By Oliver Richards in the USA:
JPMorgan Chase investigated for manipulating California energy market
23 July 2012
The California Independent Systems Operator (CalISO), the nonprofit organization that coordinates the state’s electricity market, has alleged that JPMorgan Chase & Co. manipulated the state’s energy market, resulting in at least $73 million in improper payments—costs passed along to the state’s energy consumers.
The accusation emerged on July 2 in court filings by the Federal Energy Regulatory Commission (FERC), which oversees CalISO, as part of its investigation into the bank. Normally, ongoing FERC investigations are not disclosed to the public. The case was only revealed after the agency subpoenaed e-mails from JPMorgan relating to the inquiry.
The bank claimed that the e-mails were confidential on the basis of attorney-client privilege. However, under pressure, it released some of the e-mails in non-redacted form to the agency that belied their argument. The bank responded to the petition by arguing that FERC was engaged in an “abusive litigation tactic.”
FERC was granted expanded powers in 2005 in the aftermath of the manipulation of California’s energy market by Enron, which resulted in energy warnings and rolling blackouts throughout the state. The regulatory overhaul gave the agency the ability to fine companies as much as $1 million a day per violation. These fines, however, in no way discourage companies from gaming the system. JPMorgan’s investment arm, which includes its energy group, collects $14 billion annually; in comparison, six months’ worth of fines would amount to a paltry $180 million.
“The incentive remains for outfits like JPMorgan,” notes a July 18 article in the Los Angeles Times, “to stretch the rules to the breaking point—if they get caught, the cost is tolerable; if not, the returns are fabulous.”
There is growing evidence of collusion between the Bank of England and international regulators, including the US Federal Reserve, in allowing the rigging of the London interbank offered rate (Libor): here.