JP Morgan Chase, one of the nation’s leading banks, has been accused by federal regulators of reaping millions of dollars in excess revenues by manipulating electricity markets in California and the Midwest.
The alleged violations occurred between September 2010 and June 2011, according to the Federal Energy Regulatory Commission. JP Morgan has agreed to pay a $400 million penalty in a settlement with FERC, although the company denies wrongdoing.
This comes two weeks after FERC upheld a record fine of $487.9 million on Barclays PLC and four of its former traders for allegedly manipulating energy markets. These recent fines signal greater regulatory pressure on energy traders and a test run of FERC’s newfound regulatory powers, granted from the Energy Policy Act of 2005, which was put into effect after the Enron scandal.
FERC is the federal counterpart to Texas’ Public Utility Commission, but the FERC settlement with JPMorgan considerably dwarfs any similar settlement in Texas. The largest in Texas took place in 2008, when Luminant was fined $15 million for alleged gaming activities in 2005. However, the PUC can only assess fines of $25,000 per day and per violation, while FERC can assess fines of up to $1 million per day and violation.
FERC in 2012 also revoked a JPMorgan energy-trading unit’s right to trade power for six months, accusing the firm of providing misleading information to regulators. This was the first sanction of its kind on an active market participant.
In 2011, the Texas Legislature adopted legislation sponsored by the Texas Coalition for Affordable Power that gives state regulators more power to combat market abuse. However, TCAP believes the PUC still needs more tools, including the ability to assess greater fines.
To find out more about the deregulated market in Texas and the potential impact of market power abuse, check out TCAP’s report, Deregulated Electricity In Texas, which you can find here.
— Jonathan Coker