From the train wreck files... the pieces of information you try to drive by without looking closely, but inevitably you turn around and drive by again for another look:

An article on Risk.net entitled Power trading firm blasts Ferc over manipulation probe tells an interesting tale.
In an unorthodox move, a little-known power trading firm has disclosed that it is under investigation by the US Federal Energy Regulatory Commission (Ferc) for market manipulation, mounting a vigorous public defence of its activities and arguing that Ferc has overreached in going after its trader.
The company has put together a website with a bunch of case documents I don't have time or inclination to read, videos, and opinions that support its position that it's being picked on by FERC.

The Risk article describes the issue this way:
Chen's trades made use of an obscure type of PJM transaction called 'up-to-congestion' (UTC) trades, which involve the scheduling of electricity flows across the border between PJM and one of its neighbouring wholesale power markets, such as the one operated by the Midcontinent Independent System Operator (Miso). When carrying out a UTC trade, a market participant can specify the maximum level of congestion costs that he or she is willing to pay to move power across a particular path. For instance, if the threshold of the UTC trade is set at $50 per megawatt-hour (/MWh), then PJM will schedule the flow, as long as the congestion cost between the two specified nodes stays below $50/MWh. If the cost of congestion along that path rises above that level, the trade gets knocked out and no electricity flow is scheduled.

Powhatan – like other financial trading firms operating in US power markets – trades only 'virtual' power. In other words, whenever it schedules any electricity flows in the day-ahead market, it cancels them out in the real-time market, so no physical power actually flows. Such traders essentially act as arbitrageurs between the day-ahead and real-time power market.

Chen's trading strategy involved pairs of UTC trades, with two legs that ran in opposite directions along the same path — for instance, from the Miso border to a node in PJM, and back from that node to the Miso border. According to the documents posted on FercLitigation.com, Chen discovered a profitable trading strategy in which he could enter such paired UTC transactions and then collect money from transmission loss credits (TLCs) – a type of rebate payment that PJM makes to market participants that use its transmission lines. Until September 2010, when PJM implemented its rule change, it was possible for virtual traders such as Powhatan to collect TLCs from UTC transactions, even though they were not actually sending physical power through the grid.
The article notes that FERC approved an after-the-fact change to PJM's market rules to prevent further use of this trading strategy.

Our friends at RTO Insider also have an article about this issue that provides more information and made me think that FERC might be behaving like a bully.  But, I'm still having a hard time mustering up any real, personal sympathy for anybody involved in this case.  It just doesn't tug my heart strings like senior citizens who can't pay their outrageous electric bill because there's so much nonsense added to the actual cost of service.  Call me jaded.

So, is this the kind of aggressive FERC we would see under the leadership of Norman Bay, who was nominated for the Chairman position in January, after the big green failure of the Binz nomination late last year?

Bay will have to go through the same confirmation process that raked Binz over the coals, and no stone will be left unturned to pick him apart before the Senate Energy Committee.

Meanwhile, I think I'll go organize my record collection.

 


Comments

Rhetorical Questioner
03/05/2014 12:35pm

"Is FERC a bully?"

Is this an example of a rhetorical question? That is, one where you already know the answer ...?

Reply
Keryn
03/05/2014 1:13pm

?

Individual results may vary.

Reply
Kevin
03/14/2014 8:14pm

Ah, come on! You didn't even watch our videos?!? We made them so that the information would be easy to consume. At least watch "the overview" video on the homepage of http://ferclitigation.com/. It's only 7.5 minutes long and is pretty good, in my humble opinion.

Reply
Keryn
03/14/2014 8:31pm

Okay, Kevin, I will watch the video. But when I saw how extensive your website was, I had to use the avoidance tactic to prevent getting sucked in. I really should be doing other things right now. If that video is like eating one M&M, I'm going to blame you for not getting these evaluations done tonight...

Reply
Kevin
03/14/2014 8:44pm

Better than M&Ms -- no calories, educational and makes the world a better place. : )

Keryn
03/14/2014 11:00pm

Yes, it's a good video, folks. Watch it and tell us what you think about it! (And then you're going to want to watch another, and another, and then read some things...)

Reply
Kevin
07/08/2014 7:39am

Read this and let me know if you can muster any sympathy for Alan. http://m.nationalreview.com/article/380706/tale-immigrant-and-federal-energy-regulatory-commission-amity-shlaes

Reply



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