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article imageJPMorgan fined $410 million for Enron-style market manipulation

By Kelly Fetty     Jul 31, 2013 in Business
Washington - J.P. Morgan Ventures Energy has agreed to pay $410 million in penalties and interest after a probe by the U.S. Federal Energy Regulatory Commission found evidence it had manipulated electricity prices in California and the Midwest from 2010 to 2012.
J.P. Morgan Ventures Energy (JPMVEC) is a wholly-owned subsidiary of JP Morgan Chase & Co. The firm neither admits nor denies the violations.
The settlement resolves a U.S. Federal Energy Regulatory Commission (FERC) investigation opened in 2011, when grid operators in California alerted FERC to unusual bidding practices by JPMVEC.
JP Morgan Chase & Co. acquired three power plants when Bear Stearns collapsed in 2008, according to a Reuters report. Those plants sold power to the California Independent System Operator(CAISO), which manages 80 percent of electrical transmission in California and also to the Midcontinent Independent System Operator (Miso), which delivers electricity to 15 U.S. states and Manitoba, Canada.
FERC investigators claim that JPMVEC used 12 different bidding strategies to distort energy prices in California and the Midwest. In some cases, JPMVEC forced grid operators to pay their plants to sit idle, collecting payments even though no electricity was produced, according to a report by Tim Fernholz of qz.com.
Energy experts have compared JPMVEC's schemes to Enron's fraudulent practices in the 1990's.
Under the agreement, JPMVEC will return $124 million in "unjust profits" to California ratepayers and $1 million to ratepayers in the Midwest. It will also pay a $285 million penalty to the U.S. Treasury.
CAISO called the settlement a "vindication for California ratepayers" in a news release. The agreement "illustrates the effectiveness of ongoing market oversight, which is essential for healthy competition," it said.
The multi-million dollar penalties reflect the increased power granted FERC as a result of the Enron scandal in 2001, according to a July 30 Associated Press report.
FERC can now impose a maximum penalty of $1 million dollars per day of violation. Previously, FERC's maximum fine was limited to $10,000 per day of violation.
Duetsche Bank AG paid a $1.6 million settlement January after FERC claimed it had manipulated energy markets in 2010. FERC has also fined the UK bank Barclays $453 million for similar violations. Barclay's is contesting the fine.
JP Morgan Chase & Co. announced they were considering selling their physical commodities business on July 26.
Last week a U.S. Senate committee held hearings to investigate whether banks should be permitted to control physical commodities such as power plants, warehouses and oil refineries.
More about jp morgan chase, FERC, utility prices, market manipulation, Barclays Bank
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