JP Morgan unit can sell Texas power at market rates despite ban

HOUSTON Wed Nov 21, 2012 1:49pm EST

HOUSTON Nov 21 (Reuters) - A federal regulator's order penalizing JP Morgan Chase & Co's energy trading arm will not affect the unit's business activity in the Texas wholesale power market, state and federal agencies said on Wednesday.

Last week, the Federal Energy Regulatory Commission (FERC) said it would suspend the ability of JP Morgan Ventures Energy Corp to receive competitive market prices for physical power it sells for six months starting in April 2013, after it made factual misrepresentations during an investigation into market manipulation in California.

The order created uncertainty in the Texas wholesale power market, according to industry sources, because JP Morgan operates in Texas and has a significant presence in the West Texas market which is less liquid than other regions in the state.

The Electric Reliability Council of Texas (ERCOT), which oversees the $34 billion wholesale power market for most of the state, said the ruling would have no direct impact on JP Morgan's business because ERCOT is not subject to FERC jurisdiction.

"The ruling is based on FERC authority that does not apply in ERCOT, so it has no direct effect on JP Morgan's market activities here," according to a statement from the grid operator.

"ERCOT expects that all market participants, including JP Morgan, will comply with all relevant laws, regulations and market rules, and we have no indication at this time that JP Morgan is not compliant with its obligations as a market participant in this region," the statement said.

FERC officials concurred.

The order "does not suspend JP Morgan's ability to make sales at market-based rates within ERCOT, because sales within ERCOT are not subject to the commission's jurisdiction under section 205 of the Federal Power Act.

The FERC order comes amid an investigation of JP Morgan's bidding activity and its communications with the California Independent System Operator.

ERCOT said the agency and Texas regulators will continue to perform market oversight activity and "will address any compliance issues that arise by any market participant."

JP Morgan's ability to trade derivatives, futures, natural gas and other commodities will not be impacted by the FERC order.

JP Morgan did not immediately respond to a request for comment.

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