JPMorgan Chase & Co. (JPM) is being investigated over potential power-market manipulation that inflated payments for electricity, according to the U.S. Federal Energy Regulatory Commission.
The FERC, which has pledged to combat manipulation of prices, began its probe after reports last year of bidding practices by JPMorgan that the California and Midwest grid operators deemed to be abusive, according to documents provided by the Washington-based agency.
"Three of the bidding techniques had together resulted in at least $73 million in improper payments," the agency said in documents filed yesterday, citing estimates by the two system operators.
JPMorgan, the largest and most profitable U.S. bank, is also under investigation by the Securities and Exchange Commission and Justice Department, among other enforcement agencies, over a multibillion dollar trading loss in a London unit of its chief investment office. New York-based JPMorgan owns or has rights to the output from several electricity generating facilities, according to a May 10 regulatory filing.
"We have been responding to a FERC investigation into certain activities in our federally approved power business," Jennifer Zuccarelli, a JPMorgan spokeswoman, said today in an e-mail. "We believe we have complied in all respects with the law, as well as FERC rules and applicable tariffs, governing this market."
FERC Chairman Jon Wellinghoff said in March that the agency will be vigorous in seeking to stop companies from manipulating electricity markets, after the agency reached a record $245 million settlement with Constellation Energy Group Inc. for trading practices in New York and New England.
The FERC has issued 15 notices of alleged violations since January 2011 for companies including Barclays PLC (BARC), BP PLC (BP), Deutsche Bank AG and Constellation, according to information posted on the agency website. Seven of the cases have been settled, according to the agency.
During the JPMorgan investigation, the FERC said the company allegedly withheld e-mails, prompting the agency to ask the U.S. District Court for the District of Columbia to order JPMorgan to release of the documents or provide a reason for withholding, according to the FERC's filings. The documents couldn't be confirmed at the courthouse.
The regulator is examining efforts by J.P. Morgan Ventures Energy Corp., which is based in Houston, to extract excessive payments or above-market prices from California Independent System Operator Inc. and Midwest Independent Transmission System Operator Inc., Thomas Olson, a lawyer in the FERC investigating division, said in a court document.
"Any such improper payments to generators are ultimately borne by the households, businesses and government entities that are the end consumers of electricity," Olson said.
Each day the California and Midwest grid operators solicit bids from electricity suppliers to meet demand for the next day based on their forecasts. Typically, 90 percent or more power consumed is secured in what is known as the day-ahead market. Any supply shortfalls because of weather or unexpected plant outages are met through bids placed in real-time.
JPMorgan fell 40 cents, or 1.1 percent, to $35.88 when New York Stock Exchange trading ended at 1 p.m. today, and was the fifth-worst performing stock among 30 companies in the Dow Jones Industrial Average.
The Financial Times earlier today reported the FERC investigation on its website.