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JPMorgan Chase asks FERC not to revoke its right to sell power

September 21, 2012|Bloomberg News

JPMorgan Chase & Co. said Friday that providing inaccurate information to regulators probing California's electricity market was a mistake that doesn't justify the threatened revocation of its right to sell power.

The Federal Energy Regulatory Commission issued an order Thursday directing J.P. Morgan Ventures Energy Corp. to show that it didn't violate FERC regulations by misleading investigators and explain why its authorization to sell electricity at market-based rates should not be suspended.

"JPMorgan made an inadvertent factual error" in submissions to regulators, said Jennifer Zuccarelli, a JPMorgan spokeswoman. "Such an inadvertent error does not justify revoking JPMorgan's market-based rate authority."

The order is part of FERC's effort to increase transparency and eliminate manipulation of the electricity market. The agency is investigating JPMorgan's power trading in California and the Midwest. That investigation came to light when FERC went to court seeking internal e-mails from New York-based JPMorgan, saying the bids from the company might have resulted in at least $73 million in improper payments to generators.

Revoking the company's right to sell electricity "could be more serious than disgorging profits," said Susan Court, principal at SJC Energy Consultants in Arlington, Va., and a former FERC enforcement director. "That could entail a lot more money than just paying a penalty."

Still, electricity sales are such a small part of the bank's overall business that investors aren't concerned about the impact of the FERC order, said Paul Miller, an analyst at FBR Capital Markets Corp. in Arlington, Va. It does raise questions about management's ability to monitor its diverse operations, he said.

"It does leave an overall head wind," said Miller, a former examiner for the Philadelphia Federal Reserve Bank. "Can JPMorgan manage that complex operation efficiently and correctly?"

FERC Chairman Jon Wellinghoff has pledged to expand oversight of the multibillion-dollar energy-trading business. In February, the agency created a division within its enforcement office to police the markets where electricity is bought and sold by power generators and utilities.

FERC's order Thursday stems from requests in 2011 by the California Independent System Operator, a grid operator, for information about JPMorgan's energy profits. JPMorgan told the operator that the matter should be referred to FERC, even though FERC had directed CAISO to get the information from the company.

JPMorgan eventually provided the information but said it was doing so voluntarily even as FERC told the company it was obliged to comply, according to the order posted on FERC's website.

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