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FERC suspends J.P. Morgan Ventures Energy Corp.’s market-based rate authority

From the November 19, 2012 issue of Public Power Daily

Originally published November 19, 2012

By Robert Varela
Editorial Director

The Federal Energy Regulatory Commission has suspended the authority of J.P. Morgan Ventures Energy Corp. to sell wholesale power at market-based rates for six months for submitting false information to the commission. In a Nov. 14 order, FERC said the company made factual misrepresentations and omitted material information over the course of several months of communications with the California Independent System Operator and in filings to the commission in connection with requests for information involving suspect bidding activities in the California market. 

Commissioner Cheryl LaFleur issued a strongly worded dissent, saying the commission should address the misstatements as part of its ongoing investigation of the company's bidding practices.

At issue were J.P. Morgan responses to requests by the California ISO for documents on the suspect bidding practices. While the company said the ISO’s tariff did not obligate it to provide the information, the commission pointed to emails from its Office of Enforcement stating that FERC "expressly directed" the ISO to continue investigating the bidding. "Over a period of several months, J.P. Morgan continuously reasserted its fallacious position" that the ISO had not been expressly directed to continue its probe, the commission said. 

"The record in this case demonstrates that J.P. Morgan and its representatives were notified and reminded time and again that this assertion was in fact incorrect," the commission said. "However, J.P. Morgan and its representatives either intentionally, recklessly, or negligently ignored the Office of Enforcement’s communications and continued to mislead those tasked with ensuring that the CAISO markets functioned properly and resulted in just and reasonable rates."

The suspension is effective April 1, 2013. Delaying the suspension until April 2013 will give the California ISO and its market participants time to take steps to maintain system reliability during the suspension period, FERC said. It also will give J.P. Morgan Ventures time to make alternative arrangements to fulfill any existing contractual obligations, the commission said.

During the suspension period, J.P. Morgan Ventures 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 provided in the pertinent tariffs, FERC said. The company’s rate will be capped at the higher of the applicable locational marginal price or its default energy bid. Such a cap will ensure that load-serving entities have access to adequate generating capacity to serve demand, the commission said. Alternatively, J.P. Morgan Ventures would have the option to request cost-based rates.

The order "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," LaFleur said in her dissent. The order departs from the commission’s "sensible position" that market-based rate authority should not be revoked for a tariff violation unless there is a nexus between the specific facts of the violation and an entity’s market-based rate authority, she said.

J.P. Morgan Ventures’ misstatements should be addressed as part of the commission’s ongoing investigation into its bidding activities, either as separate counts of obstruction, or as aggravating circumstances that factor into the determination of any civil penalty, LaFleur said. "The principle that the punishment must bear at least some reasonable relationship to the behavior being punished is more important than the commission’s indignation in any particular case." If the company loses its market-based rate authority, "it should be because of its conduct in the market, not because of a dispute over document production," she said.

The order is available on the commission's website.


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