AG Sees Possible Problem in New Federal Market-Power Rules

Federal regulators issued new guidelines November 17 to help steer electric and gas companies clear of rampant market misbehavior. Though merchant generators appear to welcome the rules, at least one state office has spied a potential misstep. Among the Federal Energy Regulatory Commission?s findings is a limitation on how the agency enforces its own rules. The commission gave itself 90 days in which to respond?if only preliminarily?to any complaints regarding energy market actors or activity. If FERC does not initiate action during that approximate three-month window, the market seller in question is off the hook. The idea did not sit well with the Attorney General?s Office. ?The notion that FERC, which is hugely understaffed to begin with, would adopt a rule that gives them 90 days to respond to a complaint seems problematic,? said spokesperson Tom Dresslar. Steve Huhman, who sits on the Western Power Trading Forum?s board of directors, countered that the move is ?in everybody?s interest? since it would ensure that market transactions are finalized in short order. Further, FERC already observes time lines in other proceedings and is the best judge of its own capabilities, he said. The commission?s order proceeds from a decision delivered in late June that outlined six rules for appropriate market behavior. The new order reflects the same principles, but many of the provisions are now conditioned on the intent behind a power company?s conduct?that is, regulators would have to see evidence that a firm knowingly acted to manipulate the market in order for penalties to be triggered. Huhman admitted that proving the existence of such intent would be difficult, if not impossible. Still, he supported this course of action as a fair way to dole out punishment. California Independent System Operator spokesperson Gregg Fishman pointed out that isolated instances of market abuse could be tough to spot, since they might not be part of a recognizable trend?notwithstanding an occasional blatant episode. On the other hand, while a string of events might yield more damning evidence, ?by that point, you could have suffered more damage? in the marketplace, he said. FERC member William Massey concurred with the commission?s order in all areas but one?potential fines. The agency held that companies found to be in violation of their tariffs would be forced to give up any unjustly reaped profits. Massey argued that this approach might not go far enough. ?Market manipulation can raise the market prices paid by all market participants and collected by all sellers,? he wrote. ?In such a case, the appropriate remedy may be that the manipulating seller makes the market whole.? The decision also prohibits the use of artificial congestion-relief transactions, such as those used by Enron during the California energy crisis in 2000 and 2001, and would block companies from making ?wash? trades?prearranged power deals that offset each other and involve no net change in ownership. Such trades can distort price indices by swinging the weighted average price one way or the other, which can affect contracts based on index prices. Regarding the accuracy of information provided to grid operators, FERC stood by its decree that companies could face penalty actions only if found to have knowingly supplied bad data. Those firms, however, will not be allowed to simply say that the employees charged with that responsibility were unaware of potential mistakes. ?We expect the seller to have in place processes that will assure the sufficiency and accuracy of the submitted information, regardless of who is actually responsible? for handing over the data, according to the order. Another aspect of the ruling provides that company activities carried out under the instruction of a regional transmission organization or grid system operator will not be scrutinized under the market-behavior standards. According to CAISO?s Fishman, grid emergencies or reliability concerns sometimes dictate that control area operators do things they wouldn?t normally do, such as restricting out-of-state transmission capacity or dispatching generation units in an unconventional way. FERC?s order takes this necessity into consideration, he explained. Much of the federal agency?s ruling on gas market behavior follows the language put forth in the order on electric market activity. Regarding the provision of gas trade information to index publishers, FERC would prohibit the reporting of unbundled sales transactions made between a pipeline and its affiliates. Both of the commission?s decisions will become effective 30 days after being published in the Federal Register .

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AG Sees Possible Problem in New Federal Market-Power Rules

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