California officials call JPMorgan settlement ‘vindication’ for electricity charges

by Dale Kasler, Sacramento Bee

Calling it a “vindication for California ratepayers,” the managers of the state’s electricity grid today hailed a $410 million settlement between federal regulators and investment bank JPMorgan Chase & Co.

The deal announced by the Federal Energy Regulatory Commission calls for JPMorgan to pay $285 million in fines and return $124 million in profits to California. Another $1 million will go to Michigan ratepayers.

The settlement stems from a two-year investigation into manipulative trading practices in the two states’ wholesale power markets.

“This is a vindication for California ratepayers and for market participants who play by the rules and work to support an effective market,” said Nancy Saracino, general counsel at the California Independent System Operator. The ISO runs the state’s power grid and alerted FERC to JPMorgan’s manipulative practices.

JPMorgan confirmed the settlement but noted that it didn’t admit or deny whether it violated any trading regulations.

News of a possible settlement leaked to the media two weeks ago, and yesterday FERC’s staff released a basic “notice of violation” outlining eight manipulative trading strategies employed by JPMorgan in California and Michigan.

Some observers have said JPMorgan’s practices show that California’s power market is as vulnerable as it was in 2000-01, when traders from Enron Corp. and other firms extracted hundreds of millions of dollars in excessive profits through shady practices.

But ISO officials said the JPMorgan case shows that the markets are being policed properly. “Our market safeguards are working,” Saracino said in a prepared statement. “FERC’s office of enforcement acted swiftly when we reported the suspicious bidding behaviors, and this historic settlement demonstrates that FERC has delivered on its promise to protect the integrity of wholesale energy markets.”

Two weeks ago, FERC, which was widely criticized for dragging its feet during the California energy crisis, slapped another trader, Barclays Bank, with a $453 million fine for manipulating California and other Western markets. The bank is fighting the charges.

As part of the settlement, JPMorgan surrendered a fight to retrieve tens of millions of dollars that already been recouped by the ISO.

Most of California’s electricity is purchased by utilities under long-term contracts. But the ISO buys a small amount each day to balance out shortages, and bills the utilities for the amounts.

The $124 million that JPMorgan is giving back will be distributed by the ISO to ratepayers through their utility companies.