| NEW YORK, July 24
NEW YORK, July 24 JPMorgan Chase & Co's
commodity trading arm is looking to sell more of the electricity
deals it has with U.S. power plants and wind farms, a source
familiar with the business said on Wednesday, at a time when
Wall Street's involvement in physical commodity markets is under
The so-called power tolling and marketing deals cover enough
electricity to light up Indiana's 2.8 million homes, according
to detailed regulatory filings, and include almost 3,000
megawatts of power generation spread across nine states.
The potential sale follows the company's move to largely
exit the California power market in May, where the bank has been
embroiled in a market manipulation scandal. The bank is
reportedly close to a more than $400 million settlement with the
Federal Energy Regulatory Commission (FERC).
It is not clear if formal discussions have been held with
possible buyers for the agreements, which allow the firm to buy
fuel and sell power on behalf of the facilities.
But the bank's commodity arm has already divested more than
50 percent of its tolling agreements this year after the sale of
around 3,600 megawatts of capacity to Edison International in
California two months ago.
The bank's commodity division, known as JPMorgan Ventures
Energy Corporation, also owns interests in three power plants.
The remaining tolling agreements include one with privately
held Tenaska's 844 MW Lindsay Hill plant in Alabama, which
produces enough electricity to power 800,000 homes in the state,
according to the company's website.
A spokeswoman for Tenaska said the company had no knowledge
of JPMorgan's plans. The bank's commodity traders provide the
fuel and own the power produced by the facility, she added in an
email, but declined to disclose further terms of the contract.
Other deals include a marketing agreement with Algonquin
Power to sell around 400 MW of capacity from three wind farm
projects in Illinois, Pennsylvania and Texas. Those deals, which
were originally set to last 10 to 15 years, were signed less
than nine months ago. A spokesperson for Algonquin did not
respond to telephone calls seeking comment.
JPMorgan does not plan to exit physical power markets
entirely, the source said, and will continue to trade physical
and financial electricity contracts in the United States.
A power trader at an energy hedge fund, who previously
worked for a large Wall Street firm, said he saw banks
retreating from the sector.
"With the FERC market manipulation cases, I'm not sure the
banks have the appetite to keep trading in power - unless they
have a customer that wants them to do it," the hedge fund trader
said. He declined to be named because he is not authorized to
speak to the media.
Increased regulation and bank capital requirements have led
some banks to review their exposure to physical commodity
trading, while total revenues from the sector have fallen by
about 50 percent across Wall Street from a peak above $12
billion between 2007 and 2009.
The pullback comes as political and regulatory scrutiny of
Wall Street's role in physical commodity trading intensifies.
A Senate Banking Committee hearing in Washington on Tuesday
questioned whether banks should be allowed to own physical
commodity assets such as pipelines, refineries and metal
And on Friday, the U.S. Federal Reserve issued a surprise
statement saying it was rethinking a decade-old decision
allowing banks to trade in physical commodities market.
Previously, the Fed was thought to be primarily debating the
right of commercial banks to own physical trading assets.
JPMorgan Ventures Energy Corporation acquired a number of
U.S. power plants, tolling agreements and marketing arrangements
after it acquired Bear Stearns and RBS Sempra during the
In late 2007, Bear Stearns' commodity arm, Houston-based
Bear Energy, acquired the rights to more than 9,000 MW of
electric power output after purchasing Williams Power Co.
JPMorgan has sold many of the power plants it inherited from
Bear Stearns in 2008, according to a source familiar with the
The company's commodities division still has an equity
interest in three entities that own power plants in the United
States, which are held as merchant banking investments or other
permissible investments, according to the source.
One of the plants, the 545 MW Kinder Jackson facility that
powers roughly half a million homes in Michigan, is also
embroiled in the FERC market manipulation case.
The other equity interests held by the commodity arm are in
the 230 MW Brandywine power plant in Maryland and a small 75 MW
biomass plant in Florida, the source said.
The case against JPMorgan revolves around an FERC accusation
that the bank's commodity arm used an elaborate trading scheme
to try to make loss-making plants profitable.
Last week, the FERC imposed a record $470 million fine
against Barclays Plc and four of its traders for
manipulating U.S. power markets between 2006 and 2008. Barclays
has said it will fight the fine in Federal court.
JPMorgan's commodity division also want to sell its Henry
Bath metals warehousing business, according to industry sources.
The U.S. Commodity Futures Trading Commission has put Wall
Street banks and other big traders on notice that their metals
warehousing businesses might be investigated following years of
complaints about inflated prices.
JPMorgan also owns interests in power plants and wind farms
through its private equity arm, JPMorgan Capital Partners, and
JPMorgan Infrastructure Investments Group, its asset management