JPMorgan punished for California power-trade violation
Nov 15, 2012 (Menafn - The Sacramento Bee - McClatchy-Tribune Information Services via COMTEX) --In a stunning move, a Wall Street investment bank was suspended from trading electricity for profit in California on Wednesday for submitting false information to federal investigators.
JPMorgan Chase & Co.'s energy-trading division was suspended from California's wholesale market for six months starting April 1. The suspension was imposed by the Federal Energy Regulatory Commission.
The decision could cost JPMorgan millions of dollars.
It was a move almost without precedent.
The last time a power company lost its trading privileges in California was after the notorious energy company Enron Corp. went bankrupt in 2001.
JPMorgan can still buy and sell electricity in California, but is forbidden from charging "market-based rates," FERC said.
"The egregious nature of JPMorgan's repeated submission of false and misleading statements ... requires the severe penalty," FERC said in its decision.
The agency delayed the start of the suspension until April 1 in order to give state officials "sufficient time to take steps necessary to maintain system reliability during the suspension period."
The suspension is an outgrowth of an ongoing investigation into Morgan's bidding practices in California -- a case that conjured up memories of energy traders running wild during the energy crisis of 2001.
FERC and the California Independent System Operator, which runs the state's transmission grid, began investigating allegations that JPMorgan rang up 73 million in excess profits by using manipulative bidding strategies.
JPMorgan doesn't own any power plants but has contracts with generators to trade their electricity in California. The power is sold through the ISO, a quasi-governmental entity.
JPMorgan has denied that any of its bids were improper.
In September, FERC threatened to suspend JPMorgan after the trader was found to have given false information to investigators.
JPMorgan apologized and said it had made "unintentional, good-faith mistakes." It said the mistakes didn't justify a suspension.
On Wednesday, JPMorgan officials said the suspension is "a novel use of FERC's authority ... and is unsupported by FERC's own regulations."
The company said it is reviewing the decision "and will determine our next steps."
Steve Berberich, president of the ISO, welcomed JPMorgan's suspension. In a prepared statement, he said FERC and the ISO "are in lockstep on the importance of protecting the integrity of markets."
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Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.
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