FERC Suspends Market-Based Rate Authority of J.P. Morgan Ventures Energy Corp.

The Federal Energy Regulatory Commission suspended the market-based rate authority of J.P. Morgan Ventures Energy Corporation for a period of six months, to become effective on April 1, 2013, for what FERC found to be, "repeated submission of false and misleading statements" to the California ISO, Department of Market Monitoring, and FERC.

Under the suspension, JP Morgan will only be allowed to participate in wholesale electricity markets by either scheduling quantities of energy products without an associated price or by specifying a zero-price in its offer, as the relevant tariffs require. Furthermore, the rate received by JP Morgan will be capped at the higher of the applicable locational marginal price or its default energy bid.

The delayed effective date was provided given concerns from the California ISO that generating units controlled by JP Morgan and its subsidiaries play a significant role in enabling CAISO to reliably meet system needs. "Such a delay will allow CAISO sufficient time to take steps necessary to maintain system reliability during the suspension period. Such a delay will also afford JP Morgan time to make alternative arrangements to fulfill any existing contractual obligations that may be affected. For instance, JP Morgan would have the option to file for cost-based rates pursuant to which it could be authorized to sell energy, capacity, and ancillary services during the suspension period," FERC said.

"The nature of JP Morgan's violations is of critical importance in this case. The ability to charge market-based rates is a privilege, not a right, and in granting that privilege the Commission relies on the truth and veracity of the demonstrations made by companies when they apply for market-based rate authority. Furthermore, the Commission's grant of market-based rate authority is founded upon the presumption that a company's behavior will not involve fraud, deception or misrepresentation," FERC said.

A FERC investigation into certain trading behavior of JP Morgan, and whether such behavior constituted market manipulation, remains ongoing, and FERC's decision to suspend JP Morgan's MBR authority was premised solely on FERC's finding on the submission of "false and misleading" statements.

Commissioner Cheryl LaFleur dissented from the decision, stating, "By proceeding with today's order, the Commission departs from [its earlier] sensible principle and establishes a new and potentially dangerous precedent: an entity can lose its market-based rate authority for litigation positions it takes before the Commission or Commission Staff, even if those positions do not relate to its activity or honesty in the market."

Specifically, FERC found that, "[t]he record demonstrates that the Office of Enforcement informed JP Morgan and its outside counsel on at least three separate occasions through the 2011 emails and a letter that it had expressly directed the DMM to continue its investigation of JP Morgan's bidding activities and to seek responses to CAISO's May 4 data request."

"JP Morgan both failed to disclose its receipt of these communications and submitted statements in filings with the Commission that falsely stated that it had no knowledge that the Office of Enforcement had expressly directed the DMM to continue seeking information from JP Morgan," FERC said.

FERC found that such statements constitute individual violations of section 35.41(b). Section 35.41(b) of the Commission's regulations requires sellers to provide accurate and factual information and prohibits sellers from submitting false or misleading information or omitting material information in any communication with the Commission, market monitors, independent system operators, regional transmission organizations, and jurisdictional transmission providers, unless the seller can demonstrate that it has exercised due diligence to prevent such occurrences.

Docket No. EL12-103