JP Morgan has agreed to pay a $410 penalty over allegations it manipulated U.S. electricity markets.

Here's the release »

The Federal Energy Regulatory Commission (FERC) today approved a stipulation and consent agreement under which JP Morgan Ventures Energy Corporation (JPMVEC) will pay $410 million in penalties and disgorgement to ratepayers for allegations of market manipulation stemming from the company’s bidding activities in electricity markets in California and the Midwest from September 2010 through November 2012.



Under the agreement, JPMVEC will pay a civil penalty of $285 million to the U.S. Treasury and disgorge $125 million in unjust profits. The first $124 million of the disgorged profits will go to ratepayers in the California Independent System Operator (California ISO), which operates the California electricity market. The other $1 million will go to ratepayers in the Midcontinent Independent System Operator (MISO).



JPMVEC admits the facts set forth in the agreement, but neither admits nor denies the violations. The company did, however, agree to waive claims for additional payments from the California ISO relating to two of the strategies under investigation. JPMVEC also will conduct a comprehensive assessment by outside counsel of its policies and practices in the power business.



The case stems from multiple referrals to FERC from the California ISO and MISO market monitors in 2011 and 2012 regarding JPMVEC’s bidding practices. These practices were the subject of four emergency tariff filings by the California ISO and MISO, each of which was approved by the Commission.



FERC investigators determined that JPMVEC 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.



FERC investigators further determined that JPMVEC knew that the California ISO and MISO received no benefit from making inflated payments to the company, thereby defrauding the ISOs by obtaining payments for benefits that the company did not deliver beyond the routine provision of energy. FERC investigators also determined that JPMVEC’s bids displaced other generation and altered day ahead and real-time prices from the prices that would have resulted had the company not submitted the bids.



Under the Energy Policy Act of 2005, Congress directed FERC to detect, prevent and appropriately sanction the gaming of energy markets. Consistent with that direction, the Commission approved the settlement as in the public interest.