Californians will never forget the summer of 2000. A flawed electricity deregulation plan left a gaping opportunity for energy traders — including Enron, Duke and Dynegy — to game the electricity market and overcharge municipalities and utility companies. Sometimes electricity producers simply shut down production with false claims of mechanical breakdowns. The result was rolling blackouts throughout the state, which allowed energy traders to essentially blackmail the state into buying power at exorbitant rates.
No one knows just how much these ruthless traders cost the state. But their illicit profits surely hover in the billions of dollars, profits extracted while elderly Californians lost their air conditioning and ran the risk of heat stroke.
Now, state and federal regulators are looking into the possibility that a major Wall Street financial institution has dabbled in rigging the market once more. We were duped once, but it should not happen again. State officials must be urged to pursue the investigation as rigorously as possible, recover all allegedly illegal profits and criminally prosecute anyone found to be responsible.
According to The Sacramento Bee, investigators with the Federal Energy Regulatory Commission are exploring charges that JPMorgan Ventures Energy Corp., a subsidiary of JP Morgan, rigged the state’s wholesale electricity markets in 2010 and 2011, extracting as much as $73 million in phony profits.
The means by which the company allegedly pulled off this scam are almost inscrutably complex. Federal regulators charge that JP Morgan’s subsidiary played off two separate state-run electricity exchanges — the “day-ahead” market and the “realtime” market — to generate a false impression of a potential power shortage and trigger automatic financial incentives to keep power plants connected.
JP Morgan representatives have denied breaking any laws. But so far, they have returned $20 million of the payoff federal regulators claim they siphoned.
Even the slightest hint that companies such as JP Morgan may be toying with this option again must be met with the most rigorous prosecution. There are thousands of elderly residents living in California’s deserts, and their lives must be safeguarded against the greed of energy traders.
The allegations are not the only hit against the investment company. Recently, the nation learned that JP Morgan’s reputation for prudent, honorable banking was not entirely deserved when the company disclosed that its risky investments cost shareholders as much as $5.8 billion.
But the people of California are more important than a good reputation for JP Morgan. Twelve years ago, Californians were blindsided when ruthless energy traders manipulated the state’s electricity market, created a phony energy crisis and used it all as justification to siphon billions of dollars to line their pockets. This time we have the knowledge of what happened then — and what the fallout was.
So far, the federal government has done a satisfactory job of investigating JP Morgan. But it must not waver.
If the company did, in fact, blackmail California with threats that the power grid might collapse, everyone connected with this alleged enterprise must feel the sharpest possible sting of the law.