JPMorgan Chase & Co. agreed to pay $410 million in penalties on Tuesday to settle accusations by U.S. energy regulators that it manipulated electricity prices, including $124 million to California.
The Federal Energy Regulatory Commission said the bank used improper bidding strategies to squeeze excessive payments from the agencies that run the power grids in California and the Midwest in 2010 and 2011.
The penalty includes $285 million for the federal government, and $125 million for ratepayers.
FERC's enforcement staff said its investigation had found improper trading practices were used at Houston-based JPMorgan Ventures Energy Corp.
JPMorgan said in a written statement that it's "pleased to have reached an agreement with FERC to put this matter behind it." JPMorgan didn't admit or deny any violations.
FERC recently levied a $453 million penalty on Barclays, Britain's second-largest bank, for manipulating electricity prices in California and other Western states. Barclays is disputing the allegations.
FERC claimed JPMorgan's energy unit used five "manipulative bidding strategies" in California between September 2010 and June 2011, and three in the Midwest from October 2010 to May 2011.
The agency that runs the Midwestern power grid, now called the Midcontinent Independent System Operator, covers Manitoba and all or part of 15 states: Michigan, Minnesota, Wisconsin, Iowa, Missouri, Illinois, Indiana, Kentucky, North Dakota, South Dakota, Montana, Texas, Louisiana, Arkansas and Mississippi.
JPMorgan Ventures Energy has contracts with power generating companies to trade their electricity. FERC said the JPMorgan traders offered to sell electricity at artificially low prices in a "day-ahead" market, so that companies would put their plants on standby mode to quickly generate energy. That would allow JPMorgan to earn fees for putting the power plants on standby mode.
Later, the traders would offer to sell electricity from the plants at higher prices in the market for last-minute energy needs, according to FERC.
FERC suggested in court documents a year ago that bidding practices in JPMorgan's commodities trading business "may have been designed to manipulate" the markets.
The alleged conduct was brought to FERC's attention in 2011 by the California Independent System Operator, the agency that runs the state's power grid.
On Friday, JPMorgan said is considering selling off part of its physical commodities business, which includes metals as well as energy. The company said the possibility of new regulations was a factor behind the decision to look at a potential sale or partnership.
Big Wall Street banks like JPMorgan are facing increased scrutiny of their involvement in businesses that store and transport commodities such as oil and aluminum. A Senate committee held a hearing last week into whether banks should be allowed to control power plants, warehouses and oil refineries.
FERC, an independent agency that regulates the interstate transmission of electricity, oil and natural gas, gained expanded authority to monitor possible manipulation of energy markets as a result of the Enron scandal in 2001. Market abuses by Enron and other trading firms resulted in rolling blackouts throughout California during the summer of that year. FERC was empowered to impose fines of as much as $1 million per violation per day, compared with the previous limit of $10,000 per violation.
JPMorgan shares rose 13 cents to $55.82 in morning trading.