– JPMorgan at Center of Power Market Probe (CNBC/Financial Times, July 3, 2012):
JPMorgan Chase twice in the past three months as it investigates whether the bank manipulated power markets in California and the Midwest region, court filings show.
The filings mark the first time the Federal Energy Regulatory Commission has revealed its formal probe into JPMorganbidding practices, which it says may have inflated electricity costs by at least $73 million.
The documents also push into public view legal manoeuvring between government and JPMorgan attorneys as the commission seeks 25 emails the bank argues are privileged. FERC on Monday petitioned a US federal court to require JPMorgan to produce the emails, shedding light on its investigation in the process.
FERC, a small but potent regulator, has in the past year compelled Constellation Energy, an utility, to pay $245 million in to settle another case.
FERC had no comment.
JPMorgan has elsewhere been under intense scrutiny by regulators and law enforcement officials since its shock disclosure in May of more than $2 billion in trading losses related to credit derivatives positions.
The bank mentioned but provided few details of the investigation in its latest quarterly financial report. In a written statement to the Financial Times, JPMorgan said: “As discussed in our 10-Q, we have been responding to a FERC investigation into certain activities in our federally approved power business. We believe we have complied in all respects with the law, as well as FERC rules and applicable tariffs, governing this market.”
“We stress that this investigation is ongoing and that no conclusions have been reached or findings adjudicated. We welcome the court’s assistance in resolving this dispute over documents,” the bank added.
The bank’s commodities business owns or has rights to output from several electricity generating facilities. FERC, the regulator, said it is investigating whether JPMorgan bidding strategies extracted “inflated” or “excessive” payments from two wholesale power markets serving California and several Midwest states.
“Any such improper payments to generators are ultimately borne by the households, businesses, and government entities that are the end consumers of electricity,” FERC attorney Thomas Olson wrote in papers filed on Monday in a US federal court.
FERC opened the investigation last year after the California and Midwest markets alerted the government to strategies the operators “viewed as abusive”, according to one court filing.
Commission enforcement lawyers are also investigating whether JPMorgan violated a “rule requiring truthful and non-misleading communications” to regulators, a court filing said.
The court filings highlight JPMorgan’s struggle with the government to keep internal bank emails private as the investigation proceeds. FERC served JPMorgan with subpoenas in April and May seeking unredacted copies of internal bank emails, a filing said. So far, 28 of 53 emails have been turned over.
In a March 2011 email included in the filings, Francis Dunleavy, head of principal investments in the bank’s global commodities group, wrote to Blythe Masters, head of the group, that he will handle one regulatory inquiry “but it may not be pretty”.