FERC suspends Jpmorgan unit's power-trading authority
US Federal Energy Regulatory Commission yesterday suspended a JPMorgan Chase & Co. (JPM) unit's electrical-trading authority, saying it had filed false information to regulators.
The action, part of a more aggressive effort by the commission to monitor US power markets, prohibits J.P. Morgan Ventures Energy Corp. from selling electricity at marketbased rates for six months starting April 1, 2013. The FERC said the company made "factual misrepresentations" and omitted material information in communications with the California Independent System Operator, or Caiso, and in filings to the commission. Caiso operates the state's power grid.
"This is very significant in the history of that agency," Charles Peabody, a bank analyst with Portales Partners in New York, said in an interview. "FERC has really been stepping up its investigations into power manipulation."
In its order released late yesterday, FERC said the JPMorgan unit will essentially be allowed to participate as a bystander in wholesale power markets, granting it the ability to offer electricity into the market without a price attached.
This will ensure that utilities have the ability to obtain enough power to serve the demand from customers. JPMorgan would still be able to trade derivatives under the order. "The provision of false, misleading or inaccurate information undermines the integri- ty of the FERC decision-making process, the smooth operation of markets and FERC's ability to ensure just and reasonable rates for customers," FERC said in an e-mailed statement. "The commission continuously has warned market participants of the consequences associated with failing to abide by FERC rules and regulations."
"This is a novel use of FERC's authority over marketbased rates and is unsupported by FERC's own regulations," Jennifer Zuccarelli said in an e-mail.
The commission is also investigating alleged manipulation by traders for Deutsche Bank AG (DBK) and Barclays Plc. (BARC) Since January 2011, the agency has announced 11 market-manipulation probes, and in March it reached a $245 million settlement with Constellation Energy Group Inc. over one of those cases. Last month, the agency proposed a record $469.9 million in penalties for Barclays, which says it will contest the finding.
The JPMorgan energy unit reported $2.2 billion paid by customers in New England, the Midwest and California in 2011, according to FERC filings.
While the unit accounted for a small portion of JPMorgan's $97.2 billion in 2011 revenue, yesterday's decision adds to regulatory trouble for the New Yorkbased company. At least 10 federal agencies and a U.S. Senate panel are investigating a multibillion-dollar trading loss at its chief investment office in London.