Bulk power market under investigation

The US Federal Energy Regulatory Commission Wednesday ordered an investigation of the wholesale power markets to investigate the causes of electric price volatility. The FERC investigation comes on the heels of a similar investigation just launched by the US Department of Justice of the New England Independent System Operator (ISO). The New England ISO received a request for information about the installed capability market in that area on July 20.

Jul 26th, 2000


The US Federal Energy Regulatory Commission Wednesday ordered an investigation of the wholesale power markets to investigate the causes of electric price volatility.

The commission staff will investigate the markets and report findings by Nov. 1, 2000.

The FERC investigation comes on the heels of a similar investigation just launched by the US Department of Justice of the New England Independent System Operator (ISO). The New England ISO received a request for information about the installed capability market in that area on July 20.

In today�s FERC meeting, the commission noted the bulk power markets are in different stages of transition to competition in various parts of the country and that some areas have experienced extreme price fluctuations.

Regulators mandated staff to find out if any technical or operational factors, federal or state regulatory rules, or market behavior rules are affecting the competitive pricing of electricity or reliability.

�What we are seeing is a rational response by regulators for the significant concerns as to whether there is unlawful manipulation of the markets,� says Gerald Keenan, energy strategy partner at PricewaterhouseCoopers, Chicago.

Commission Chairman James J. Hoecker said, �It is the commission�s responsibility to identify and help solve problems that delay or deter fair competition and good economic decisions. Today we have decided to focus on the pricing and other market abnormalities that sometimes occur in this transitional environment.�

Keenan points out that where there is a free market, however, the players will be interested in maximizing profits.

�When the companies that auctioned or sold off those portfolios of generating plants and received such huge sums, everyone cheered,� he says. �The owners have to get that money back sometime.�

The volatility is experienced during times of high demand mostly in the late afternoons in the summer.

That�s only about 5% of the total hours of electricity sold, he says. For most of the year, the market is very efficient with lower prices. It is only volatile at the peak, he says.

FERC will use the results of the investigation to:

� Analyze filings involving market pricing or rules.

� Modify existing transmission or power exchange tariffs or agreements.

� Help analyze Order 2000 regional transmission organization (RTO) filings that are due October 15. The order calls for the formation of large regional entities designed to manage the movement of electricity efficiently and fairly.

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