With FERC continuing its probe into whether energy companies active in western markets utilized dubious trading strategies like those described in recently released Enron Corp. memos, FERC Commissioner William Massey on Thursday said that he wants to make sure that whatever standard electricity market design the Commission ultimately adopts will ensure that strategies like those described in the memos can’t take place.

Massey made his comments after attending a meeting on Thursday of the Natural Gas Roundtable in Washington, DC. Fellow FERC Commissioner Linda Breathitt made formal remarks before the roundtable.

Massey was asked whether he thinks Enron memos recently disclosed by FERC are more of an indictment of California’s tariff and its design or if they are more of an indictment of Enron’s and the industry’s trading practices.

The memos in question were disclosed by the Commission earlier this month. They describe strategies used by Enron traders in California including: 1) “inc-loading” (i.e., submitting unrealistic schedules) into the California ISO’s real-time energy imbalance market; 2) creating and then “relieving” phantom congestion on the Cal ISO’s transmission grid; and 3) megawatt laundering (called “ricocheting”), according to the Commission.

More than 100 energy suppliers were given a deadline of May 22 to say whether they had used any of the questionable trading techniques cited in the Enron memos.

At the outset, Massey underscored that he couldn’t prejudge the practices described in the Enron memos since they’re under investigation by FERC.

He did say that the “conventional wisdom at the agency, most of the time I’ve been there, is that no market participant will engage in any act that will actually jeopardize reliability, because everyone wants a reliable grid operation. So we need to look at that, it seems to me, because any practice, though legal, that might jeopardize reliability has to be questionable.”

“We’ve commented many, many times that the market structure seemed to invite abuse, and yes in fact it did, and so I need to be reassured with our standard market design that this kind of activity can’t take place. Now, I know in one respect, it cannot — you can’t create false congestion under the standard market design because the dispatch is security-constrained. That was not true in California.”

The commissioner also said that larger regional transmission organizations (RTOs) “make it much more difficult for you to schedule power out of the region and then bring it back in to sell it.”

Massey said practices that may have gone on in California, “that may be considered sharp practices, even though allowed by the rules, I think we need to make sure that they cannot occur under the standard market design.”

He said that he hasn’t reached a conclusion as to what practices should be considered illegal or what should be allowed. “But I do think that whatever conclusions we come to, we ought to have strong market rules that send a clear signal to market participants.”

Massey was also asked to describe the Commission’s recourse were it to unearth collusion or other unlawful activity as part of the probe into the strategies outlined in the Enron memos.

“There are a lot of potential remedies,” he said. “We were asked up on Capitol Hill whether we had referred any cases to the Justice Department for criminal investigation and I’m not aware that we have,” Massey continued. “That’s a possibility.”

FERC also has penalty authority, he noted, “although it’s a weak penalty authority. It seems to me the big hammer we have is to say to a market participant ‘You can’t sell at market-based rates because you’ve been a bad actor.’ And, I think, we have to be willing to impose that penalty…that’s a pretty big hammer there.”

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.