New England “dodged a bullet” in terms of power reliability during a cold snap earlier this year, William Hederman, chief of FERC’s Office of Market Oversight and Investigations (OMOI), told an audience of state utility regulators last Tuesday.

Appearing before the winter committee meetings of the National Association of Regulatory Utility Commissioners (NARUC), Hederman noted that the weather in the Northeast was “quite severe” in January 2004. “We had a day — Jan. 15 of ’04 — that was beyond design day conditions.”

Hederman said that “there were generators that were unavailable. There were generators who chose not to try to find natural gas and there were generators that sold gas that they had and one of the questions was, is that illegal and/or immoral.” FERC’s OMOI division “is responsible for looking at the illegal part of that and we’re investigating that.

“I think, by and large, New England really dodged a bullet,” he said, noting that there were warnings about possible blackouts in the region “and in response to those warnings, there was a noticeable conservation effort on the electric side.”

“One issue that was clearly making it difficult for people to make their decisions was the incompatibility between the gas nomination day — in other words, when somebody had to say how much gas they wanted to move to where — and the electricity day.”

Meeting with reporters after his appearance, Hederman expanded on this point. “There’s a certain time of the day when you can buy or sell gas and then there’s a time of day when you nominate for capacity on the pipelines and then there’s a time of day when you bid for providing electricity supply,” he said.

Those times of day “don’t line up in a way that you can make the decisions without having to gamble on some element of the process and when things were going as crazy as they were with that severe cold, people were making different kinds of decisions depending on their risk preferences,” the OMOI chief said. “Some people were saying, ‘I don’t think I want to bid on the electricity because I don’t know what the gas price will be for the marginal unit and I could lose money, so maybe if I know I can lock in a profit on gas I already own, that’s a better deal for me.'”

Within days of the deep freeze that struck much of New England in mid-January, Connecticut Attorney General Richard Blumenthal launched an investigation looking at the actions of power suppliers. Blumenthal said that he had obtained information that some generators sold natural gas on the spot market that could have otherwise been used for their own power plants during the recent power supply crunch.

Generators were quick to defend their actions in the wake of Blumenthal’s probe. Local press reports quoted electric power industry representatives as saying that the practice in question is acceptable under New England energy trading rules.

“It’s a practice that has existed since natural gas-fired power generation’s been around,” Neal Costello, general counsel for the Competitive Power Coalition, told the Hartford Courant in January. The coalition is a group of 12 power plant owners in the region. “It’s nothing new,” Costello said. “There are no scandals here and it’s disappointing that anyone would intimate that there was. We welcome the attorney general’s investigation.”

FERC Chairman Patrick Wood in late January told reporters that he had seen no indications as of that point in time that the power market in New England was manipulated.

As part of his probe, Blumenthal recently sent a subpoena to ISO New England (ISO-NE) asking the electric grid operator to submit, among other things, bidding-related data. He followed that move with the issuance of subpoenas to owners of power plants in Connecticut, with local press reports indicating that Blumenthal was also preparing to issue similar subpoenas to other generators in the New England region (see NGI, March 1).

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