The U.S. power regulator has approved an investigation into the market practices of New England electricity companies, according to federal documents published Tuesday.

The case follows allegations by Connecticut Attorney General Richard Blumenthal earlier this year that several power companies manipulated the market and the firms subsequently owed ratepayers more than $50 million.

"This investigative hearing will deliver a stunning jolt of transparency and truth to the public about gross manipulation of our power markets," Blumenthal said in a statement.

Although the Federal Energy Regulatory Commission said the attorney general had "provided little evidence in support of these allegations" of market manipulation, the federal watchdog said it would grant an investigative hearing before a FERC judge to probe the practices of generators operating within Independent System Operator New England and the power grid manager itself.

"Typically, the commission looks with disfavor on poorly supported complaints," FERC said in its order. "We are mindful, however, of the unique history of the allegations regarding the capacity importers' bidding strategy raised in the complaint, including the inconsistency in the ISO-NE's position regarding these allegations."

Firms specifically mentioned in the FERC brief include Brookfield Energy Marketing; H.Q. Energy Services, a unit of Hydro-Quebec; and Constellation Energy Commodities Group, a unit of Constellation Energy Group Inc. (CEG). The complaint also is filed against unidentified power firms.

Constellation spokesman Lawrence McDonnell said in an email that the company strongly denied the complaint, saying it was without merit and unsupported by the facts.

"Our company at all times followed both the spirit and letter of rules in both New York and New England. Our transactions were an appropriate and prudent response to market prices and market fundamentals," McDonnell said.

Companies such as NRG Energy Inc. (NRG), Entergy Corp. (ETR), Dominion Resources Inc. (D) and Public Service Enterprise Group Inc. (PEG) also operate within the New England ISO.

According to Blumenthal's office, a number of generators were paid to provide power during peak demand periods, but on scores of occasions between 2006 and 2009, failed to supply electricity as requested.

In a FERC document, one of the companies responding to the attorney general's complaints, Brookfield Energy Marketing, said the complaints "are based on a fundamental misunderstanding of how the markets operate."

Since the original complaint, the New England ISO retracted its initial statements that power bid into the markets wasn't delivered, later saying that the requests for power hadn't been made.

"They confuse the bidding and scheduling of underlying capacity resources" in the system, Brookfield stated in the FERC document.

Although the Connecticut attorney general had applied for FERC to review the market rules governing the New England ISO, the commission said a similar request was already pending before the agency and would be dealt with under that docket.

-By Ian Talley, Dow Jones Newswires; 202-862-9285; ian.talley@dowjones.com