|A recent winter in New England: cold ocean, cold snow. Must high energy prices follow?|
The 2013 - 2014 winter season brought prolonged and unusually cold weather events in much of the United States. While the nation's major electric grids were generally able to maintain reliable operation, prices for natural gas and electricity spiked to unprecedented levels. Bottlenecks on interstate natural gas pipelines limited the amount of gas flowing into regions like the Northeast, while demand for gas for heating and electric power generation increased beyond the constrained pipelines' capacity. This imbalance of supply and demand for gas led to extremely high prices for gas as well as for electricity, because the price of natural gas often sets the price for power. Compounding the problem, some generators could not buy enough gas to operate, while others experienced outages due to equipment failure and frozen coal piles. In some regions, generators amounting to 30 percent of electric load faced forced outages.
As an immediate response, the Federal Energy Regulatory Commission took actions including changes to rules in the PJM, New York ISO and California ISO electricity markets, the Commission's first use of its emergency powers under the Interstate Commerce Act to direct Enterprise TE Products Pipeline to temporarily provide priority treatment to certain propane shipments, and approving a Winter Reliability Program in the ISO New England region.
According to a recently released report by the staff of the Federal Energy Regulatory Commission, the FERC Office of Enforcement also launched investigations into whether market participant behavior influenced regulated energy prices. In addition to the Commission's enforcement arm's regular surveillance of natural gas and electric markets for market manipulation and other improper conduct, the past winter's extreme price spikes prompted a closer look by the Office of Enforcement to determine if market manipulation was behind the historically high natural gas and electric prices.
On October 16, FERC’s enforcement staff reported that it found "no evidence of widespread or sustained market manipulation." Enforcement staff said it reached its conclusions after an extensive review and data analysis related to gas trading behavior, allegations received through the FERC hotline, generator offer behavior and outage behavior.
However, enforcement staff reported that three non-public investigations remain pending. At stake is whether any market participant was involved with the formation of a single monthly natural gas index to benefit its financial derivative positions, as well as whether certain generators improperly took advantage of constrained conditions in the electric markets by bidding in a way that increased their uplift payments.
Expect these enforcement investigations to continue, either to an informal resolution or a public enforcement process. With former Office of Enforcement head Norman Bay as the newest FERC Commissioner, FERC's enforcement arm appears to be growing in influence. Meanwhile, the coming winter may yet again test the nation's electricity and natural gas infrastructure. What will the 2014 - 2015 winter hold, in terms of energy reliability, pricing, and enforcement actions?