Several power marketers and utilities have called on FERC todismiss a complaint by an Indiana steelmaker that accuses AmericanElectric Power (AEP) and unnamed power marketers of capitalizing onthe upheaval in the Midwest electricity markets in June by engagingin “abusive price gouging.”

Specifically, AEP and the others, including industrial powerusers, have asked the Commission to reject Steel Dynamics Inc.’s(SDI) request for FERC to impose a price cap on electricity pricesin future emergency situations in the market, saying that such amove would do more harm than good. Although it “in no way means tobelittle the effects of the [price] increases” that occurred, AEPnoted the market turbulence that took place in June does notjustify the type of “precipitous market intervention, such as thearbitrary imposition of a $100/MWh price cap, urged by SDI.”

Moreover, AEP contends it would be “bad regulatory policy” forFERC to use its power under Section 206 of the Federal Power Act to”reverse its numerous grants of market-rate authority” at the”first sign of high short-term market prices,” as Steel Dynamicshas sought. Lastly, it urged the Commission not to allow thecomplaint to set the tone for its investigation of the power pricespikes in the Midwest market.

“There is no reason why the Commission should allow adisgruntled retail customer [SDI]…to dictate the agenda for suchan analysis, and there is no reason for any such analysis either toinappropriately focus on AEP,” said the Columbus, OH-based company.The FERC staff investigation, which was initiated on July 15th,”presents a far more appropriate response and a far superiorvehicle than the [SDI} complaint…”

Steel Dynamics filed the complaint at FERC in early July,charging that AEP, via subsidiary Indiana Michigan Power, and otherundisclosed marketers in the ECAR region that have authority tosell power at market-based rates took “unfair advantage withabusive prices” during the June supply-demand crisis in theelectricity markets.

AEP conceded it sold energy at market rates during the time inquestion, but it added “none of this energy was sold to SDI…” Infact, “SDI never purchased, even indirectly, any of the high-pricedenergy that appeared on the market during the peak of the capacityshortage, and its usage during other hours when prices were highwas reduced to minimal levels” under a specially negotiatedcontract, the utility told FERC [EL98-54]. The contract providedthe steelmaker with rates that were even lower than those availableto interruptible customers, and also contained “real-time” pricingfeatures.

Although it “paid dearly” for the volatility in the Midwestpower market in late June, LG&E Energy said it could not joinwith Steel Dynamics in requesting price caps on future wholesalepower transactions in emergency situations. “…[S]uch a step bythe Commission would be a serious mistake and a significant setbackfor the competitive wholesale power market that the Commission hasworked so hard to encourage.” LG&E Energy’s remarks followedits recent decision to exit the power marketing and tradingbusiness due in large part to the June crisis. It estimated that itwill have an after-tax loss of $225 million in the second quarterfor the discontinued operations.

The Electricity Consumers Resource Council (ELCON), whichrepresents large industrial power users, also thinks price capswould be a mistake.

“Price caps, as proposed by SDI and others, would mask the trueprice signal and prevent efficient investment [in new generationcapacity]to meet the market’s long-term needs,” the group said.

More to the point, ELCON called on the Commission to focus onNERC’s new, untested transmission-loading relief (TLR) procedures,which deal with the curtailment of transactions in emergencysituations, as a “contributing factor” in the Midwest pricingcrisis.

In filings at FERC, “some marketers are claiming that TLR wasnot so much used to address an impending emergency, but was used togame the situation for their own advantage. This unnecessarilylimited the ability of the region to import power at the very timethe imports were most needed.

Whether these allegations are true or not, there was nojustification for adding this new risk factor when it was widelyknown before the summer began that the potential for a severesupply shortage existed,” ELCON said.

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