On November 14, 2012, the Federal Energy Regulatory Commission (FERC) suspended J.P. Morgan Ventures Energy Corp.'s (JP Morgan) rights to sell energy, capacity, and ancillary services at market-based rates for a period of six months starting April 1, 2013. The suspension applies to JP Morgan's activities in all organized and bilateral power markets. It also includes trading in the California ISO, New York ISO, ISO-New England, and PJM ancillary service markets. FERC imposed this severe penalty after determining that JP Morgan had submitted false or misleading information to FERC and the California ISO's Department of Market Monitoring.
FERC's decision is likely to have a significant impact on JP Morgan's revenues. FERC's decision thus may cause counterparties to reconsider JP Morgan's creditworthiness and to demand performance assurances or to demand additional security for damages to such counterparties that may occur if the new restrictions impair JP Morgan's performance of its contract obligations. Similarly, companies that rely on JP Morgan for "sleeving" transactions or to deliver power under shaping and firming arrangements, or as part of a hedging strategy, should consider how those transactions may be affected when FERC's decision becomes effective. In addition, counterparties should consider how FERC's decision may impact JP Morgan's ability to manage its current power tolling agreements during any suspension period.
FERC delayed implementing its penalty until April 1, 2013, in part, to "afford JP Morgan time to make alternative arrangements to fulfill any existing contractual obligations that may be affected." Consequently, JP Morgan's counterparties should inquire into the alternative arrangements that JP Morgan is considering and how those arrangements will work to minimize any potential damages to them. JP Morgan may ask FERC to reconsider its decision, and in such case JP Morgan's counterparties should consider whether to intervene in the FERC proceeding in support of a remedy that minimizes impact on innocent counterparties. Given the procedural timelines for JP Morgan to request rehearing, the time for a counterparty to request intervention will soon pass.