JPMorgan Close to $1bn Power Market Manipulation Ferc Settlement

The Federal Energy Regulatory Commission [Ferc] is close to finalising a settlement with JPMorgan over power market manipulation allegations, which could result in the largest payment ever made to a US energy market watchdog.

According to unnamed sources cited by the Wall Street Journal, the bank and regulator are exchanging drafts of a deal that would resolve allegations that JPM rigged electricity markets in California and the Midwest.

While a settlement amount has not been finalised, the same WSJ sources say that a value of around $1bn has been discussed.

JPM declined to comment.

Relevant spokespeople at Ferc were not immediately available for comment at the time of publication.

The reports come only two days after Ferc ordered Barclays and four of its traders to pay $453m (£299m, €346m) in total fines for rigging physical power markets.

When many US states deregulated the power markets in the late 1990s, it led to a number of Wall Street firms trading electricity.

Buyers bid for electricity from power generators and then consumers - or end-users- would then purchase it from their local utility.

Power companies can sell wholesale energy at market-based rates, or cost-based rates, which are usually lower.

Ferc Allegations and Investigation Timeline

On 20 September 2012, Ferc said that JPM subsidiary, JP Morgan Ventures Energy Corp, had misled regulators and that its authority to sell electricity might be suspended.

The regulator issued an order to the group to demonstrate that the bank didn't violate Ferc regulations and why its permit to sell electric energy and related services at market-based rates should not be temporarily revoked.

"[The] order preliminarily finds JPM may have omitted material information or submitted misleading information in communications with the Commission, the California Independent System Operator (CAISO) and the ISO's Department of Market Monitoring (DMM)," said Ferc in the statement.

The regulator added that JPM refused to turn over e-mails requested by Ferc in its power probe.

According to court filings, Ferc sued JP Morgan on 2 July last year to release 25 emails after complaints from California and Midwest grid operators that JPMorgan's bidding practices were abusive.

In March 2013, JPM revealed that it received a notice from Ferc saying that its staff intended to recommend that the commission bring an action against the bank and some of its employees.

That month, a JPM spokesperson said the bank "disputed any allegations that employees lied or acted inappropriately in the matter".