As industry replies to FERC’s data requests on the June pricespikes in the Midwest power market poured in last week, criticssaid the questions posed by the Commission were too little, toolate to elicit any meaningful information as to the causes for theprice run-up that cost some utilities millions of dollars and drovesome marketers out of business.

The data requests, which were sent out by FERC in late August,”aren’t worth the paper they’re written on because all they ask foris pricing information. And while they’ll let you know what peoplepaid and sold things [power] for, they won’t tell you why anythinghappened,” said a utility industry observer, who requestedanonymity. “And it’s unclear to even pretty experienced analystshow you would take that information and go back [and determine]what happened.”

He further chided the Commission for limiting its inquiry aboutpotential market manipulation and wrongdoing to a single sentencein the data request. “This has been going on for two months andthey finally come out with a one-sentence question – if you knowanything [about wrongdoing in the market], please tell us. Itapproaches an embarrassment,” the utility source said. “If you’retrying to find out if there’s manipulation, I don’t know how youwould do it but presumably there’s things you could do besidesasking the question – ‘Does anyone know anything?’ Can you imagineif the attorney general of the United States or the FBI was doingan investigation and all they said was ‘Does anyone knowanything?'” The Commission declined to respond to the criticism.

Upon receiving authority from the Office of Management andBudget, FERC sent out the data requests to about 80 “utilities,power marketers and other entities” that traded electricity in theMidwest market during the week of June 22, when prices began toratchet up from an average of $30 per MWh to as high as $7,000 perMWh. Specifically, the questions focused on the amount of powerthat participants purchased and sold between June 22 and June 26 inboth the daily and hour markets; whether they had transactionsinterrupted by transmission line relief (TLR) actions and/orgeneration emergencies, and, if so, the amount of capacityinterrupted, and the price they paid for replacement capacity; andwhether they knew of specific attempts by others to manipulate themarket during that timeframe. Industry responses, which werevoluntary, were due at FERC last Thursday. They were not availableto the public.

“It’s the first time that the folks at FERC have issued specificdata requests. And it is the first time to my knowledge that theyhave asked anyone about impropriety in the market or by marketparticipants at the end of June,” said another market source, whorequested anonymity. He thinks the Commission’s action was longoverdue. “I think that a full and complete investigation issomething that FERC should have undertaken as soon as the scope ofthe price spikes became apparent, which would have been the finalweekend of June…[Y]ou can’t move forward until you know what’soccurred. If a car has a flat tire, you don’t try to get it downthe road on three wheels; you stop and take a look at the extent ofdamage.”

At a FERC-led oversight hearing last month, Roy Thilly, CEO ofWisconsin Public Power, also urged the Commission to conduct a”detailed investigation,” and to get tough with abusers. “Frankly,a slap on the wrist is more than worth it in this situation. If theCommission fails to get tough with abusers, violations will becomeprevalent.”

The data requests are part of an ongoing FERC investigation intothe circumstances that overloaded the Midwest market. Prior tothis, its probe was limited to informal data collection and on-sitevisits. The Commission said the information it received from thedata requests last week will be the basis for a report to beunveiled during hearings before the Senate Energy and NaturalResources Committee later this month.

FERC Restraint Praised

John Anderson, executive director of the Electricity ConsumersResource Council (ELCON), was less critical of FERC and itsinvestigation. “Sure I would have liked to have seen a moreresponsive, more timely movement with more detail. At the sametime, FERC hasn’t had any experiences like this in the past withelectricity, and they are doing something.” All in all, he said ELCON, which represents large industrial electricity users, was”extremely pleased” with the Commission’s handling of theinvestigation, particularly with the fact that it has notoverreacted.

For instance, “they have been asked to put price caps on [powerin emergency situations], and they have so far at least not givenany indication that they’re going to do that. They have said theywant to make sure that they know what happened first.”

The Edison Electric Institute (EEI), too, gave the Commissionhigh marks for carrying out a “really careful and thoughtfulinvestigation,” but a number of its utility members have commentedthat “a lot of the data requested in this most recent [effort] hasalready been given to FERC people who did on-site investigations inthe first round,” said spokesman Jim Owen.

ELCON’s Anderson and others said they adamantly disagreed withCommissioner Vicky Bailey’s statement that FERC would not belooking for a “smoking gun” in its investigation. “Our very strongfeeling is that they should be looking for smoking guns. And wehope that the data request that they’ve sent out is precisely alongthese lines.” In a recent letter to Chairman James Hoecker, GlennEnglish, chief executive officer of the National Rural ElectricCooperative Association (NRECA), echoed that sentiment.”…[A]ren’t smoking guns precisely what the Commission should bestudying?” He said key issues ripe for FERC review include: didsuppliers renege on previously arranged deals so they could takeadvantage of higher prices; was transmission capacity manipulatedto wrongfully favor owners or affiliates and, if so, wouldindependent system operators have prevented this; and were thereincidents of unusual behavior, such as the discontinued taping oftrading transactions.”

The fallout from the June price spikes and the subsequent FERCprobe could be enormous, most industry and Capitol Hill sourcesagree. For one, the issue of whether wholesale power marketersshould be licensed will be hotly debated in the future, the utilityobserver noted. “I’m not saying that we need to have a governmentcome in and certify them or license them,” ELCON’s Andersoncountered, “but customers need to beware” of wholesale powermarketers, and to more closely examine their “financial conditionand stability.”

On Capitol Hill, a press aide for the Senate Energy Committeebelieves some lawmakers who have had doubts about an electricityrestructuring bill all along “will probably use the price spikes ofJune as an example of what could possibly happen if this is notdone correctly,” noted Derek Jumper. “If this were in the retailmarket, those costs would have been passed right down to theconsumer.”

Susan Parker

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