In another strategy, traders offered low rates for providing electricity the next day to lure orders from grid operators, then gamed the bidding system to reap higher payments above market prices, according to the agency.
JPMorgan also agreed to forego an unspecified amount of future payments from California’s grid operator, according to the FERC.
The settlement agreement “is a vindication for California ratepayers and for market participants who play by the rules and work to support an effective market,” Nancy Saracino, general counsel for the California Independent System Operator, the state’s grid operator, said today in a statement.
The California authority had requested in public filings with the FERC during the last two years that the company give up $68 million in profits. The settlement will allow the state’s electricity consumers to receive an additional $56 million associated with trading tactics identified by the operator’s market monitor, according to the statement.
FERC Chairman Jon Wellinghoff has stepped up scrutiny of corporations as the agency wields policing powers that were expanded in the wake of Enron Corp.’s 2001 collapse. Since 2011, the FERC has revealed at least 13 probes of energy-market gaming.
The regulator on July 16 ordered Barclays Plc and four of the company’s former traders to pay a combined $487.9 million in fines and penalties for engaging in what the agency said was a scheme to manipulate energy markets in the Western U.S. from 2006 and 2008. The bank has vowed to fight the penalties.
Deutsche Bank AG agreed on Jan. 22 to pay $1.6 million to resolve FERC claims that an energy-trading unit manipulated markets in 2010. The Frankfurt-based bank didn’t admit or deny wrongdoing.
The agency fined ex-Amaranth Advisors LLC trader Brian Hunter $30 million in 2011, ruling he manipulated the price of contracts on the New York Mercantile Exchange in 2006 while boosting the value of financial derivatives. A U.S. Court of Appeals ruled in March that FERC lacked the jurisdiction for the fine.
The FERC in March 2012 reached a then-record $245 million settlement with Constellation Energy Group Inc. over alleged energy trading violations in New York. Constellation didn’t admit any wrongdoing.
The JPMorgan case differs from those involving Barclays and Deutsche Bank in that it deals only with bidding strategies in electricity markets, according to Susan Court, a former director of FERC’s enforcement office. The latter two investigations dealt with traders who allegedly gamed electricity markets to benefit their positions in financial markets.
“FERC enforcement staff is getting more sophisticated in their understanding of these markets,” Court, now the principal at SJC Energy Consultants LLC in Arlington, Virginia, said in a phone interview yesterday. The markets are also becoming more complicated, she said.