News Column

JPMorgan Improperly Manipulated Calif. Energy Market, Feds Say

June 6, 2013

In a case with echoes of Enron and the energy crisis, California officials won a fight with a Wall Street power trader Wednesday over millions of dollars worth of disputed electricity trades.

The Federal Energy Regulatory Commission ruled that traders at JPMorgan Chase & Co. improperly manipulated California's energy markets between 2009 and 2011.

The decision was a victory for the California Independent System Operator, the Folsom entity that runs the state's transmission grid and oversees spot-market electricity trades.

FERC ruled that certain market participants collected $52 million in excess profits. A source familiar with the situation said JPMorgan received most of that money. The ISO already has recovered $35 million of the overcharges and redistributed it to utilities and other participants.

It was the second time in six months FERC sided with California instead of JPMorgan in a fight over the state's electricity supply. The Wall Street firm last month began reducing its presence in California energy markets.

JPMorgan doesn't own any California power plants but buys and sells wholesale electricity from a trading desk in Houston. Its trades are subject to a rulebook administered by the ISO.

Two years ago, the ISO accused JPMorgan of exploiting a minuscule flaw in the rules that enabled it to pocket excessive profits at California's expense. In its order, FERC found that JPMorgan's "bidding behavior ... exacerbated the flaw."

Robert McCullough, an energy consultant in Portland, Ore., said the firm was "manipulating the fine print to get the results they wanted."

JPMorgan declined to comment Wednesday but in the past has said it has done nothing wrong.

To some observers, the case suggested that California's energy supply was still vulnerable to market manipulation, more than a decade after Enron's gamesmanship was uncovered. ISO officials said the JPMorgan dispute showed just the opposite; problems are now addressed before they spin out of control.

"The oversight system worked in this case," said Jim Bushnell, a UC Davis economist who advises the ISO. But he acknowledged that the ISO's rules are so complex, "there are these loopholes lying around."

In January, FERC sided with California in another JPMorgan fight, this one over the firm's effort to block a critically needed renovation of two Huntington Beach power plants. JPMorgan has a marketing contract with the operator of the plants that gave it authority over the renovation, according to JPMorgan.

FERC told JPMorgan to stand aside and let the renovations proceed.

Last month JPMorgan sold its rights to market the power at three California plants, scaling back its participation in the market.

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(c)2013 The Sacramento Bee (Sacramento, Calif.)

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