On July 16, 2009, the Commission adopted staff’s conclusion that there were no deceptive or fraudulent actions taken by market participants when they placed circuitous power delivery schedules around the Lake Erie region in 2008. While the Commission did not find any market manipulation that directly led to the Lake Erie “loop flow” issues, it did order market operators in New York and surrounding regions to find long-term, comprehensive solutions to the problem and submit those solutions to the Commission within six months.

Beginning in spring 2008, speculation grew that market participants were increasing their transactions over indirect paths around Lake Erie in order to take advantage of the different pricing policies of the four RTOs surrounding the lake. The transactions were scheduled to exit the New York Independent System Operator, Inc.’s (“NYISO”) transmission paths, flow through the Electricity System Operator of Ontario, into the Midwest Independent Transmission System Operator, Inc. (“MISO”), and eventually end up in the territory of PJM Interconnection, L.L.C. (“PJM”).

Despite the scheduled paths, NYISO claimed that nearly 80 percent of the power simply flowed over NYISO and PJM’s common border. The resulting discrepancies between scheduled and actual flow paths increased congestion and uplift costs while causing market distortions. As a result, the Commission’s Office of Enforcement initiated a non-public investigation into the suspicious power flows in May 2008. The Commission also accepted NYISO’s interim tariff revisions to terminate scheduling on the paths under investigation (see November 14, 2008 edition of the WER).

The Office of Enforcement’s investigation concluded that the market participants were simply responding to price signals when they placed their circuitous power delivery schedules. The participants had not previously been warned to avoid the creation of the loop flow or told that clockwise loop flow would result from their schedules. Additionally, loop flow historically had been predominately counterclockwise and had harmed PJM and MISO but benefited NYISO by decreasing its congestion. The Office of Enforcement went on to find that these actions were not used to artificially affect market signals or increase congestion or prices. As a result, the market participants did not engage in any market manipulation or violate any tariff provisions.

While the Commission accepted the Office of Enforcement’s conclusion and ruled that no market manipulation had taken place, it still noted the persistent problems caused by the Lake Erie loop flow. The Commission asked NYISO and neighboring RTOs to develop long-term solutions to these issues expeditiously and collaboratively while focusing on interface pricing and congestion management. A copy of the Commission’s order is available at: http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=12083287.