* Federal ban on market-based rates will not apply in ERCOT
* Market players cite importance of JPMorgan unit in West
HOUSTON Nov 21 A federal regulator's order
penalizing JPMorgan 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 revoke JP Morgan Ventures Energy Corp's ability to
charge competitive 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 of the
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 in Texas because ERCOT is not subject to FERC
"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
"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," said FERC spokesman Craig
Cano in an emailed statement.
Market-based rates allow power traders like JP Morgan to
sell electricity at whatever price the market will bear. If
electricity traders lose the authority to trade at market-based
rates, they must trade at much lower cost-based or other rates,
hurting their trading profits.
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."
Companies that buy power in West Texas said the loss of
participation by the JPMorgan unit, even for six months, could
hurt the ability to buy power for longer periods of time, a
market that is fairly illiquid.
JPMorgan did not respond to a request for comment. FERC's
order does not affect its ability to trade derivatives, futures,
natural gas and other commodities.
Section 205 of the Federal Power Act grants FERC the
authority to determine the reasonableness of rates charged by
public utilities that transmit or sell power in interstate
Unlike other U.S. power markets, ERCOT operates outside of
direct FERC jurisdiction due to its historical status as a
"power island," with limited ability to import or export power
across state lines.