JPMorgan settles federal electricity manipulation charges for $410M

JPMorgan Chase agreed to pay a $410 million fine to settle federal charges that it manipulated electricity markets in California and the Midwest, the Federal Energy Regulatory Commission (FERC) said Tuesday.

JPMorgan Ventures Energy Corp. (JPMVEC), a subsidiary of the bank, will hand over a civil penalty of $285 million to the U.S. Treasury. It will also return $124 million of “unjust profits” to California power customers and $1 million to those in the Midwest, the agency said.

“FERC investigators determined that JPMVEC engaged in 12 manipulative bidding strategies designed to make profits from power plants that were usually out of the money in the marketplace. In each of them, the company made bids designed to create artificial conditions that forced the ISOs [independent system operators] to pay JPMVEC outside the market at premium rates,” FERC said in a statement.

The commission said such practices, employed between 2010 and 2012, distorted power market prices and electricity generation. The regulator added that the company defrauded the California and Midwest regional operators because they received nothing "beyond the routine provision of energy" while paying inflated rates.

Senate Energy and Natural Resources Committee Chairman Ron Wyden (D-Ore.) applauded the settlement, and encouraged FERC to continue pursuing alleged power market manipulators.

“With this historic settlement, the Federal Energy Regulatory Commission has put the interests of families and consumers first, by holding accountable traders and banks that manipulated power prices for short-term profits,” he said in a statement.

As part of the settlement, the agency said the company “admits the facts forth set in the agreement, but neither admits nor denies the violations.”

JPMorgan said in a statement that JPMVEC "is pleased to have reached an agreement with FERC to put this matter behind it."

The bank must file reports on its U.S. power business practice with the Energy Regulatory Commission's enforcement division for three years and must seek outside counsel to review its operations in that space as part of the settlement.

The settlement reflects a broader enforcement push by the agency, which oversees the electric grid. It also has levied a $453 million fine against Barclays, which the British bank is fighting.

Its enforcement powers stem from the Energy Policy Act of 2005, which gave the regulator teeth to defend consumers against incidents like the Enron scandal of the early 2000s.

Enron was found to have manipulated California’s power market shortly after the market was deregulated by encouraging generators to ramp down production, in turn creating a supply shortage. Enron then swooped in, amid rolling blackouts, to offer electricity on spot markets at premium rates.

—This story was updated at 2:44 p.m.

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