JP Morgan Chase’s alleged manipulation of electricity markets detailed

Kevin G. Hall

The federal regulator of electricity markets on Monday accused Wall Street powerhouse JP Morgan Chase & Co. of using multiple trading strategies to manipulate electricity markets in California and the Midwest for profit.

The Federal Energy Regulatory Commission already had alleged in March that JP Morgan Chase was guilty of manipulating energy markets in California and the Midwest. But late Monday, after the close of financial markets, the agency made public the details in a Staff Notice of Alleged Violations.

“JP Morgan Ventures Energy Corporation (JPMVEC) violated the Commission’s Prohibition of Electric Energy Market Manipulation . . . engaging in eight manipulative bidding strategies,” said the notice by FERC Secretary Kimberly D. Bose.

JP Morgan Chase is already in settlement talks with the FERC, with published but unconfirmed reports citing a price tag ranging between $410 million and $1 billion. Settlement is expected as early as this week. The bank had no immediate comment on the FERC allegations, the first full airing of the alleged wrongdoing. In the past, it has denied wrongdoing.

FERC’s enforcement staff alleged specifically on Monday that JP Morgan Chase, in a period between September 2010 and June 2011, “engaged in five manipulative bidding strategies designed to improperly obtain payments at above-market rates from the California Independent System Operator.”

The alleged manipulation occurred both in the day-ahead bids to provide electricity to the California market, and the bidding that occurs on three-hour intervals in the highly complex bidding system for energy provision.

Between October 2010 and May 2011, JP Morgan Chase allegedly pursued three manipulative strategies aimed at improperly obtaining “excessive payments” from the Midwest Independent System Operator.

That also involved day-ahead bids and staggered bidding during normal business hours designed allegedly to dupe the operator into higher payments late in the day.

The Midwest Independent System Operator is a not-for-profit company that administers wholesale markets for electricity in the Midwest, on the Gulf Coast and in the Canadian province of Manitoba. Power generators bid to sell their energy in those markets.

Monday’s details come days after Senate hearings that showed how JP Morgan Chase, Goldman Sachs and Morgan Stanley have become players not only in the financial trading of contracts for commodities such as copper and aluminum, but also in the physical market where they are warehousing huge quantities of these globally traded products. Congress heard from customers such as MillerCoors LLC, who accused the banks of withholding supply to create scarcity and drive up prices.

Wall Street banks branched off into these commodity warehousing businesses before the 2008 near-collapse of the U.S. financial market, after which point they took bailout money from the U.S. government and had their status changed from investment banks to bank-holding companies subject to greater restrictions.

In response to the glare of congressional attention, JP Morgan Chase said Friday that it would sell off its physical commodities operations but continue in financial markets where contracts for these commodities trade.

JP Morgan statement on sale of assets
Staff Notice of Alleged Violations by JP Morgan Ventures Energy Corp.
By Kevin G. Hall
McClatchy Washington Bureau