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The Federal Energy Regulatory Commission said Thursday that irregularities in the routing of power in New York last year wasn't the result of market manipulation.

But regulators after a year-long investigation found the "loop flow" issue caused pricing problems for consumers in the New York power market as well as in the Midwest and PJM market, which includes the Mid-Atlantic states and parts of the Midwest and Southeast. FERC ordered the markets' operators to develop a long-term solution in the next six months.

"We did find there is a systematic pricing issue," FERC Chairman Jon Wellinghoff said during a commission meeting Thursday.

FERC began investigating pricing after the New York Independent System Operator, or NYISO, suspected that the use of circuitous transmission paths were increasing the cost of electricity for consumers. Concerns revolved around market participants scheduling power to be delivered over circuitous routes, such as around Lake Erie, instead of directly between New York and Pennsylvania or New Jersey.

The power actually moved over more direct routes, but the participants paid less by booking the less-congested transmission routes. The distortion led to higher costs for consumers since generators are compensated when transmission costs rise due to grid congestion in certain locations.

The FERC investigation found market participants were reacting to price signals in the market and weren't "artificially affecting those signals or deliberately affecting congestion in order to raise prices." The commission reviewed the trading activities of several companies, including Constellation Energy Group Inc. (CEG) and DTE Energy Inc. (DTE), according to the investigative report released Thursday.

"Market participants are not well situated to try and predict loop flow effects in real time, which are dependent on a complex interaction of ever-changing system configurations and schedules," the report said.

Instead, the report found problems with the design of New York's market, with FERC saying the pricing problem may affect consumers both negatively and positively.

FERC last fall made temporary rule changes to prevent routing irregularities. It opened its investigation amid calls by Sen. Charles Schumer, D-N.Y., for a review, saying traders were exploiting the market to make large profits at the expense of consumers.

-By Mark Peters, Dow Jones Newswires; 212-416-2457; mark.peters@dowjones.com