FERC investigating market behavior during last year’s arctic plunge

Source: Hannah Northey, E&E reporter • Posted: Friday, October 17, 2014

Federal regulators today revealed that they have launched three nonpublic investigations into “discrete market participant actions” that may have been at play when extreme, subfreezing temperatures seized the Northeast during last winter’s polar vortex siege.

The Federal Energy Regulatory Commission’s Office of Enforcement said it had found no proof of “widespread or sustained market manipulation” when a blast of arctic air hit the United States in January, the coldest in 17 years, producing record demands for electricity and natural gas.

But FERC officials today said they had opened one case to investigate the formation of a single monthly natural gas index.

“This investigation alleges downward price manipulation in order to benefit short financial derivative positions,” FERC officials said at the agency’s monthly meeting in Washington, D.C.

Two additional probes will determine whether certain generators may have improperly benefited from the constrained conditions in the electric markets through “offer behavior” that resulted in increased uplift payments, according to FERC.

With natural gas supplies stressed and cold weather disrupting generating plant operations in January, grid operators had to make last-minute electricity purchases at high prices that were covered by special “uplift” charges to wholesale customers. FERC has raised the issue of whether these one-time side payments — which compensate some generators, but not all — mask the need for higher market prices overall that may be needed to ensure adequate generation is available in weather emergencies (EnergyWire, June 20).

FERC officials also said the investigations are “at an early stage.” Felice Richter, an analytics and surveillance chief with FERC’s enforcement division, told commissioners today that the investigations mark an end to the office’s review of the polar vortex.

Commissioners discussed potential market fixes and winter reliability programs to handle another bitter winter. The polar vortex, according to a recent report from the North American Electric Reliability Corp., took down nearly every type of equipment found on electric generating plants, forcing more than 17,700 megawatts of generating capacity to shut down at one point (EnergyWire, Oct. 1).

FERC Commissioner Philip Moeller pointed to an AccuWeather report yesterday that this winter could repeat last year’s record-shattering temperatures and high snow totals, and the Northeast will be revisited by the polar vortex.

FERC Chairwoman Cheryl LaFleur said the markets have seen a “number of improvements,” including a new winter reliability program in New England to shore up on-site fuel, but added that more work lies ahead.

“A lot of the hard work is in longer-term market changes, particularly in the capacity markets,” she said.