The Federal Energy Regulatory Commission found no evidence that natural gas traders were responsible for the run-up in gas prices during the cold snap in the New England markets last January, the head of the agency’s Office of Market Oversight and Investigations (OMOI) told a group of state regulators Monday.

Natural gas prices spiked during the Jan. 13-16 period due to market fundamentals — heavy demand and low supply, William Hederman said in a speech to the New England Conference of Public Utilities Commissioners in Brewster, MA. There was “no indication of supply or capacity withholding” in the gas markets in the region, he noted.

“When demand exceeded limited spot gas supplies, spot prices spiked, reflecting buyers’ valuation to fill out a supply package, avoid imbalance penalties, and avoid draining peak-shaving inventory,” Hederman said. “Seller offers were all taken regardless of price; no bids to buy at lower prices were successful.”

The FERC’s probe found “no indication of unusual trading patterns or concentrations,” he noted, adding that the largest seller on the IntercontinentalExchange (ICE) trading platform had only an 11% market share. “Trades indicated a demand-driven market with buyers scrambling to cover short positions.”

The Commission undertook its investigation of the New England natural gas and electric markets partly in response to allegations by Connecticut Attorney General Richard Blumenthal that the region’s power generators profiteered during the January cold spell by selling their natural gas to local gas utilities rather than using it to produce power to meet high demand.

Natural gas spot prices in New England averaged $63/MMBtu on Jan. 15, with a few trades as high as $75/MMBtu, due to Sable Island production problems and high gas demand in eastern Canada, the agency said. Some of the gas-fired generators at the time opted to sell their gas instead of running their generation units, sparking Blumenthal’s allegations.

FERC’s Hederman and other officials released the preliminary results of their investigation on April 1, clearing both New England power generators and gas utilities of any wrongdoing (see Daily GPI, April 2). In fact, the markets were said to have “performed well” during the critical Jan. 13-16 period, when demand for both gas and electricity reached unprecedented levels. OMOI’s Bob Flanders stressed at the time, however, that FERC still was looking at some power marketers and gas trading activities.

Hederman on Monday told New England regulators that “[power] generators’ bidding behavior [did] not appear manipulative,” either.

In the end, there were “no electric service interruptions” during the January period, and “all firm gas load [was] served,” he said. The “gas spot market functioned well in reallocating supply to heating customers.” There were “limited effects on [residential] bills;” gas sales by generators “helped meet heating load, preserved peak-shaving supply;” and the “spot gas cost, while high, was less than [the] cost of new pipeline capacity used only on peak,” Hederman noted.

The Commodity Futures Trading Commission also is looking into the possibility of manipulation in the gas markets during the winter period, but it has not divulged any of its findings yet.

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