California ratepayers are expected to reap a total $124 million from a $410 million settlement JP Morgan and the Federal Energy Regulatory Commission signed July 30. \tUnder the deal\u2014the third largest to date\u2014$285 million of the $410 million is a penalty. The remaining $125 million is a \u201cdisgorgement of unjust profits.\u201d The agreement was reached a day after federal regulatory staff officially charged JP Morgan with manipulating California\u2019s and Michigan\u2019s energy markets. The bank controlled 4,000 MW of old fossil-fueled plants in Southern California. \t\u201cThis is a vindication for California ratepayers and for market participants who play by the rules and work to support an effective market,\u201d according to California Independent System Operator general counsel Nancy Saracino. \tJP Morgan Ventures Energy stated it was \u201cpleased to have reached an agreement with FERC to put this matter behind it.\u201d \tThe largest penalty by federal regulators was in 2005. Enron agreed to pay a $600 million penalty as part of a $1.5 billion settlement over gaming the western energy markets in 2000-01. \tFERC\u2019s second largest penalty was in mid-July. The federal commission ordered Barclays Bank to pay a $435 million penalty for violating its anti-manipulation rules, and another $35 million for \u201cunjust profits\u201d for trades outside the California grid operator market on the Intercontinental Exchange (Current, July 19, 2013). \tFederal regulators\u2019 fourth largest penalty is much lower. It was a $1.5 million civil penalty on Deutsche Bank for market manipulation in late January of this year. \tIn this investigation of JP Morgan \u201cand others, it has become too common for subjects of an investigation to take steps to obfuscate the true intent of their business strategies as a litigation posture for dealing with their regulators,\u201d stated Tony Clark, the newest federal commissioner. He added that \u201cwhile in a settlement no one gets everything he or she may have wanted, this one meets the test of transparency, timeliness, significance and prudency.\u201d \tFor months, the grid operator urged federal regulators to get involved in the dispute, filing emergency tariffs. Last November, federal regulators sided with California and slammed JP Morgan for withholding documents that were sought as part of the investigation. \tFederal regulators took away the bank\u2019s trading authority for six months beginning April 2013 because of continued \u201cmisrepresentations\u201d (Current, Nov. 16, 2012). \tJP Morgan Ventures Energy Corp, the investment services company\u2019s trading arm, was accused of complex trading schemes in the grid operator\u2019s market to drive up prices between September 2010 and November 2012. The bank held tolling agreements with several inefficient power plants owned by AES in Southern California. It bought them from a distressed Bear Stearns in 2008. \tFERC\u2019s Office of Enforcement formally charged JP Morgan July 29 with engaging in \u201cmanipulative bidding strategies designed to improperly obtain payments at above-market rates from the California Independent System Operator.\u201d One of those gaming schemes was claimed to have driven the bidding price from $30\/MWh to $999\/MWh. \tJP Morgan allegedly gamed the market to increase the spread between real time energy payments and bid prices\u2014also known as a \u201cmake whole payment\u201d in California\u2019s wholesale market. \tFor example, when \u201cCAISO commits a unit in the Day Ahead market that bid at $50\/MWh, but the market price comes in at $30, the ISO will make a $20\/MWh make-whole payment to ensure the unit is paid at least its bid price,\u201d explained the settlement. In addition, \u201cif a unit\u2019s minimum load cost is $5,000 for 50 MWh (or $100\/MWh), and market prices come in at $30\/MWh, the tariff obligates the ISO to provide a $70\/MWh make-whole payment to the unit,\u201d according to the agreement. \tJP Morgan admitted the facts in the stipulated agreement, but not the alleged violations. It also agreed to waive claims for additional payments it had said were owed by the California grid operator for two related strategies being investigated. \tThe settling parties also agreed to end litigation in the Court of Appeals for the District of Columbia Circuit. Michigan ratepayers are to receive $1 million in repayments.