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The Globe and Mail

JPMorgan investigated over possible power market manipulation

Commuters are reflected in stone as they walk past the JP Morgan headquarters in New York.


U.S. energy regulators have subpoenaed JPMorgan Chase & Co. twice in the past three months as part of an investigation into whether the bank manipulated power markets in California and the Midwest.

The Federal Energy Regulatory Commission (FERC) on Monday filed a petition in U.S. federal court to require JPMorgan to produce e-mails from 2010 and 2011 as part of a formal probe into JPMorgan power market bidding practices in those areas.

FERC is also looking at whether JPMorgan failed in its duty to make truthful and non-misleading communications to the commission and regional energy market operators.

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The investigation comes as FERC's Office of Enforcement has stepped up its efforts to quash manipulation in the U.S. energy markets.

In March, FERC hit Constellation Energy Group with a record $135-million (U.S.) civil penalty and forced the company to return $110-million to settle charges of alleged power market manipulation in the U.S. Northeast in 2007 and 2008. Constellation settled prior to its merger with Exelon Corp. of Chicago.

FERC also announced investigations of alleged power market manipulation by units of Barclays Bank PLC in April and Deutsche Bank AG in December.

JPMorgan, like other banks involved in power market trading, buys and sells electricity in short and long-term markets for its own account and others. Some banks also manage power plants owned by the bank or others.

Any trading activity that raises power prices ultimately passes down higher electric costs to homes and businesses.

"We have been responding to a FERC investigation into certain activities in our federally approved power business. We believe we have complied in all respects with the law, as well as FERC rules and applicable tariffs, governing this market," JPMorgan spokeswoman Jennifer Zuccarelli said in an e-mail, referring to the company's 10Q federal filings.

"We stress that this investigation is ongoing and that no conclusions have been reached or findings adjudicated. We welcome the Court's assistance in resolving this dispute over documents," Ms. Zuccarelli said.

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The filing marked the first time FERC has revealed a formal probe into JPMorgan bidding practices. FERC said the bank may have inflated electricity costs by at least $73-million.

The documents showed the legal maneuvering between the government and JPMorgan attorneys as the commission seeks 25 e-mails that the bank argues are privileged.

In the court papers, FERC said JPMorgan repeatedly told the FERC's Office of Enforcement that 53 e-mails FERC sought from the bank were protected by the attorney-client privilege.

JPMorgan produced 20 e-mails in May after the FERC Office of Enforcement told the bank it intended to seek judicial review of the emails. The bank produced another eight emails in June, according to the court papers.

In one of the e-mails Francis Dunleavy, head of Principal Investments within the bank's Global Commodities Group, told Blythe Masters, head of the Global Commodities Group, that he will "handle" the matter, but says "it may not be pretty."

FERC said in its court filing that the "matter" presumably referred to the market manipulation inquiry by the California power grid operator.

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The bank has continued to say the remaining 25 e-mails were privileged.

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