Antitrust Law Daily Wrap Up, RICO NEWS: Consumers charge JPMorgan manipulated California electricity prices, (Mar 11, 2015)

By Linda O’Brien, J.D., LL.M.

The energy trading unit of JPMorgan Chase engaged in a pattern of racketeering activity to manipulate the price of electricity in the California wholesale electricity market, according to a complaint filed by consumers in the federal district court in San Diego, California (Woolsey v. J.P. Morgan Ventures Energy Corporation, February 17, 2015).

J.P. Morgan Ventures Energy Corporation, a subsidiary of JPMorgan Chase, engages in financial transactions related to commodities. With respect to electrical transactions, the company leases the rights to the output of a number of electrical generating plants in Southern California and sells the power produced from those plants in the state electrical wholesale market. The wholesale market is operated by the California Independent System Operator Corporation (CAISO), a nonprofit public benefit corporation that controls and manages 80 percent of the state electrical transmission grid. CAISO operates under complex “Tariff” rules and is regulated by the Federal Energy Regulatory Commission (FERC).

Catherine Woolsey, Carol Ball, and Rachel Reidinger—residential consumers of electricity—brought a complaint, stating that one of CAISO’s responsibilities is to match electrical output with demand. In attempts to anticipate and provide for the demand for electricity, CAISO operates two wholesale electricity markets: the “Day-ahead” and “Real-time” markets. Sellers and buyers submit bids through an automated system using CAISO software and a single bid price results from the bid process. Acceptance of a seller’s bid is referred to an “award.”

According to the complaint, in 2010, JPM Ventures tried various bidding strategies to sell electricity produced by a certain electrical generating plant. Those units infrequently received CAISO award due to the inefficiencies, and high operating costs of the plants and JPM Ventures incurred substantial losses. Subsequently, JMP Ventures resorted to illegal market manipulation to turn inefficient and high-cost electrical generators into profits. The schemes included using the Tariff rules to receive bid cost recovery payments, submitting misleading profit and loss statements to the CAISO.

The complaint also alleges that, in 2012, FERC investigated JPM Venture’s energy trading practices and determined that the company designed its bidding strategies to obtain above-market prices for the sale of its electricity and employed fraudulent schemes to manipulate the wholesale electricity market. In 2013, JPM Ventures agreed to pay a $285 million civil penalty and return $124 million of illegally-gotten profits to electricity ratepayers to settle the violations uncovered in the investigation.

CAISO and the buyers and sellers in the wholesale electrical market relied on the integrity of the market participants. Moreover, market participants place bids based on competitive market principles. From September 2010 to November 2012, JPM Ventures was alleged to have fraudulently concealed from CAISO and market participants that it was illegally manipulating the market to garner above market rate prices for its generation and sale of electricity and its bids were based on exploiting the Tariff rules. The costs of JPM Ventures’ market manipulation were passed on to utilities that purchase most of the electricity sold in the wholesale market. In turn, those costs were passed on to their retail customers, the complaint alleges.

The plaintiffs assert claims for violations of the Racketeer Influenced and Corrupt Organizations Act. The action seeks declaratory relief, compensatory and treble damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 3:15-cv-00530.

Attorneys: Joseph Siprut and Todd McLawhorn (Siprut PC) and Mitchel J. Olson (Law Office of Mitchel J. Olson) for Catherine Woolsey, Carol Ball, and Rachel Reidinger.

Companies: J.P. Morgan Ventures Energy Corporation; JPMorgan Chase & Co.

News: RICO CaliforniaNews