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Weakness exposed in Calif. electricity trading

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July 30, 2012 01:52 PM EST | AP

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FOLSOM, Calif. — A big electricity trader may have figured out a way to exploit vulnerabilities in the state's $8 billion-a-year electricity market, just as Enron Corp. did a decade ago, state officials said.

The California Independent System Operator, a Folsom-based agency that runs the state's power grid and oversees last-minute electricity sales, has recovered $20 million from the company so far, the newspaper said.

The Federal Energy Regulatory Commission is investigating on California's behalf, and the fate of the remaining $53 million claimed by the ISO isn't clear.

The investigation became public when the commission filed a lawsuit in federal court in Washington, D.C., alleging JPMorgan was improperly impeding its investigation by refusing to turn over internal emails.

JP Morgan's Houston-based subsidiary, JPMorgan Ventures Energy Corp., has contracts with generators to trade their electricity in California and elsewhere. Regulators with the Midwest equivalent of California's ISO are also investigating JP Morgan.

The newspaper said authorities are investigating whether JP Morgan exploited fees paid to power generators to keep their plants in a standby-mode to quickly create energy. The court papers reviewed by the Bee allege that JP Morgan offered power at artificially low prices in a futures market then asked artificially higher prices in a real-time market for last-minute energy needs.

The bidding tactic assured the company reaped substantial fees for putting power plants on standby mode, the Bee reported.

The company denied any wrongdoing.

Analysts said JP Morgan's behavior represented a tiny corner of the power market and is nowhere near the scale of the state's power woes caused by Enron and other unscrupulous traders that resulted in rolling blackouts throughout California during the summer of 2001.

The alleged energy trades are dwarfed by much bigger trading problems at JP Morgan, which is still reeling from a $5.8 billion trading loss at one of its divisions and shook up its top management last week.