California energy officials said today they got "every penny" they demanded in a $410 million settlement paid by JPMorgan Chase & Co. over manipulative electricity trades.
JPMorgan, in a deal announced by the Federal Energy Regulatory Commission, will cough up $124 million in profits to California ratepayers. In addition, the big bank agreed not to fight California officials over $262 million in disputed profits that had already been recouped by the state or were never paid to JPMorgan in the first place.
In total, the deal is worth $386 million to California consumers, said Nancy Saracino, general counsel of the California Independent System Operator. The ISO runs the state's transmission grid, buys last-minute power from vendors like JPMorgan and blew the whistle on the firm's manipulative trading practices.
"We are literally getting every penny back for ratepayers," Saracino said in a conference call with reporters. "It is such a strong message...that this kind of conduct is not going to be supported."
JPMorgan spokesman Brian Marchiony said "we are pleased to put this matter behind us." He added that the firm has already put money aside for the case so "this settlement will not have a material impact on earnings."
The firm agreed to pay FERC a fine of $285 million and disgorge a total of $125 million in profits. Of that, $124 million is coming back to California and the rest is going to ratepayers in Michigan.
The case is the biggest settlement in FERC's history, although the agency is pursuing bigger cases. It recently announced a $453 million fine against Barclays Bank - primarily over trading practices in California - but the London bank is fighting the fine.
The JPMorgan case, which has been building for more than a year, aroused suspicions that California's electricity market is as ripe for manipulation as it was in 2000 and 2001, when Enron's traders took advantage of huge loopholes to gin up excessive profits.
But California officials said market monitoring policies are stronger now.
"The cynical interpretation of this is that this is somehow the tip of the iceberg," said Eric Hildebrandt, the head of market monitoring for the ISO. Rather, he said the latest case is "the exception to the rule."
JPMorgan had marketing contracts to trade energy from a cluster of power plants in Southern California. The plants were old and unprofitable, but the firm found several ways to exploit California's market and make the plants money makers, according to FERC documents.
Hildebrandt said a key strategy was a scheme that "artificially inflated" the so-called bid-cost recovery payments. Those are payments made by the ISO to power plants that are inefficient and costly to run, but whose electricity is needed to keep the lights on.
Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.