Energy Regulators Going High-Tech

Often criticized as the sleeping watchdog of the nation’s power markets, the Federal Energy Regulatory Commission on Thursday unveiled a high-tech war room where regulators can now track energy prices around the country in real time.

“We’ve been fairly blind,” acknowledged FERC Chairman Curtis L. Hebert Jr., describing an agency that previously depended on industry and the trade press for information, often days and weeks late. “In the best case we were getting information 24 hours after it happened. Now we’ll get it immediately.”

Hebert said the agency’s new capability “could have allowed FERC to step in earlier than we did in California.” A major criticism of FERC’s role in California’s energy crisis is that the agency took too long to intervene. Indeed, not until last month did FERC forcefully limit wholesale electricity prices.

FERC’s new Market Observation Resource Center has eight computer workstations--each with three flat-panel screens--that process information on electricity and gas sales, power plant outages, electric grid and gas pipeline congestion, sophisticated weather forecasts, and market reports. Data can also be displayed on two 4-by-5-foot wall-mounted screens.

The agency spent about $610,000 on the equipment, which is comparable, albeit on a much smaller scale, to the technology utilized by energy traders. But FERC will have to convince skeptics on all sides that it knows how to use its gee-whiz gear.

“It takes a lot more to monitor a market than a few computers,” said Mark Cooper of the Consumer Federation of America. “There’s a fundamental mismatch between the regulators and the merchants. The guys who have the most to gain by beating the market are going to invest whatever they have to to win. You’ll never keep up with them.”

Richard Tabors, an MIT economist who often consults for the industry, agreed that the regulators face a steep learning curve.

“I think this is a good experiment,” Tabors said. But “there may be serious questions as to how much benefit it will provide. For someone who isn’t actively trading, watching the screen is going to have about the same level of interest as watching the grass grow. A trader is watching the screens because he is making money. A regulator is watching because someone told him he had to.”

Nonetheless, FERC officials said that in the two weeks their new hardware has been running, they have already used it to respond to potential problems.

Scott Miller, who heads the agency’s market monitoring division, said the regulators noticed one day last week that electricity prices in New England briefly spiked up to $700 per megawatt-hour. They quickly got on the phone to the New England grid operator.

“They were a little surprised to be getting a call from FERC,” Miller said. “They said, ‘Gee, you guys really are watching us.’ ” The problem in New England was traced to a software glitch. Daniel Larcamp, who is Miller’s boss, said FERC officials traveled to Texas to tour the trading floors of major energy companies before setting up their war room. They also consulted with other federal agencies that monitor the rough and tumble of markets, such as the Securities and Exchange Commission.

“This is not a trading floor,” Larcamp said. “It’s a necessary first step . . . a platform upon which the commission’s actions will be built going forward.” Larcamp said the room would be staffed daily, particularly as the peak power consumption hours roll across the country.

Hebert said that the idea was first broached late last year, and that he budgeted $750,000 for the new technology upon becoming chairman in the new Bush administration. Real-time information is considered an essential commodity in the rest of the wired world, but Hebert said FERC was still operating under a paper-pushing mentality that had its roots in the 1930s.

“This will allow us to identify problems and problem areas in real time, instead of reading about it the next day in the trade press,” he said. It will affect policy decisions by cutting down FERC’s reaction time and by giving regulators an open window on the effects of agency decisions upon the markets.

“We could not have solved California’s problem with what we have in this room,” Hebert added, saying that the power crisis had its roots in a lack of supply and a dysfunctional market design. “What we can do is see the market . . . ; we can communicate with the people. What this does is bubble stuff up to us earlier.”

But it takes more than observation to sort out the riddles of power markets, experts say. It also takes sound analysis. For example, FERC knew about 1998 price spikes that are now widely seen as a harbinger of California’s woes. At the time, senior FERC officials dismissed suggestions that the price spikes pointed to a wider problem.

“This is a dollar short and a day late for California,” Cooper said.

Tabors said FERC’s regulators will have to develop a sophisticated eye to understand what they are seeing on their monitors.

“You really have to know what you are looking at to interpret the information coming across the screen. Something unusual you are going to pick up. But you are not going to pick up the more subtle changes. Prices are affected by forecasts, by rumors . . . something happens today and it may affect the two-week price. A lot of this takes time for people to learn.”