JP Morgan's manipulation of California energy market is a massive, illegitimate tax on the entire state.
'The Federal Energy Regulatory Commission, the regulator of the ISO and its trading markets, has started a formal investigation into Morgan's allegedly manipulative energy deals in California and with the Midwest ISO, which covers 11 states from Michigan to Montana.'
'Forget JPMorgan's well-publicized multibillion-dollar trading loss in derivatives; this trade turned a handsome profit, and it came directly out of electric customers' hides.' 'It shows that we haven't learned anything from Enron's bogus energy trading, the disclosure of which helped destroy that firm in 2001 and land several of its executives in jail. To the extent it was designed to exploit loopholes in energy trading rules, experts say, the scheme allegedly perpetrated by JPMorgan Ventures Energy Corp. is cut from the same cloth as Enron's infamous "fat boy" swindle, which cost the state's ratepayers an estimated $1.4 billion in 2000.'
'One issue raised by this affair is whether government regulators have adequate tools to enforce trading rules. FERC's investigation could take years, and its maximum penalty is $1 million per day of violation. If the agency hit JPMorgan for even six months of misbehavior, the $180-million bill would be a pittance compared with the $14 billion in revenue collected annually by JPMorgan's investment banking arm, which houses the energy trading.
The incentive remains for outfits like JPMorgan to stretch the rules to the breaking point — if they get caught, the cost is tolerable; if not, the returns are fabulous.'
'Indeed, there are signs that trading scams are rife: FERC in December accused Deutsche Bank of manipulating the California market and in March extracted a $245-million settlement from Baltimore-based Constellation Energy over charges it made manipulative trades in the New York market.'
'JPMorgan's alleged manipulation could have helped throw the entire energy market out of whack, imposing what could be incalculable costs on ratepayers.'
'These are trades that "don't create jobs or economic value," says Tyson Slocum, director of the energy program at the public advocacy organization Public Citizen.'
'What should scare the regulators — and ratepayers — is that there may be many more scams out there, all driving up costs to California consumers. According to ISO documents, JPMorgan's scheme got discovered only because the firm was collecting so much in excessive payments that it became hard to miss.
"JPMorgan got greedy," Slocum says. If their take was "25 cents on the dollar, instead of 200%, they never would have been caught."'
'Given the complexity of the energy market, this may be one of those cases in which the scandal lies not in what's illegal, but in what's legal.'