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FERC Probe of Price Spikes Comes Under Fire

FERC Probe of Price Spikes Comes Under Fire

As industry replies to FERC's data requests on the June price spikes in the Midwest power market poured in last week, critics said the questions posed by the Commission were too little, too late to elicit any meaningful information as to the causes for the price run-up that cost some utilities millions of dollars and drove some 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 for is pricing information. And while they'll let you know what people paid and sold things [power] for, they won't tell you why anything happened," said a utility industry observer, who requested anonymity. "And it's unclear to even pretty experienced analysts how you would take that information and go back [and determine] what happened."

He further chided the Commission for limiting its inquiry about potential market manipulation and wrongdoing to a single sentence in the data request. "This has been going on for two months and they finally come out with a one-sentence question - if you know anything [about wrongdoing in the market], please tell us. It approaches an embarrassment," the utility source said. "If you're trying to find out if there's manipulation, I don't know how you would do it but presumably there's things you could do besides asking the question - 'Does anyone know anything?' Can you imagine if the attorney general of the United States or the FBI was doing an investigation and all they said was 'Does anyone know anything?'" The Commission declined to respond to the criticism.

Upon receiving authority from the Office of Management and Budget, FERC sent out the data requests to about 80 "utilities, power marketers and other entities" that traded electricity in the Midwest market during the week of June 22, when prices began to ratchet up from an average of $30 per MWh to as high as $7,000 per MWh. Specifically, the questions focused on the amount of power that participants purchased and sold between June 22 and June 26 in both the daily and hour markets; whether they had transactions interrupted by transmission line relief (TLR) actions and/or generation emergencies, and, if so, the amount of capacity interrupted, and the price they paid for replacement capacity; and whether they knew of specific attempts by others to manipulate the market during that timeframe. Industry responses, which were voluntary, were due at FERC last Thursday. They were not available to the public.

"It's the first time that the folks at FERC have issued specific data requests. And it is the first time to my knowledge that they have asked anyone about impropriety in the market or by market participants at the end of June," said another market source, who requested anonymity. He thinks the Commission's action was long overdue. "I think that a full and complete investigation is something that FERC should have undertaken as soon as the scope of the price spikes became apparent, which would have been the final weekend of June...[Y]ou can't move forward until you know what's occurred. If a car has a flat tire, you don't try to get it down the road on three wheels; you stop and take a look at the extent of damage."

At a FERC-led oversight hearing last month, Roy Thilly, CEO of Wisconsin 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 the Commission fails to get tough with abusers, violations will become prevalent."

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

FERC Restraint Praised

John Anderson, executive director of the Electricity Consumers Resource Council (ELCON), was less critical of FERC and its investigation. "Sure I would have liked to have seen a more responsive, more timely movement with more detail. At the same time, FERC hasn't had any experiences like this in the past with electricity, 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 the investigation, particularly with the fact that it has not overreacted.

For instance, "they have been asked to put price caps on [power in emergency situations], and they have so far at least not given any indication that they're going to do that. They have said they want to make sure that they know what happened first."

The Edison Electric Institute (EEI), too, gave the Commission high marks for carrying out a "really careful and thoughtful investigation," but a number of its utility members have commented that "a lot of the data requested in this most recent [effort] has already been given to FERC people who did on-site investigations in the first round," said spokesman Jim Owen.

ELCON's Anderson and others said they adamantly disagreed with Commissioner Vicky Bailey's statement that FERC would not be looking for a "smoking gun" in its investigation. "Our very strong feeling is that they should be looking for smoking guns. And we hope that the data request that they've sent out is precisely along these lines." In a recent letter to Chairman James Hoecker, Glenn English, chief executive officer of the National Rural Electric Cooperative Association (NRECA), echoed that sentiment. "...[A]ren't smoking guns precisely what the Commission should be studying?" He said key issues ripe for FERC review include: did suppliers renege on previously arranged deals so they could take advantage of higher prices; was transmission capacity manipulated to wrongfully favor owners or affiliates and, if so, would independent system operators have prevented this; and were there incidents of unusual behavior, such as the discontinued taping of trading transactions."

The fallout from the June price spikes and the subsequent FERC probe could be enormous, most industry and Capitol Hill sources agree. For one, the issue of whether wholesale power marketers should be licensed will be hotly debated in the future, the utility observer noted. "I'm not saying that we need to have a government come in and certify them or license them," ELCON's Anderson countered, "but customers need to beware" of wholesale power marketers, and to more closely examine their "financial condition and stability."

On Capitol Hill, a press aide for the Senate Energy Committee believes some lawmakers who have had doubts about an electricity restructuring bill all along "will probably use the price spikes of June as an example of what could possibly happen if this is not done correctly," noted Derek Jumper. "If this were in the retail market, those costs would have been passed right down to the consumer."

Susan Parker

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