Massachusetts Attorney General Tom Reilly said that some energy suppliers and wholesale power marketers are manipulating the energy markets in Massachusetts, resulting in higher electricity prices for customers across the state. Reilly, who singled out Sempra Energy, called on the state Department of Telecommunications and Energy (DTE) and ISO New England to take immediate actions to stop the alleged practices.

Reilly urged ISO New England to take immediate steps to stop Sempra, which manages the Mystic plants in Everett, from “further exploiting wholesale market rules to gain excess profits.” Sempra’s practices haven driven up electric rates for Boston area consumers by as much as $70 million in 2005 alone, he said.

According to Reilly, when ISO New England has asked Sempra to keep the Mystic power plants operating to maintain reliable electric service in the Boston area, the company has responded with onerous and unreasonably expensive terms on a take-it-or-leave-it basis. Reilly asserts Sempra’s “gaming” behavior exploits a loophole in the New England grid operator’s rules that needs to be corrected.

“Sempra Energy is manipulating the market in ways that maximizes its profit to the detriment of customers in Massachusetts,” Reilly said. “While not technically illegal under the ISO’s market rules, Sempra’s behavior exploits a loophole in those rules that needs to be corrected immediately.”

Reilly said he has been warning of potential market abuses for several years. In a 2002 study, Reilly commissioned with ISO New England, Dr. James Bushnell of the University of California’s Haas School of Business identified the precise factors in play in Sempra’s current behavior, and indicated that each factor provided an opportunity for generators to exercise market power while technically operating within market rules, according to the attorney general.

Bushnell identified those factors as differences between day ahead commitments and real -time operations of generating units; transmission congestion management practices; the ability of generating units to self-schedule; and characterization of individual unit operation constraints such as ramping time and minimum operating levels.

Reilly said in that ISO New England officials have known of Sempra’s actual marketplace behavior since 2004. He cited a report issued this summer by David B. Patton, ISO New England’s independent market monitor, noting that “in late 2004 one supplier began exercising local market power in the Boston area, and its conduct resulted in considerable increases in the operating reserve payments to the supplier.”

According to Reilly, ISO New England unsuccessfully attempted to fix this problem in May 2005, finally deciding on a 25-week schedule to develop a solution in August 2005. ISO New England, however, has yet to begin that 25-week process, the attorney general added.

“We deny any wrongdoing,” Sempra spokeswoman Jennifer Andrews told the San Diego Union Tribune. “Sempra abides by all rules and regulations.”

Reilly urged the DTE to quickly approve a request by NSTAR Electric to change its basic service terms and conditions. The proposed changes will prevent competitive retail electric suppliers in Massachusetts from switching large commercial and industrial customers on and off of basic/default electric service multiple times when basic service is available at cheaper rates, he noted. This practice drives up the demand, and therefore the costs, for basic service by millions of dollars for smaller commercial and industrial customers who are not able to switch between basic service and market rates, Reilly argued.

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