This past week JP Morgan company agreed to a $410 million settlement with the Federal Energy Regulatory Commission for allegedly manipulating the free market of electricity in western parts of the United States and making for “unjust profits.” A statement released by FERC says:
FERC investigators determined that JPMVEC engaged in 12 manipulative bidding strategies designed to make profits from power plants that were usually out of the money in the marketplace. In each of them, the company made bids designed to create artificial conditions that forced the ISOs [independent system operators] to pay JPMVEC outside the market at premium rates.
Not only will JP Morgan have to pay restitution to consumers but they will also have to cut a $285 million check to the US Department of the Treasury, thus perpetuating the federal regulatory structure already in place but continuing its’ funding. Ron Wyden, Democratic Senator from Oregon, said of the incident:
With this historic settlement, the Federal Energy Regulatory Commission has put the interests of families and consumers first, by holding accountable traders and banks that manipulated power prices for short-term profits.
However, it is actually regulators who are manipulating the market through regulations that distort what would otherwise be much more efficient private sector transactions. By manipulating pricing in the electricity market, FERC is sending mixed signals to the market and ultimately harming consumers in the long run by creating a moral hazard and, thus, removing the incentive of companies to act ethically in the market.
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