Editorials

EDITORIAL: JP Morgan pays, but its big bosses get to skate

At close of trading on Monday, JPMorgan Chase's stock price was $56.08, up 75 cents from last Tuesday when the Federal Energy Regulatory Commission ordered that it pay $410 million in fines and restitution.

The commission concluded that strategies employed by its subsidiary, JPMorgan Ventures Energy Corp., were "deceptive and fraudulent," and "interfered with and distorted well-functioning markets" in California and, to a lesser degree, in Michigan.

The commission imposed a $285 million fine on JPMorgan, and ordered that it return $124 million in ill-gotten gains to California, and $1 million to Michigan. Federal Energy Commission member Tony Clark called it a historic fine.

Historic or not, JPMorgan, the nation's largest financial holding company, seems to have weathered nicely the two-year investigation into its attempt to walk off with California ratepayers' hard-earned money.

Certainly, $410 million is a manageable sum for JPMorgan. It earned roughly $71 million a day in the second quarter of 2013.

As part of the settlement announced last Tuesday, JPMorgan stipulated to facts set forth by the Federal Energy Regulatory Commission. But in the infuriating tradition of Wall Street, the bank admitted no wrongdoing. The FERC also didn't impose sanctions on the executives directly involved, Francis Dunleavy, head of JPMorgan's energy trading unit in Houston, or his boss, Blythe Masters, head of JPMorgan's Global Commodities Group.

Despite those shortcomings, the commission did show more bite than it did during the dark days of the California energy crisis of 2000 and 2001.

For 13 months in 2000 and 2001, the commission, enthralled by deregulation, was the lap dog of energy traders such as Enron, which manipulated the California grid and made off like the bandits they were. In 2000, the wholesale cost of California's electricity exceeded $27 billion, nearly four times the amount it had cost in 1999, as detailed in "24 Days," a 2003 book about the energy crisis by Rebecca Smith and John R. Emshwiller. The Department of Finance says the state still owes $6.5 billion in bond debt directly related to the energy crisis and won't have it paid off until 2022.

The announcement of the settlement gave no indication whether FERC referred any aspect of the matter to the U.S. Department of Justice for criminal investigation.

Nancy Saracino, general counsel of the California Independent System Operator, which oversees the electricity grid, called the fine a "huge deterrent" for other companies that would game the California grid. Clearly, Cal-ISO detected the manipulation early, got the attention of FERC, and has recovered the money that was purloined. All that is progress.

But it remains troubling that profiteers can sit at computers halfway across the country, devise ways to disrupt the basic commodity that keeps California operating, and that they don't face any direct sanction.

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