News headlines and consumer rights groups went buzzing across the nation on Monday after FERC, the U.S. power market regulator charged JPMorgan Chase & Co. with manipulating prices of electricity.
The notice of alleged violations sent shockwaves through the market after the U.S. Federal Energy Regulatory Commission observed “eight manipulative bidding strategies” used by a JPM affiliate in 2010 and 2011. Today, CNNMoney reported that JPMorgan has agreed to settle the charges by paying $410 million, before the stink spread more.
In rare good news for regularly gamed electricity consumers, JPMorgan will pay $124 million to California residents who overpaid for electricity and customers in the Midwest will receive $1 million. The rest of the settlement money would go to the U.S. Treasury.
No admission or denial of wrongdoing. Story closed, matter out of sight – but at least some consumers would have a part of their hard earned money returned to them. It’s all supposedly a misunderstanding and mistake and the bank has promised that it would work with outside counsel to review its policies and practices.
In the last five years with so many SEC charges made and payments made by big banks and financial institutions to settle charges without admitting wrongdoing and promises to review practices, the government must be accepting that these are all mistakes. Good, but mistakes are caused inadvertently.
Why isn’t there a single case of a mistake made by big banks where the consumer gained rather than losing? Do mistakes follow a pattern?
Anyway, back to the story, the allegations of the FERC observed that the bank used bidding strategies in electricity markets that helped them get “tens of millions of dollars at rates far above market prices.” Most of the abuse happened in California – no wonder so many local governments went bankrupt.
According to authorities, JPMorgan gamed California’s “make whole provision” which mandates ratepayers must cover certain costs incurred by energy sellers. JPMorgan would bid to deliver electricity at a point in future time at a certain rate, and when the time came would change the offered rate to a much higher rate, while assuring the power was not bought. Following the “make whole provision” ratepayers (ultimately consumers) had to bear the difference charged.
Allegedly, JPMorgan made the same mistakes in the Midwest though the supposedly unfair profits gained thus were far less than in California.