Federal regulators, intensifying an investigation into alleged manipulation of California's electricity market, on Thursday threatened to suspend power trader JPMorgan Chase & Co.'s right to sell electricity in the state.

The Federal Energy Regulatory Commission formally began a probe into whether Morgan's trading unit in Houston "submitted misleading information" to the federal agency and the California Independent System Operator. The ISO runs the state's transmission grid.

Sparked by a complaint from the ISO, the federal agency has been conducting an informal investigation into Morgan's trading activities in California. The probe announced Thursday stems from Morgan's responses to officials' demands for answers and documents.

"We preliminarily find that JPMorgan may have submitted misleading information or omitted material information" in communications with the federal and state officials, FERC said.

The ISO, a quasi-governmental entity based in Folsom, accused Morgan of using improper trading tactics to extract $73 million in additional profits from the California market.

The alleged behavior took place over seven months in 2010 and 2011, the ISO said.

Morgan officials couldn't be reached for comment Thursday, but the company has denied any wrongdoing in previous statements.

It also has demanded that the ISO return $20 million it confiscated from the company by withholding funds from power trades that settled.

Outside experts said the possible suspension of JPMorgan would be a much harsher punishment than a fine or restitution.

"That could be more serious than disgorging profits," said Virginia energy consultant Susan Court, a former FERC enforcement official, in an interview with Bloomberg News. "That could entail a lot more money than just paying a penalty."

ISO officials welcomed Thursday's announcement, saying they had been stymied in trying to get information from Morgan about its trades.

The ISO "sought information from JPMorgan during its investigation into serious concerns of market manipulation last year and did not receive the cooperation required to pursue its investigation," said ISO President Steve Berberich in a prepared statement.

The Morgan controversy has sparked warnings from some analysts that California's electricity market is facing a possible repeat of the 2001 energy crisis, when manipulative power traders ginned up billions in illegal profits.

ISO officials say the case shows just the opposite: that regulators have gotten far more adept at detecting and dealing with manipulation attempts early.

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