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The Role of Regulators in Liberalized Energy Markets

The Role of Regulators in Liberalized Energy Markets. William F. Hederman, Director Office of Market Oversight and Investigations Federal Energy Regulatory Commission. Presented to: Euro Gas/IEA Conference Paris, France 13 June 2005. WH-5-3-05. Outline. Commission Strategy OMOI Processes

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The Role of Regulators in Liberalized Energy Markets

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  1. The Role of Regulators in Liberalized Energy Markets William F. Hederman, DirectorOffice of Market Oversight and Investigations Federal Energy Regulatory Commission Presented to:Euro Gas/IEA ConferenceParis, France13 June 2005 WH-5-3-05

  2. Outline • Commission Strategy • OMOI Processes • Case Studies • Conclusion (Opinions expressed are Hederman’s, not those of the Federal Energy Regulatory Commission.)

  3. FERC has a 3-prong strategy. Infrastructure Effective Rules Strategic Approach Rules Competitive Markets Just & Reasonable Outcomes Enforcement/Oversight

  4. OMOI has 3 essential processes to “Trust and Verify”. • Professionally skeptical • Diverse (private/public sectors, disciplines) • Highly skilled • Team-oriented C O u t s I d e O F E R C I

  5. We are working to empower responsible participants.

  6. Monitors have addressed several important natural gas anomalies • Weekend “price blip” (NY) • Cold snap (New England) • EIA storage reporting error • North Atlantic LNG diversion

  7. OMOI’s enforcement arm has pursued several natural gas matters. • Inter-company storage data sharing • Affiliate abuse • Standards of Conduct compliance

  8. OMOI’s helped re-establish natural gas price integrity. • Wash trading • False reporting cases • Withdrawal from voluntary reporting • FERC technical conference • Industry coalition formation • Reformed practices • At price publishes • At reporting companies/“Safe Harbor” signals • Recovery

  9. FERC has learned several lessons through OMOI. • Knowledge is critical. -- Regulators: market/business/regulation -- Participants: price indices/storage data/"the Rules" • Cooperation is helpful. -- Companies with FERC -- FERC with -- other feds -- states -- MMUs and other regional players • Change is difficult.

  10. Lessons (continued) • Market monitoring is far more challenging than traditional utility regulation. • Natural Gas market restructuring provided massive benefits to U.S. gas customers. • The excess natural gas production capacity from the difficult restructuring transition has only recently disappeared.

  11. Market Integrity is Everyone’s Business FERC Hotline: 1-888-889-8030

  12. Attachments • Enron values statement • Market complexity

  13. It’s easy to talk the talk. Our Values RESPECT: We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness, and arrogance don’t belong here. INTEGRITY: We work with customers and prospects openly, honestly, and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won’t do it. COMMUNICATION: We have an obligation to communicate. Here, we take the time to talk with one another … and to listen. We believe that information is meant to move and that information moves people. EXCELLENCE: We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be.

  14. The relevant markets and jurisdictions are complex. Natural Gas & Electric Market Space Nat Gas & Electric Derivatives Nat Gas & Electric Clearing Trading Venues Futures (NYMEX) Electronic Platforms Physical Nat Gas Phys Electric Power Voice Brokers Bilateral Trading RTO’s & ISO’s Generation Gas Supply Players Transmission & Pumped Storage Pipelines & Storage • Price Contributors • Fixed price • buyers & sellers • Speculators Price Takers -Indexed price buyers & sellers Delivered Market Delivered Market Gas to fuel power generation Source: FERC-OMTR&OMOI

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