The Federal Energy Regulatory Commission (FERC) in a July order endorsed its enforcement staff's report that rejected allegations of the market monitor for the New York Independent System Operator Inc. (NYISO) that certain "circuitous" wholesale electric energy trades over eight paths in the Northeast and Mid-Atlantic beginning in 2008 amounted to market manipulation or violations of the traders' wholesale power tariffs.The NYISO monitor and others had complained that the trades at issue congested the power grid around Lake Erie (attributable in part to a physical phenomenon known as loop flow) resulting in higher costs to power consumers. FERC's order and the staff report addressing these Lake Erie trades are noteworthy in their articulation of what distinguishes unlawful manipulation from transactions that respond rationally to the price signals from badly designed energy markets. As energy markets expand geographically and the volume of physical and financial trading in energy products grows, this distinction is likely to prove increasingly important to the efficient design of market structures and rules.
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