UPDATE 2-US power market regulator threatens to suspend JPMorgan

* FERC accuses JPMorgan of misleading authorities

* Bank may lose right to sell electricity at market rates

* Part of an enquiry on power market manipulation

By Jeanine Prezioso

NEW YORK, Sept 20 (Reuters) - U.S. federal energy regulators threatened on Thursday to suspend JPMorgan Chase & Co's right to sell electricity at market rates after accusing the bank of misleading authorities -- a measure that would effectively banish it from the power market.

The move by the U.S. Federal Energy Regulatory Commission (FERC) is the latest salvo in a months-long enquiry into whether the bank, one of the biggest power traders on Wall Street, manipulated power prices in the Midwest and California power markets.

In the past year, the regulator has increased its investigations into power market manipulation allegations against banks, including Deutsche Bank and Barclays PLC.

If JPMorgan's right to sell power at market-based rates is revoked, it would be forced to sell power at-cost, or at a significantly lower rate.

The commission said the bank violated regulations under the Federal Power Act by submitting misleading information and omitting facts in dealings with the regulator and California's electricity grid operator on four separate occasions over the past 11 months.

In response, JPMorgan said it had made an "inadvertent factual error in papers related to discovery and promptly informed the commission of this mistake."

"Such an inadvertent error does not justify revoking JPMorgan's market-based rate authority," said Jennifer Zuccarelli, a spokeswoman for the bank.

The commission has not yet made a decision on the original allegations of market misconduct, but has jousted legally with JPMorgan over disclosing information related to its trading activity.

The two have battled in court over whether the bank must turn over certain emails.

The bank's unit, J.P. Morgan Ventures Energy Corp, was asked to show that it did not violate federal regulations within 21 days of the notice being published in the Federal Register.

It must also show why "its authorization to sell electric energy, capacity and ancillary services at market-based rates should not be suspended."

In Thursday's order, FERC said JPMorgan had failed to respond properly to the California Independent System Operator Corporation (CAISO) when it requested data regarding the bank's electricity bidding practices.

CAISO told JPMorgan in March 2011 that it was planning to report the bank to FERC's enforcement arm, alleging it may have may have bid up electricity prices by some $73 million in California and the Midwest in 2010 and 2011.

On Monday, the JPMorgan unit filed a separate complaint with FERC against the California power grid operator, claiming the operator owed it $3.7 million for the dispatch of some power generation.