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Questions remain in JP Morgan settlement

August 6, 2013 - Jim Anderson
Wall Street giant JP Morgan Chase & Co. is paying a $410 million settlement after being accused of manipulating energy prices in California and the Midwest — including Michigan.

According to the Federal Energy Regulatory Commission (FERC), the bank used improper bidding strategies to gain excessive payments off its interests in the power grid.

I’ll summarize the accusations further but, be warned, it’s a bit over my head.

According to the complaint, JP Morgan traders offered to sell electricity at artificially low prices in a "day-ahead" market, thus earning payments for putting power plants on standby mode. Then, when the next day came, the offer would go much higher, so the offered power was never delivered (at the promised price).

Essentially, as I understand the charge, the bank was being compensated for making bids on power it never seriously intended to provide (at the promised price). In some variations, JP Morgan was vastly overpaid for the electricity it did deliver.

Got it?

Who knew making millions of dollars in the electricity market could be so easy?

As is common in corporate settlements, JP Morgan neither admits nor denies the violations but is pleased to have the matter out of the way. (FERC also recently assessed a $453 million penalty to Barclays for manipulating electricity prices in California and other Western states. That company, however has vowed to challenge in court.)

Much remains unclear about about the JP Morgan settlement. Although it’s a huge penalty, no public analysis has been provided to evaluate the actual harm done by the bank to consumers.

Elizabeth Warren and Edward Markey, Democratic senators from Massachusetts, want to know, among other things, if adequate refunds will be paid to defrauded ratepayers.

Good question. (Less than a third of the JP Morgan settlement is set aside for compensating customers, including businesses.)

Since the case includes Michigan, I do wonder why the question isn't being pressed by, say, Carl Levin and Debbie Stabenow, Democratic senators from Michigan.

In a letter to Jon Wellinghoff, chairman of FERC, the Massachusetts senators also ask why no executives or other individuals at JP Morgan are being punished, even though they stand accused by FERC “of stiff-arming its investigators by refusing to comply with subpoenas.”

In short, is the settlement sufficient to deter future illicit activity?

It's a query that should be pursued by 100 senators — not just two.

The full letter is available here.



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