NEW YORK — California utility customers could one day split more than $100 million if federal regulators settle with JPMorgan Chase & Co. over allegations that the nation’s biggest bank manipulated the state’s energy market.
JPMorgan has been negotiating a settlement with the Federal Energy Regulatory Commission over its role in trading electricity in California, according to a source familiar with the matter.
It was unclear how much of a settlement would wind up going to the U.S. Treasury and how much might be returned to California ratepayers. JPMorgan could wind up paying around $500 million including civil penalties, said this person, who was not authorized to discuss the matter publicly.
JPMorgan caught regulators’ attention in 2011. That year the California Independent System Operator, which manages much of the state’s wholesale power market, suspected that JPMorgan was manipulating the power market.
Cal-ISO alleged that the bank was involved in placing deceptive bids to profit from energy trading and inflated payments. The scheme resulted in more than $100 million in unjust profits, Cal-ISO spokeswoman Stephanie McCorkle said.
As part of a potential settlement, the disgorged profits could go first to utilities and then to ratepayers through a California Public Utilities Commission proceeding, she said.
Spokespeople from FERC and JPMorgan declined to comment.
The looming possible settlement with JPMorgan comes as FERC this week ordered the British bank Barclays and four of its traders to pay $453 million in civil penalties in a separate case of alleged market manipulation. They were accused of gaming electricity markets in California and other markets from late 2006 through late 2008.
FERC’s order also called for Barclays to disgorge $34.9 million, plus interest, in “unjust profits.” Those funds would go to energy-assistance programs for low-income residents of California, Arizona, Oregon and Washington.
Barclays, for its part, has pledged to fight FERC’s order: “We believe that our trading was legitimate and in compliance with applicable law,” the bank said in a statement.
In January, German banking giant Deutsche Bank settled a market-manipulation probe by agreeing to pay FERC a $1.5-million civil penalty and disgorge profits of $172,645.
Consumer advocates believe that Wall Street market manipulation is more widespread than these recent cases.
“FERC has managed to catch a small fraction of the very complex manipulation schemes engineered by sophisticated banks, and we’re just seeing a tip of the iceberg,” said Tyson Slocum, energy program director at the advocacy group Public Citizen in Washington, D.C. “The manipulation is so widespread that FERC is simply catching what it can.”
Even though a $500-million settlement with JPMorgan would be a record for FERC, Slocum said the amount would not be enough.
He called on FERC to calculate how much JPMorgan’s manipulation might have cost individual customers. “A company stole money from California consumers, lied about it and they’re going to get a slap on the wrist,” Slocum said. “That’s not justice.”
News of the settlement negotiations with JPMorgan was earlier reported by the Wall Street Journal and New York Times.
Mindy Spatt, a spokeswoman for a San Francisco ratepayers advocacy group, the Utility Reform Network, said customers should be repaid in market-manipulation cases.
“The bottom line is we don’t want to see any energy traders treat California as a source of easy profits,” Spatt said. “We do need strong oversight to ensure traders are not taking advantage of us. No one knows better than California how much manipulation can hurt consumers.”