July 31, 2013

Warren, Markey Question FERC on JPMorgan Chase Punishment

Senators ask agency about consumer protection, company evasion, increasing energy market manipulation

WASHINGTON – Massachusetts Senators Elizabeth Warren and Edward J. Markey today asked the head of the Federal Energy Regulatory Commission how his agency was protecting consumers and prosecuting JPMorgan Chase following the agreement by the company to pay $410 million in penalties and surrendered profits to settle allegations of market manipulation in electricity markets. In a letter sent to FERC Chairman Jon Wellinghoff, the two Massachusetts Democrats ask how FERC determined the financial punishment for JPMorgan, how harm to consumers was evaluated, and whether this incident is part of an increasing trend of energy market manipulation.

“While this fine is large in absolute terms, the total penalties are equal to roughly 1.3 percent of JPMorgan’s 2012 profits,” write the Senators. “We are concerned about whether the settlement includes adequate refunds to defrauded ratepayers and also concerned that the individual executives who sought to impede the Commission’s investigation will not be punished. It is critical that government settlements provide appropriate relief for consumers and deter future law-breaking.”

The authority FERC used to punish JPMorgan derives from a provision co-authored by then-Rep. Markey in the Energy Policy Act of 2005. Markey, along with Representative John Dingell (D-Mich.) and then-Senator Jeff Bingaman (D-N.M.) successfully added a legislative provision that for the first time gave the FERC the authority to rein-in the type of manipulation that JPMorgan has committed. The 2005 law also increased civil penalties for these types of violations a hundred fold, from $10,000 a day per violation to $1 million. The anti-manipulation language in the 2005 law was drawn from similar language that has been part of the nation’s federal securities laws for decades. Previously, FERC had authority to regulate the rates, terms and conditions of wholesale electricity transmission and also to regulate natural gas pipelines, but the agency had no explicit anti-fraud authority relating to all participants in these markets.

According to FERC allegations, a JPMorgan energy-trading unit engaged in 12 deceptive bidding strategies in wholesale energy markets from September 2010 to November 2012 in California and the Midwest, resulting in tens of millions of dollars in overpayments from the grid operators. Of the $410 million JPMorgan will pay, $125 million consists of disgorged profits that will go to ratepayers in California and the Midwest and $285 million civil penalties.

The full text of the letter can be found here.