About 80 electric-related companies are due to respond laterthis week to FERC inquiries aimed at determining whether marketmanipulation was a contributing factor to the wild price gyrationsin the Midwest electricity market in late June.

Some market insiders believe the written inquiries, which weresent out last week, marked a turning point in the Commission’sfact-finding review of the circumstances that led to power pricesskyrocketing to as high as 7,500 per MWh earlier this summer. But aCommission spokesman disagreed, noting that “we have notcategorized this as a change or diversion in the direction” ofreview.

To date, FERC’s efforts have been limited to informal datacollection and site visits, but last week the Commission sought outmore detailed responses about the amount of power that participantspurchased and/or sold between June 22 and June 26 in the daily andhourly markets; whether they had transactions interrupted bytransmission constraints and/or generation emergencies; and whetherthey knew of specific attempts by others to manipulate the marketduring that timeframe.

“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 a market source whorequested anonymity. He thinks the Commission’s action last weekwas long overdue.

“I think that a full and complete investigation is somethingthat FERC should have undertaken as soon as the scope of the pricespikes became apparent, which would have been the final weekend ofJune,” he noted. “…[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.”

The FERC inquiry letters were sent to all “utilities, powermarketers and other entities trading in the Midwest during the weekof June 22, 1998.” Responses are due at the Commission on Thursday(Sept. 3rd), and will aid FERC in its internal fact-finding studyand in hearings before the Senate Energy and Natural ResourcesCommittee, which is expected to look into the issue sometime thismonth.

The inquiries were partly in response to the calls from powerindustry executives for a more in-depth probe by the Commission,some said. In a letter to Chairman James Hoecker last Wednesday,Glenn English, chief executive officer of the National RuralElectric Cooperative Association (NRECA), urged FERC to use “formalinvestigative tools” rather than “anecdotal evidence” to determinethe causes behind the price run-up last June.

At a hearing in Chicago late last month, Commissioner VickyBailey said FERC wouldn’t be looking for a “smoking gun” in itsprobe, but rather would focus on what to do in the future toprevent similar market occurrences. “But aren’t smoking gunsprecisely what the Commission should be studying?” asked English.He said key issues ripe for FERC review include: did suppliersrenege on previously arrangement deals so they could take advantageof higher prices; was transmission capacity manipulated towrongfully favor owners or affiliates and, if so, would ISOs haveprevented this; and were there incidents of unusual behavior, suchas the discontinued taping of trading transactions.

“NRECA does not know whether wrongdoing, if any, played a part.But the significance of the events suggests that the Commission’sinquiry should be comprehensive and should resolve all materialunanswered questions, including those about wrongdoing, before theCommission moves forward with policy decisions. To do otherwiseputs consumers at risk.”

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