JPMorgan Chase & Co. has accepted a $410 million penalty to settle accusations of electricity market manipulations in California and the Midwest.

On July 30, 2013, the Federal Energy Regulatory Commission (FERC) issued an order approving stipulation and consent agreement that requires JPMorgan Ventures Energy Corporation (JPMVEC) to settle allegations of electricity market manipulation in California and the Midwest between September 2010 and November 2012.  The $410M fine includes $285M in civil penalty (to be paid to the U.S. Treasury) and $125M of disgorged profits ($124M to California ratepayers, and $1M to Midwest ratepayers).  The agreement also requires JPMVEC to waive claims for additional payments from California Independent System Operator Corporation (CAISO) and adopt additional compliance measures.  JPMVEC, a subsidiary of JPMorgan Chase & Co., accepted the settlement facts without admittance or denial of violations.

FERC initiated investigations in response to multiple referrals by CAISO and Midwest Independent Transmission System Operator, Inc. (MISO) market monitors of manipulative bidding practices during 2011 and 2012.  It approved four emergency tariff filings from both independent system operators (ISOs) to make tariff changes effective from the filing date rather than the order date.  In November 2012, FERC suspended JPMVEC’s electric market-based rate authority for six months with effect from April 1, 2013 for submitting false information.

FERC determined that JPMVEC violated its Anti-Manipulation Rule through 12 manipulative bidding strategies, whereby it submitted bids that falsely appeared economic, forcing California and Midwest ISOs to make excessive payments.  It found that JPMVEC engaged in 10 of the strategies during its two investigation periods – September 2010-June 2011 and March-November 2012 – despite the six-month suspension.  Further, FERC found that JPMVEC intentionally defrauded the ISOs by taking excessive payments without delivering additional benefits.  The bidding strategies were devised by JPMVEC’s Houston-based Principal Investments unit.  JPMVEC’s first manipulative strategy alone, implemented over a six-month period from September 2010, yielded tens of millions of dollars in make-whole payments that ISOs pay as additional compensation to generators when revenue is insufficient to cover bid costs.

FERC has intensified its scrutiny of the energy trading sector, after the 2005 Energy Policy Act empowered FERC with broader authority to prohibit energy market manipulation.