J.P. Morgan In Hot Seat Over Grid Gaming Allegations

Photo: doug McAbee/Flickr/Creative Commons License

The Federal Energy Regulatory Commission (FERC) may suspend JPMorgan's rights to participate in the electrical power business unless the company can prove it didn't game the California grid. That's according to a show cause order issued by FERC last week.

As ReWire reported in July, the company is accused of gaming the California Independent System Operator's (CaISO) regulated power market to the tune of as much as $57 million in 2010 and 2011. The company has until early October to answer FERC.

The allegations, as described in a July Los Angeles Times article by Michael Hiltzik, involve CaISO's former policy of covering the costs power providers incur in making bids to supply power to the grid. JPMorgan allegedly offered low bids for power on CaISO's "day-ahead" market, then upped the price on that power on the real-time spot market so that CaISO wouldn't buy the power. This qualified JPMorgan for as much as $4 million per month in bid cost recovery payments, and the firm's alleged interference in the day-ahead and spot markets may well have driven up the cost of electric power for ratepayers across California.

CaISO got FERC to close that loophole in early 2011, and clamped down on a simliar loophole in June of last year.

According to FERC's show cause order last week, the Commission will take any response JPMorgan offers into consideration as it decides how to proceed. FERC can call for additional hearings or make a summary judgement. The maximum penalty under law for gaming the power market is $1 million per day of violation, but the losses from being booted out of the power market will likely exceed that.

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