sold by power generators and utilities.
The dispute stems from requests in 2011 by the California Independent System Operator, a grid operator, for information about JPMorgan’s energy profits. JPMorgan told the operator that the matter should be referred to FERC, even though FERC directed CAISO to get the information from the company.
JPMorgan eventually provided the information, though said it was doing so voluntarily even as FERC told the company it was obliged to comply, according to the order posted on FERC’s website today.
The order “preliminarily finds that JPMorgan may have omitted material information or submitted misleading information” four times in communications with FERC, the California grid operator and that agency’s Department of Market Monitoring, according to FERC.
JPMorgan must respond within 21 days of the order being published in the Federal Register.
Power companies can sell wholesale energy at market-based rates, or cost-based rates, which are usually lower. FERC, which grants the authority to sell electricity at market-based rates, does so assuming that “a company’s behavior will not involve fraud, deception or misrepresentation,” the commission said today in the order.
“Thus, the commission has repeatedly emphasized that companies failing to adhere to the commission’s rules and regulations are subject to suspension or revocation of their market-based rate authority,” according to the order.
“It’s hard to prove market manipulation, but filing a false document that’s material -- that’s not so hard to prove,” SJC Energy’s Court said. “Either you did it or you didn’t.”
Jennifer Zuccarelli, a JPMorgan spokeswoman, declined to comment because the company hadn’t seen the FERC order.
Wall Street firms have been players in energy trading at least since the late 1990’s, when many states restructured their power markets. In so-called deregulated markets, buyers bid for electricity from power generators. Consumers then purchase the power from their local utility.
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