Jul 6, 2012
The federal regulator is examining efforts by Houston-based J.P. Morgan Ventures to extract excessive payments or above-market prices from California Independent System Operation, Inc.
For Californians, this resurrects angry memories of the statewide energy crisis of 2000-2001, in which Enron engaged in manipulative practices that eventually resulted in a $1.52 billion settlement, most of which was never paid back to California due to Enron's bankruptcy.
Power falls under JP Morgan's commodities business, where contracts on things like oil, gas, precious metals, and electricity are traded.
The FERC opened the probe after complaints from California energy grid operators that JP Morgan's bidding practices were abusive. JP Morgan may have used a complex bidding process to dramatically raise electricity costs in the Golden State.
The California Independent System Operation submitted its complaint to the FERC four months ago, and the FERC is now engaged in a legal battle with JP Morgan to get emails that the bank says are protected by attorney-client privilege, but that the FERC says are not privileged.
The U.S. Federal Energy Regulatory Commission sued JP Morgan this week to release the 25 remaining emails (out of 53 in total) in the federal investigation on behalf of California.
The FERC is conducting a formal, non-public investigation of JP Morgan's physical commodities division over claims by California ISO and that the bank's traders exploited rules designed to protect generators from price volatility.
Traders reportedly took advantage of flaws in those rules by using manipulative bidding strategies in the real-time and day-ahead electricity markets.
In California, the alleged conspiracy involved California ISO's bid cost recovery mechanism, which is meant to ensure generators that commit to supply power in the day-ahead market can recover their start-up and minimum load costs.
By placing negatively-priced bids in the day-ahead market while placing higher positive bids in the real-time market, traders could force the market to make unnecessary bid cost recovery payments worth millions of dollars.
The case is Federal Energy Regulatory Commission v. J.P. Morgan Ventures Energy Corp., 12mc352, U.S. District Court for the District of Columbia (Washington, DC).
The FERC lawsuit reveals that JP Morgan is suspected of masterminding the manipulative schemes that ripped off Californians, forced the state of California into a recession, and prematurely ended the political career of Democratic California Governor Gray Davis.
Californians who are out for revenge have JP Morgan as their ultimate target. Californians were inundated with a plague of CHASE logos after JP Morgan took over bankrupt Washington Mutual four years ago.
The largest U.S. bank is also desperate to maintain its image after reporting a sudden "loss" of billions of dollars, which is now under federal investigation by both the U.S. Securities and Exchange Commission and the U.S. Department of Justice.
JP Morgan Chase may also become damaged by an international investigation into an attempt by the bank in the U.K. and the U.S. to rig the London interbank offered rate, called Libor.
"We have been responding to a FERC investigation into certain activities," said JP Morgan spokesperson Jennifer Zuccarelli. "We believe we have complied in all respects with the law."
Meanwhile, many question what commodities trading has to do with banking other than another means to speculate, and they insist it is time to stop such sideline speculation businesses and get back to the business of banking.
Others point out how the same companies like JP Morgan are caught by federal agencies manipulating markets, rates and financial instruments but, instead of criminal prosecution and criminal penalties, they consistently get to pay a "settlement" at shareholder expense without having to admit guilt - which protects them in future cases.
Many consumers wonder how trustworthy banks are when perceived by average people as being corrupt and predatory.
Because the Federal Reserve corporation loans banks money for 0 percent, and then bankers loan it to consumers at high interest rates, many now call for their fellow citizens to legally declare themselves as banks to borrow money directly from the Federal Reserve.
Amid the California backlash, JP Morgan Chase insists that its gigantic corporation is trustworthy, and that Californians should deposit their hard-earned paychecks into CHASE bank branches, even though the U.S. government is investigating them for ripping off California.
Some CHASE employees have been quick to point out to this blog that Californians would certainly not want to see their friends or family members being laid-off from their jobs at CHASE bank branches.
A representative for JP Morgan in Los Angeles demanded that Californiality not display the infamous letter from Jerry Brown to JP Morgan Chase demanding that the banker suspend thousands of California home foreclosures until the corporation proves compliance with California state law.
In the interest of balance, here are some happy California facts supplied by CHASE:
- Employs more than 19,000 residents serving customers
- Paid more than $1 billion in wages and benefits to California employees in 2010
- Paid more than $70 million in state and local taxes in 2010
- Provided more than $1 billion in community development loans and investments in 2010
- Contributed more than $20 million to California charities in 2010
- Operates 821 banking centers, 1,207 locations and 3,024 ATMs
- Acts as a top corporate citizen and takes a leadership role in many civic and community issues
Californians will be watching.
JP MORGAN CHASE