Electricity traders at a JPMorgan Chase & Co. subsidiary manipulated the California energy market for 10 months in 2010 and 2011, costing ratepayers tens of millions of dollars, government regulators charged.
The Federal Energy Regulatory Commission late Monday issued a formal "notice of alleged violations" against the Wall Street investment bank.
The notice set the stage for an announcement of an expected settlement between the financial giant and the agency. Such an agreement could come as early as Tuesday, according to people familiar with the federal investigation, who were not authorized to speak on the record.
The settlement could be close to $500 million, including civil penalties to be paid to the U.S. Treasury and disgorged profits that eventually would be credited back to California electric consumers, they said.
FERC spokeswoman Mary O'Driscoll declined to comment on the document or on possible penalties, as did JPMorgan representative Brian Marchiony.
The likely announcement of a settlement would be in line with a recent FERC enforcement action against British bank Barclays and four of its traders to pay $453 million in civil penalties in a separate case of alleged market manipulation in California and other states from 2006 to 2008.
In the JPMorgan case, FERC staff found that the bank "engaged in five manipulative bidding strategies designed to improperly obtain payments at above-market rates from the California Independent System Operator." The quasi-governmental company, based in Folsom near Sacramento, runs most of the state's electricity transmission grid.
The grid operator has estimated that California industrial, commercial and residential consumers overpaid their electric bills by $63 million.
In one of the alleged schemes, traders submitted day-ahead bids with attractively low prices to supply power. The grid operator, however, wound up being forced to make payments of tens of millions of dollars at rates far above market prices when the JPMorgan strategy was fully in place, FERC said.
The commission also alleged that JPMorgan billed the California Independent System Operator $999 per megawatt hour to ramp up power plants in the middle of the night. But then the grid operator had to pay JPMorgan $999 per megawatt hour to turn the power plants down again the next day because JPMorgan's bid turned out to be uneconomical.
The prospect of a multimillion-dollar settlement with no admission of wrongdoing would be a "laughable" civil punishment, said Tyson Slocum, director of the energy program for Public Citizen, a Washington consumer advocacy group.
"Civil fines don't go to California. They don't go to working families. They go to the Treasury," Slocum said. "Who is making California ratepayers whole?"
The charges against JPMorgan "are very similar to the kinds of shenanigans that Enron pulled," he said, referring to the now defunct Texas energy trading company, whose manipulations contributed to the California energy crisis of 2000 and 2001.
marc.lifsher@latimes.com
Twitter: @marclifsher
Twitter: @marclifsher
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