Even before the chief U.S. power market regulator announced his resignation this week, the agency pursuing a contested probe against JPMorgan Chase & Co for alleged market manipulation had good reason to take its time building the case.
The bank, already embroiled in a public legal battle with the Federal Energy Regulatory Commission (FERC) over disclosing certain emails, alerted investors earlier this month that it expected FERC to move against the bank for trading activities in electricity markets. That followed the leak of FERC's initial findings, raising expectations of near-term action.
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Yet former officials and legal experts say recent events could give FERC cause to build its case for several more months, taking time to evaluate the legal scope of its oversight after an unexpected set-back in court and to consider the next step in a high-profile case against Barclays that has gone quiet.
And now, to await the replacement for its chairman, who will step down after a period of unprecedented action.
Chairman Jon Wellinghoff, who joined the commission in 2006 just a year after Congress vastly expanded FERC's powers to pursue market manipulation after the Enron scandal, confirmed his resignation from the post on Wednesday. He will remain in the 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 has coincided with a series of high-profile actions and settlements against big powers in the electricity market.
"Unless you're facing irreparable loss, there is no need to hurry," said Susan Court, FERC's director of enforcement from 2005 through 2009.
TIME TO SETTLE?
The case is one of several major FERC enquiries that have unnerved the U.S. power market, and added to a handful of regulatory woes facing JPMorgan Chief Executive Jamie Dimon. Critics say the agency is overreaching; FERC officials say they are simply cracking down on market malfeasance.
At the same time, political pressure is mounting: Michigan Congressman Dan Kildee, a Democrat who sits on the Committee on Financial Services, this week called on the Department of Justice to investigate the bank's power trading in Michigan.
JPMorgan has acknowledged the probe, but says it "strongly disagrees" with the FERC conclusions and insists that it acted properly in all trades. A representative of the bank declined any further comment this week on the possible timing of FERC action.
While the bank has said it is readying for a long fight, a slower approach from FERC could allow for more time to coax the bank toward settlement talks - and spare one if its top executives, commodities chief Blythe Masters, public scrutiny.
"The more complicated cases do tend to take longer to work out and it is also a fact that most cases do settle," says former commissioner Marc Spitzer, who is now a partner at the law firm of Steptoe and Johnson LLP in Washington.
In mid-March, a federal court ruled that FERC overstepped its authority when it fined Brian Hunter of Amaranth Advisors LLC $30 million for the $6 billion in bad bets he booked on natural gas futures that precipitated the firm's collapse.
The court found that FERC's punishment was out of bounds since Hunter made bets on natural gas futures - the domain of the Commodity Futures Trading Commission (CFTC).
Weeks later, a further complication: the CFTC agreed to hand FERC most of its authority over the power market, but retained some 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 this question of authority before going too far with these cases," said Suedeen Kelly, head of the energy regulatory practice at Akin Gump in Washington, who served more than six years as a FERC commissioner.
That ruling may have been particularly vexing for its case against British bank Barclays Plc , which is based on trading activity in both physical and derivative markets.
After issuing a recommendation last October to fine Barclays $470 million for manipulating the California power market from late 2006 to 2008, the case has yet to move forward to a formal vote by commissioners. FERC declined to comment on its status.
The case against JPMorgan is not as advanced. First, FERC staff still need to issue the "show cause" order, bringing the case 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 Energy Consultants. "Defending your reputation is part of the negotiation."
(Additional reporting by David Henry in New York; Editing by Tim Dobbyn)