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Initial Decision Finds No Manipulation by Importing Capacity Suppliers in ISO-NE

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September 30, 2010

An initial decision from a FERC ALJ finds that, "[d]espite being afforded every possible opportunity to prove their case - by the Commission as well as the presiding judge - and despite being granted extraordinary latitude to secure the evidence they insisted would demonstrate that respondents manipulated the New England capacity markets in violation of FPA section 222(a) and section 1c.2 of the Commission's regulations," the Connecticut parties have failed "in the extreme" to prove their market manipulation allegations against several capacity suppliers.

The case (EL09-47 et. al.) involves a complaint from Connecticut Attorney General Richard Blumenthal who alleged that the high-priced offers from certain capacity importers were designed to avoid dispatch, and thus suppliers collected capacity payments with no intention of providing energy (Matters, 4/23/09).  Named in the complaint were Brookfield Energy Marketing Inc., Constellation Energy Commodities Group, Inc., and Shell Energy North America

Among other things, the ALJ finds that the, "[T]ariff clearly and unambiguously expresses [that]: any capacity-backed energy offer at or under the $1,000/MWh price cap was both permissible under the Tariff and consistent with it."  Each supplier's bid was under the $1,000 cap.

"The Tariff cannot legitimately be construed to have imposed an additional 'reasonable price' restriction on those offers," the ALJ said.

"Any claim that respondents' failures to offer capacity-backed energy at prices pegged to some 'reasonable' standard rather than the $1,000/MWh cap specified in the Tariff violates the Commission's 'just and reasonable' benchmark is misplaced.  Again, the claim conflates two discrete standards.  Although the FPA generally imposes a just, reasonable and not unduly discriminatory requirement on tariffs, that standard only applies to rates, terms or conditions reflected in Commission-jurisdictional tariffs; it does not apply to market manipulation," the ALJ found.  Market manipulation has a separate and distinct benchmark, the ALJ noted.

The Connecticut parties' had argued that a limit in the tariff on New York energy export bids created an obligation for suppliers to peg both their capacity-backed energy offers to ISO-New England and their corresponding New York energy export bids to prevailing NYISO energy prices.

The ALJ rejected this argument as it, "ignores fundamental distinctions between capacity and energy products, as well as capacity and energy markets."

The suppliers' "must offer" obligation applied to capacity, not energy, the ALJ affirmed.

Additionally, the suppliers' behavior, "clearly evidences legitimate business and economic objectives," and did not indicate the requisite scienter for a finding of market manipulation, the ALJ said.

   
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