Just as the Enron scandal was starting to fade from memory, Michael Hiltzik of the Los Angeles Times sheds some light on allegations of more shady dealings in California’s energy market. Hiltzik reports that federal energy regulators, acting on complaints from California’s grid operator, have launched a formal investigation into whether JPMorgan Chase & Co. received up to $57 million in ill-gotten payments by gaming the system during a six-month period in 2010 and 2011. Hiltzik writes that the California Independent Systems Operator – which manages most of California’s power supply – believes the financial harm may have been much worse.
“That could be just the tip of the iceberg: The bank continued its activities past that time frame, according to the ISO. It also says JPMorgan’s alleged manipulation could have helped throw the entire energy market out of whack, imposing what could be incalculable costs on ratepayers.”
Hiltzik, the Times’ business columnist, offers up a tale of corporate greed, insufficient government oversight and an impossibly complex energy market that leaves ratepayers in the dark about how their rates are set. JPMorgan doesn’t own power plants, but that doesn’t mean it can’t profit from them. The alleged scheme involved short-term trading in an electricity commodities market. Company traders allegedly offered low bids on electricity they never intended to sell. That made JPMorgan eligible for something called “bid cost recovery payments.” Basically an insurance policy that keeps plants running even if their power doesn’t sell.
Listen to my interview with Hiltzik about the alleged manipulation by JPMorgan and what it means for electricity customers in California: