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By Patrick Rucker and Scott DiSavino
WASHINGTON/NEW YORK, May 31 (Reuters) - Even before thechief U.S. power market regulator announced his resignation thisweek, the agency pursuing a contested probe against JPMorganChase & Co for alleged market manipulation had goodreason to take its time building the case.
The bank, already embroiled in a public legal battle withthe Federal Energy Regulatory Commission (FERC) over disclosingcertain emails, alerted investors earlier this month that itexpected FERC to move against the bank for trading activities inelectricity markets. That followed the leak of FERC's initialfindings, raising expectations of near-term action.
Yet former officials and legal experts say recent eventscould give FERC cause to build its case for several more months,taking time to evaluate the legal scope of its oversight afteran unexpected set-back in court and to consider the next step ina high-profile case against Barclays that has gonequiet.
And now, to await the replacement for its chairman, who willstep down after a period of unprecedented action.
Chairman Jon Wellinghoff, who joined the commission in 2006just a year after Congress vastly expanded FERC's powers topursue market manipulation after the Enron scandal, confirmedhis resignation from the post on Wednesday. He will remain inthe position until a replacement is confirmed.
While much of the enforcement work has fallen to former U.S.Attorney Norman Bay, Wellinghoff's leadership since 2009 hascoincided with a series of high-profile actions and settlementsagainst big powers in the electricity market.
"Unless you're facing irreparable loss, there is no need tohurry," said Susan Court, FERC's director of enforcement from2005 through 2009.
TIME TO SETTLE?
The case is one of several major FERC enquiries that haveunnerved the U.S. power market, and added to a handful ofregulatory woes facing JPMorgan Chief Executive Jamie Dimon.Critics say the agency is overreaching; FERC officials say theyare simply cracking down on market malfeasance.
At the same time, political pressure is mounting: MichiganCongressman Dan Kildee, a Democrat who sits on the Committee onFinancial Services, this week called on the Department ofJustice to investigate the bank's power trading in Michigan.
JPMorgan has acknowledged the probe, but says it "stronglydisagrees" with the FERC conclusions and insists that it actedproperly in all trades. A representative of the bank declinedany further comment this week on the possible timing of FERCaction.
While the bank has said it is readying for a long fight, aslower approach from FERC could allow for more time to coax thebank toward settlement talks - and spare one if its topexecutives, commodities chief Blythe Masters, public scrutiny.
"The more complicated cases do tend to take longer to workout and it is also a fact that most cases do settle," saysformer commissioner Marc Spitzer, who is now a partner at thelaw firm of Steptoe and Johnson LLP in Washington.
RULINGS CLUTTER
In mid-March, a federal court ruled that FERC oversteppedits authority when it fined Brian Hunter of Amaranth AdvisorsLLC $30 million for the $6 billion in bad bets he booked onnatural gas futures that precipitated the firm's collapse.
The court found that FERC's punishment was out of boundssince Hunter made bets on natural gas futures - the domain ofthe Commodity Futures Trading Commission (CFTC).
Weeks later, a further complication: the CFTC agreed to handFERC most of its authority over the power market, but retainedsome jurisdiction over power trades on an "as-needed basis".(Press release: link.reuters.com/zyv38t)
"If I were FERC, I would want to make sure I'd settled thisquestion of authority before going too far with these cases,"said Suedeen Kelly, head of the energy regulatory practice atAkin Gump in Washington, who served more than six years as aFERC commissioner.
That ruling may have been particularly vexing for its caseagainst British bank Barclays Plc, which is based ontrading activity in both physical and derivative markets.
After issuing a recommendation last October to fine Barclays$470 million for manipulating the California power market fromlate 2006 to 2008, the case has yet to move forward to a formalvote by commissioners. FERC declined to comment on its status.
The case against JPMorgan is not as advanced. First, FERCstaff still need to issue the "show cause" order, bringing thecase against the bank - and Masters - into full public view.
"Don't discount the personalities in something like this,"said Court, who advises on energy matters as SJC EnergyConsultants. "Defending your reputation is part of thenegotiation."
