On April 1, 2014, FERC held a technical conference on “2013-14 Winter Operations and Market Performance in Regional Transmission Organizations and Independent System Operators.” The conference explored the impacts of recent cold weather events that led to record highs in electricity and natural gas demand and prices on Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”), as well as the actions taken in response to those impacts (see February 28, 2014 edition of the WER).
In its preliminary observations and analysis, FERC Staff reported that mechanical failures in generator systems, fuel deliverability, and fuel handling problems in the extreme cold led to forced generation outages that caused stressed conditions and higher prices. FERC staff also concluded that high electricity prices in January were mainly caused by high loads in the electricity market. FERC Staff concluded that high prices in later cold events, however, were mainly driven by historically high natural gas prices. Some ISOs/RTOs implemented emergency procedures in response to curtailment and disruption in the natural gas markets, including receiving waivers from FERC to allow generators to offer power at prices higher than the offer cap, calling for demand response, procuring additional imports, and cutting interruptible load. While some gas-fired generators use interruptible load, customers who had firm transportation generally were able to secure deliveries.
FERC Staff also responded to calls to investigate whether natural gas and electricity price spikes resulted from market manipulation or market fundamentals. FERC Staff explained that FERC’s Division of Analytics and Surveillance utilizes screens to routinely monitor market data looking for manipulative schemes, behavior that would constitute manipulation, behavior that would violate Market Rules, market anomalies, and persistence measures. Additionally, FERC Staff indicated that it receives and reviews data from the Commodity Futures Trading Commission’s Large Trader Report (see January 10, 2014 edition of the WER). After a preliminary analysis, FERC Staff concluded that natural gas spot price increases were driven by high demand, pipeline flow restrictions, covering of physical short positions, and concern for pipeline penalties. FERC Staff further concluded that power users’ inability to know gas needs within the gas trading window aggravated pricing issues.
In addition to FERC staff, other participants were allowed to present, including natural gas producers, pipelines, utilities, and state utility commissioners. Presenters from the private sector emphasized that gas procurement issues had an impact on system operations and price because of the lack of transparency and information sharing in secondary markets. Panelists also discussed whether implementation of an information trading platform for natural gas, similar to RTO trading platforms, could be a viable solution to insufficient coordination between interstate pipelines and RTOs/ISOs. While Commissioner John Norris argued that a centralized platform would not solve short-term problems, he suggested that it deserved discussion.
FERC Staff indicated that its analysis of market data is still ongoing. A presentation of Staff’s preliminary observations and analysis is available here.