Proposed rule by Texas PUC seeks to rein in generators in wholesale market

POWER - 03/03/2004

Texas generators of all sizes are reviewing a new--and, to some, controversial--Public Utility Commission of Texas rule designed to prevent manipulation of the state's wholesale electricity market.

The rule on "the oversight of market participants," which has been under development since the summer of 2002 and which becomes effective on Feb. 29, is being criticized both for going too far in restricting the activities of generators and marketers, and for failing to adequately address what a few market participants have seen as regular market "gaming" by the biggest players.

The rule, which is available at the PUCT's Website, www.puc.state.tx.us, under Case No. 26201, lists seven "prohibited activities," including creating artificial transmission congestion; executing prearranged offsetting or "wash" trades; and colluding with other market participants "to manipulate the price or supply of power, allocate territories, customers or products, or otherwise unlawfully restrain competition." The rule also prohibits market participants from offering "reliability products to the market that cannot or will not be provided if selected," conducting trades that "result in a misrepresentation of the financial condition of the organization," engaging in "fraudulent behavior related to its participation in the wholesale market," and engaging in "market abuse" through economic or physical withholding of power.

The PUCT said the rule also identifies the role of the Electric Reliability Council of Texas in enforcing operating standards and establishes a PUCT process for an expedited informal review of market participant activities. The commission acknowledged in the 214-page order adopting the rule that, during the measure's development over the past year and a half, stakeholders disagreed strongly about how far the rule should go, and about whether it was necessary, or even legal. But it defended its action. "Recent experience in Texas and other states has shown that during the transition to competition, the developing wholesale and retail markets can be subject to practices by market participants that serve the private interests of the participants at the expense of the public interest," the order said.

"These practices have resulted in unjustified increased prices to customers and market participants, reduced reliability of the electric power grid, and ultimately threaten the implementation of a successful competitive electric market." The rule is being criticized for not going far enough by Michael Shirley, president and chief executive officer at Texas Commercial Energy, an Allen-based electricity retailer that claims it was forced into bankruptcy after big generators like TXU Energy allegedly forced up "balancing-energy" prices last February.

Shirley said that while the rule is "a step in the right direction...it isn't in black and white, it's in shades of gray." He added that he does not believe the rule will resolve any of the market-abuse allegations that the company has raised in its ongoing federal lawsuit against a long list of Texas market participants, including big generators TXU Energy and American Electric Power, and ERCOT itself.

TCE on Feb. 3 filed an amended complaint at the U.S. District Court in Corpus Christi that the company said "the documents detail specific examples of manipulation abuses employed by the defendants, including physical withholding of electric generation; anticompetitive energy and capacity bids; and manipulation of energy schedules." The defendants have denied the allegations.

Reprinted from:

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