At its regular meeting on Wednesday, FERC is going to take “very, very substantial steps toward resolving all of the important old business” related to allegations of manipulation of the natural gas and electricity prices in western markets, said Commissioner William Massey last week. But the Commission will not clear away the entire “underbrush.”

Agency staff, which will present a final report on its probe of energy price gouging in the West this week, may find instances of alleged manipulation that the Federal Energy Regulatory Commission hasn’t even considered yet, he noted during a utility conference last Thursday in Washington, DC. “The question is whether this will launch one or more new proceedings at the agency.”

The Commission needs to “clear out the underbrush of the past” so it can focus its efforts on the future, Massey said, adding that it must be done thoroughly because “we don’t [ever] want to have to do this again.” The agency doesn’t want additional evidence to “pop up” five months after it closes an investigation.

On Wednesday, the agency is scheduled to act on key cases involving western energy markets: 1) staff’s final report on its year-long investigation of energy pricing in the West; and 2) the level of refunds owed to electricity consumers in California. FERC also was due to rule on whether El Paso Corp. manipulated gas prices in California during the 2000-01 energy crisis. But El Paso on Friday announced a $1.7 billion proposed settlement of the charges with California. Parties were expected to ask FERC to stay a ruling in the case (See related story).

Previously, Chairman Pat Wood said the agency would address reformation of western power contracts as well. But the issue had not been included in the meeting agenda that was released last week. The item could be added by Wednesday’s meeting, however.

“What a mess,” Massey said, referring to the circumstances that led to the cases. To prevent a repeat in the future, “why not insist that wholesale [energy] markets are well structured from the start?” he noted. “What a radical idea” to have effective market monitors, mitigation measures, protections against high-priced contracts and other market safeguards.

Responding to a suggestion that California appears to be on a “similar collision course” that led to the 2000-2001 energy crisis, he noted, “I think we ought to be all concerned about not just fixing [the] old problems,” but “I think there is reason for concern” in the West now.

He acknowledged that FERC has “lost some credibility” in California and elsewhere in the West because the agency didn’t respond well to the crisis two years ago. That, according to Massey, is hurting the Commission’s efforts to sell standard market design (SMD) in that region.

The agency is getting “a lot of push-back” on SMD and other proposals in the West. He projected that the Commission was “a couple of years away at least” from implementing SMD.

In the gas market, he expressed concerned about the low level of production, and a potential “huge storage gap” emerging this summer, when gas will be needed for both power generation and to refill storage for the 2003-04 heating season.

With respect to the high gas prices seen in February, Massey said several senators have asked the Commission to explore whether any manipulation of the market was involved, and report its findings to Congress. It’s “too early to tell” if any price gouging occurred. The agency “is taking a hard look at that right now,” he said, adding that the review — he declined to call it an investigation — will take a few weeks.

The Commission is continuing its efforts to protect index natural gas prices from manipulation in the future, Massey noted. “Over the past 20 years the trade press has done a good job with developing price indices.” However, the false reporting of volume and price information by gas traders “has shaken the confidence” in the indexes, which he said depend on the “integrity of the information collected and the number of active traders” who participate.

“I want the indices to be accurate and reliable, and I want jurisdictional companies to at least use indices in their tariffs and contracts that meet certain standards” approved by the Commission, Massey told reporters. Massey and his FERC colleagues also advocate legislative efforts by the House Energy and Air Quality Subcommittee to extend price transparency to the gas market.

Others are advocating that FERC take “more aggressive” action, requiring all jurisdictional companies to report all of their gas transactions, including counterparty information, to a designated gathering entity, such as the Commission, he noted.

Commission staff will address the issue of gas price indexes as part of its western price report on Wednesday, Massey said.

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