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US senators question size, lack of admission in FERC settlement with JP Morgan

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US senators question size, lack of admission in FERC settlement with JP Morgan

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Two US Democratic Senators on Wednesday questioned the size and scope of the Federal Energy Regulatory Commission's $410 million settlement with JP Morgan over alleged manipulation of electricity markets, while at the same time expressing broader concerns about an apparent increase in market manipulation.

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"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," Senators Elizabeth Warren and Ed Markey said in a letter.

"It is critical that government settlements provide appropriate relief for consumers and deter future law-breaking," the Massachusetts Democrats said in their letter.

FERC on Tuesday announced that it reached a settlement with JP Morgan Ventures Energy Corp. over alleged market manipulation in the California Independent System Operator and the Midcontinent Independent System Operator.

The deal requires JP Morgan to pay $285 million in penalties, disgorge $125 million in profits, among various actions. But JP Morgan neither admitted nor denied FERC's allegations of violations as part of the settlement.

FERC's order approving the settlement noted that enforcement staff "determined that JPMVEC made money-losing bids in the Day Ahead and Real Time markets to trigger payments from out-of-market compensation systems designed to ensure fair results to units that had been bid in good faith to seek to make money in the marketplace."

The senators in the letter commended FERC for using its anti-manipulation authority to pursue JP Morgan, and noted both JP Morgan's actions in Cal-ISO and MISO as well as the commission's accusations of "stiff-arming" by JP Morgan during the investigation. But they expressed concern over the amount of the settlement, asking FERC whether its analysis of harm to consumers took into account "the ripple effect of manipulations and indirect costs to authorities and ratepayers."

On that point, they also asked FERC whether it believed the $125 million in disgorged profits "is sufficient to make ratepayers whole."

They also questioned why FERC did not take actions against the JP Morgan executives that "executed market manipulations" or "impeded the Commission's investigations," asking whether the commission is concerned that they could act similarly elsewhere. They also asked why JP Morgan was not required to admit guilt, and "under what circumstances would FERC determine that requiring an admission of guilt is a precondition for settlement."

While initial reports indicated that FERC may be pursuing individual penalties against JP Morgan staff, the settlement did not include such penalties, and FERC under the deal is barred from holding JP Morgan or others connected to the settlement "liable for any and all administrative or civil claims" related to the investigation.

In expressing their "larger concerns about the apparent increasing frequency of manipulation in electricity markets," the senators asked FERC whether it is concerned, "based on the high and increasing number of recent FERC enforcement actions, about an increase in market manipulation." They also sought insight into whether FERC believed it has sufficient jurisdiction over financial markets "to make certain that energy consumers are protected" and what the status is of their collaboration with the Commodity Futures Trading Commission.

A spokesman for FERC declined to comment on the letter.

--Bobby McMahon,
--Edited by Derek Sands,