Utilities Paying $4,000/MWh Request FERC's Help
"It will only happen this once; it's not likely to happen
again," a power marketing source said last week, explaining how
electric spot market prices in the Midwest went as high as
$7,500/MWh on June 25, 1998, causing some utilities and traders to
run to FERC for protection.
One utility, PacifiCorp, already has informed stockholders of
second-quarter losses due to the electric market debacle the week
of June 22nd, and put them on notice there will be further losses
through the rest of the year. The Portland, OR, utility which has a
nationwide trading operation, said it has covered short positions
at a loss "limiting the magnitude of potential losses." A
spokeswoman put the second-quarter market loss figure at about $13
A marketing affiliate of utility FirstEnergy of Akron, OH, won a
restraining order and froze the assets of Federal Energy Sales of
Rocky River, OH, saying it had lost $25 million because the
marketer defaulted on power delivery contracts.
Another report that one mid-sized marketer was on the ropes and
looking for a buyer could not be confirmed.
Meanwhile, Illinois Power asked the Federal Energy Regulatory
Commission to impose a $200/MWh price cap in emergency situations
after IP paid as much as $4,000/MWh last week. The utility said it
knew of another company that paid $7,500/MWh. It is believed to be
the first time anyone has asked FERC to interfere in spot market
pricing. Others were trying to head off government interference.
"Some new traders got a real education about buying in a tight
market," said Brian Jordan, spokesman for Peco Energy's Power Team.
Since the market is new, some utilities made the wrong moves at the
wrong time, but "the important thing is the market self-corrected
even before additional power came on line." The stratospheric
pricing problem only lasted five or six hours, Jordan maintained.
Peco, which has a power surplus, reportedly made some money on the
situation, but Jordan would say only the company had come out "all
Others said the problem actually began Tuesday, June 23, in the
midst of an extended heat wave as prices into Cinergy began moving
up and FirstEnergy was notified by Federal Energy Sales (FES) it
would not be able to supply promised power. After that, a series of
mishaps unexpectedly shut down several baseload nuclear facilities
in the East and Midwest, escalating the situation.
One utility source claimed some large utilities, hearing of a
supply squeeze, actually took transmission lines out of the market,
reserving them for their own use if needed.
It was these so far unnamed culprits who were guilty of "price
gouging" and "a raw abuse of market power," according to several
Midwest utilities and power marketers who asked FERC to hold an
emergency fact-finding conference.
Illinois Power blamed the skyrocketing electric prices on
marketers who took advantage of a power shortage. Faced with the
prospect of curtailing retail customers "franchised utilities, such
as Illinois Power, had no choice but to pay whatever price was
demanded." IP said it bought power at prices ranging from
$1,000/MWh to $1,900/MWh on one day and up to $4,000 the next day.
"In one instance a seller offered emergency power at around
$400/MWh and then, after the energy flowed, adjusted the price to
Cincinnati Gas & Electric, the utility arm of Cinergy Corp.,
along with Dynegy Inc., NP Energy, and Western Resources stopped
short of asking for a price cap, but said FERC should conduct a
fact-finding forum "to determine whether any action from the
Commission is required for the remainder of the summer period to
ensure the continued availability of electricity supply in the
market at just and reasonable prices."
The group said as much as 15% of the generating capacity in ECAR
was out of service during the period from June 22 to June 27 and
"utilities through the region were subject to Regional Reliability
Council emergency conditions and were forced to interrupt service
to certain end-use customers."
Some market participants defaulted on commitments and "severe
credit and financial strength issues have arisen regarding the
status of market participants and access to transmission and
FERC has an interest in "assuring that rates charged for
jurisdictional service shall be just and reasonable (18 U.S.C.,
Sec. 824d(a):" and also ensuring no undue preference, the group
IP said FERC should issue an emergency order for this summer
"amending each and every rate schedule that permits the sale of
wholesale power at market rates" to cap the price at $200/MWh.
Last Friday, a FERC spokeswoman said only that the Commission is
continuing to gather information. Every indication is there will be
more to gather as new charges and losses surface.