In a settlement announced this morning, JPMorgan Chase agreed with the Federal Energy Regulatory Commission to pay $410 million to settle charges that its energy trading unit, JP Morgan Ventures Energy Corporation, had manipulated markets in its bidding for and selling energy in the Midwest and California. The settlement consists of a $285 million civil fine and $125 million disgorgement of profits, $124 million of which goes to ratepayers under the jurisdiction of the California Independent System Operator, which oversees electricity markets in California, and $1 million to the Midcontinent Independent System Operator, which operates in the Midwest.
JPMorgan, according to a release from FERC, “admits the facts set forth in the agreement, but neither admits nor denies the violations.” In other words, this is another settlement where a big bank pays a large fine but does not admit wrongdoing.
FERC said in a release that JPMorgan “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 to pay JPMVEC outside the market at premium rates.”
In a notice posted last night, FERC formally accused JPMorgan of violations, after being in reported talks with the bank. In the notice, FERC laid out the scheme, alleging that JPMorgan would submit artificially low bids to provide energy in what’s known as the “day-ahead” market but then would get payments at above-market rates when it submitted very high rates the following day. FERC also said that JPMorgan would submit a low bid at the end of the day and then a high bid for the early hours of the next day, thus getting vastly above-market payments from the California ISO. All told, FERC said JPMorgan engaged in eight different manipulative strategies. In the order released today, FERC said that JPMorgan “did in fact design its bidding strategies with the intent to obtain the above-market payments that, over many months, it actually did receive. ”
Tony Clark, a FERC commissioner, said in a statement, “Today’s order approving settlement is a historic one” and that “it has become too common for subjects of an investigation to take steps to obfuscate the true intent of their business strategies as a litigation posture for dealing with their regulators.” This is probably a reference to the reported tussles between JPMorgan and the commission. In May, The New York Times reported that a confidential FERC document accused Blythe Masters, the head of JPMorgan’s commodities business, of “falsely” denying she knew about the energy trading scheme and that JPMorgan had made “scores of false and misleading statements and material omissions” in the course of the energy regulator’s investigation. No individuals were named or accused of wrongdoing by FERC.
JPMorgan acquired the energy trading business at the heart of the FERC investigation in 2008 when it rescued the investment bank Bear Stearns during the financial crisis. In a statement, the bank said “J.P. Morgan Ventures Energy is pleased to have reached an agreement with FERC to put this matter behind it.”
“Finally, in light of the record here, we remind all persons under investigation of
the importance of candor and accuracy during all stages of Market Monitor inquiries and Commission investigations,” FERC said in its order.