[ by Howard Haykin ] JPMorgan Chase is in hot water (no pun intended) with regulators who are investigating manipulation of the power markets in California and the Midwest region.  Over the past 3 months, the U.S. electricity regulator - Federal Energy Regulatory Commission - has twice subpoenaed JPMorgan pertaining to an investigation of these power markets. The filings mark the 1st time FERC has revealed its formal probe into JPMorgan bidding practices, which it says may have inflated electricity costs by at least $73 million.  The documents also push into public view legal manoeuvring between government and JPMorgan attorneys as the commission seeks 25 emails that the bank refuses to provide, given their privileged nature.  FERC on Monday petitioned a US federal court to require JPMorgan to produce the emails, shedding light on its investigation in the process. FERC, a small but potent regulator, has in the past year compelled Constellation Energy, an utility, to pay $245 million in to settle another case.  FERC offered had no comment. This latest inquiry to be revealed is in addition to everything else that's going on around JPMorgan - including its billions in trading losses - further intensifying the bank's involvement with scrutiny by regulators and law enforcement officials. The bank mentioned but provided few details about the FERC investigation in its latest quarterly financial report.  In a written statement to the Financial Times, JPMorgan said: “As discussed in our 10-Q, we have been responding to a FERC investigation into certain activities in our federally approved power business. We believe we have complied in all respects with the law, as well as FERC rules and applicable tariffs, governing this market.” “We stress that this investigation is ongoing and that no conclusions have been reached or findings adjudicated. We welcome the court’s assistance in resolving this dispute over documents,” the bank added. What FERC Specifically Is Looking Into. The bank’s commodities business owns or has rights to output from several electricity generating facilities. FERC, the regulator, said it is investigating whether JPMorgan bidding strategies extracted “inflated” or “excessive” payments from two wholesale power markets serving California and several Midwest states.

• “Any such improper payments to generators are ultimately borne by the households, businesses, and government entities that are the end consumers of electricity,” FERC attorney Thomas Olson wrote in papers filed on Monday in a US federal court.
• FERC opened the investigation last year after the California and Midwest markets alerted the government to strategies the operators “viewed as abusive”.
• Commission enforcement lawyers also are investigating whether JPM iolated a “rule requiring truthful and non-misleading communications” to regulators.
• Court filings highlight JPM’s struggle with the government to keep internal bank emails private as the investigation proceeds.  FERC served JPM with subpoenas in April and May seeking unredacted copies of internal bank emails, a filing said. So far, 28 of 53 emails have been turned over.

In a March 2011 email included in the filings, Francis Dunleavy, head of principal investments in the bank’s global commodities group, wrote to Blythe Masters, head of the group, that he will handle one regulatory inquiry “but it may not be pretty”. For further details, go to:   [FT.com, via CNBC, 7/3/12].