Before the
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
San Diego Gas & Electric Company,
Complainant,
Docket No. EL00-95-045
v.
Sellers of Energy and Ancillary Services
Into Markets Operated by the California
Independent System Operator and the
California Power Exchange,
Respondents.
Investigation of Practices of the California
Docket No. EL00-98-042
Independent System Operator and the
California Power Exchange
NOTICE REQUESTING COMMENT ON
METHOD FOR DETERMINING NATURAL GAS PRICES
FOR PURPOSES OF CALCULATING REFUNDS
CARE’S PRELIMINARY COMMENTS ON THE METHOD FOR DETERMINING
NATURAL GAS PRICES FOR PURPOSES OF CALCULATING REFUNDS AND
REQUEST FOR CONSIDERATION OF CARE’S MOTION TO REOPEN THE
REFUND HEARING RECORDS FOR EVIDENCE OF “INAPPROPRIATE OR
FRAUDULENT PRACTICES”
Introduction
The California refund proceeding employs a rate formula for
calculating the MMCP (and resulting refunds) that relies on published
natural gas spot prices in California or at the California border (California
delivery points).
Because of Commission Staff’s August 13, 2002 Report in dockets PA022, & EL00-95-045. CARE contends that the Refunds determined in this case are
no longer legally based on whether or not the MMCP meets a “just and
reasonable” standard, but now, due to the presence of “inappropriate or
fraudulent practices”, whether or not the MMCP is in the “public interest”. CARE
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therefore, requests consideration of CARE’s motion to reopen the refund hearing
records for evidence of “inappropriate or fraudulent practices”.
Staff’s Position
In its August 13, 2002 report, Commission Staff concluded, among other
things, that historically, the spot prices for natural gas at the California delivery
points highly correlate with prices at producing basins and Henry Hub. During
the months of October 2000 to July 2001 -the refund period in the California
refund proceeding – staff found the correlation was abnormally low. Since that
time, staff found the high correlation has resumed. Given this abnormal
correlation for this isolated period, Staff attempted to independently verify the
price data. Staff concluded that the data cannot be independently verified by the
Commission to assure that they are statistically valid, reliable and free from the
effects of price manipulation. Staff has therefore concluded that the reported
prices are not appropriate for the Commission to use in computing the MMCP in
the California refund proceedings. Staff indicates that, while there may be other
alternatives, it examined two substitute gas mechanisms in detail and has
recommended that the Commission use a substitute based on the spot price for
natural gas in certain production basins plus the regulated cost of transportation.
An uplift would be permitted for unaffiliated gas costs that exceed the input used
for MMCP. This uplift will also capture some measure of scarcity.
In light of Staff's conclusions on the cost of natural gas for purposes of
determining refunds, and the extent to which implementation of these
conclusions could affect the amount of refunds ultimately required in this
proceeding, the Commission made findings on August 13, 2002 that it is
appropriate to allow comment by parties on this issue before the Commission
takes further action. Specifically, seeking comments on whether the Commission
should change the method that is used to determine the cost of natural gas for
purposes of calculating refunds in this proceeding, and, if so, what method
should be used. Is Staff's recommended substitute method appropriate? If not,
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what method should be used instead? And, what is an appropriate way to
account for scarcity?
CARE position and the nexus with “inappropriate or fraudulent practices”
New information made available by the Commission Staff in its August 13,
2002 Report on Potential Manipulation of Short-Term Electric and Natural Gas
Prices in the West, compels CARE to utilize such, to establish good cause, to
seek a motion to reopen the refund hearing records for evidence of
“inappropriate or fraudulent practices” which where specifically identified in the
Commission Staff’s August 13, 2002 Report. This report finds that such
“inappropriate or fraudulent practices” have a direct effect on the purported
Mitigated Market Clearing Price (MMCP) identified as issue (1) in the
proceedings in docket EL00-95-045. CARE contends the failure to include this
vital, and timely information, which is already part of the administrative record, in
this case, in the deliberations under hearing, makes such hearings a farce.
CARE contends what has actual occurred in these so-called “public hearings” is
to perpetrate a fraud on the public, that there now exists a legal and evidentiary
basis for inducing the public’s reliance on implied and express claims and
assurances that all the evidence was properly considered necessary to assure
true and full disclosure of the facts in this case, when the facts in this
proceeding’s Administrative Records evince the failure to do so.
On August 2, 2002 the FERC Administrative Law Judge Birchman issued
an order denying CARE’s request to reopen the evidentiary hearing records and
request to sponsor witness testimony and evidence at the August hearing on
mmcp issues that is said to concern alleged inappropriate or fraudulent practices,
as part of the August 19th to August 23rd hearings to be located in San Francisco
California (August 2, 2002 Order at 1).
On July 29, 2002, CARE filed a motion for reconsideration of my
Order issued on July 23, 2002. The July 23 Order granted its
motion filed on July 19, 2002 for inclusion on the restricted service
list and denied the request to sponsor witness testimony and
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evidence at the August hearing on mmcp issues that is said to
concern alleged inappropriate or fraudulent practices. My July
23 Order noted that I had adopted a Restricted Service list on
August 31, 2001, that my rulings of record prior to the August 31,
2001, Order established procedures for inclusion on a Restricted
Service List, and that CARE had not complied with those
procedures and had not filed a motion seeking inclusion on the
Restricted Service list prior to July 29, 2002. My July 23 Order also
explained why the evidence which CARE denominated as mmcp
evidence was beyond the scope of the issues set for hearing,
including the mmcp issues set for hearing which have been
adjudicated under the governing trial schedule.
This Order was in response to CARE’s July 29, 2002, motion for reconsideration,
before the ALJ. CARE identified it’s prior October 24, 2001 filings on the mmcp in
our July 29, 2002 Motion at page 9.
On October 24, 2001 (FERC Submittal 20011024-5001) we filed,
CARE’s [Californians], Case Against Independent Energy
Producers Association (“IEPA”), and California Parties including
evidence of violations of law and requests for appropriate relief.
This is where we first raised our assertions regarding “inappropriate
or fraudulent practices” purportedly “not before [you], which are not
among the issues set for hearing”(July 23, 2002 Order at 8). Are
our assertions of “inappropriate or fraudulent practices” not before
you because it was not raised timely, because you never
deliberated on it, or because the “inappropriate or fraudulent
practices” sited should have no relevance or bearing on the MMCP
issues? We have consistently maintained our position that any
transaction subsequent to exercise of market power have a direct
bearing on the MMCP and any refunds owed to California are
required to be based on the difference between the price charged
and the cost of production, not the FERC’s “so-called” Mitigated
Market Clearing Price (MMCP), because FERC’s issuance of
market-based rate authority to all market participation are
conditioned on market participants’ agreements not to exercise
market power1.
CARE has repeatedly raised the issue of the legality of spot-market and
forward market transactions, which we contend have been contaminated by
fraud. Figure 1 of PG&E’s market sales provides empirical evidence that its
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market sales in the PX’s day-ahead markets had also been contaminated by
fraudulent market practices prior to the refund effective period under hearing.
This is a significant oversight that needs to be included here and in the ISO’s
proposed Market Design proposed in docket ER02-1656. As currently proposed
ER02-1656 is predicated on the assumption that sales into the new Day-Ahead
markets will be disinfected from market power abuse and manipulation. How can
such presumption be made, when P.G.&E. made 80% of its excess profit from its
power sales for twelve months in the Day-Ahead markets, and no mitigation or
refunds have been considered or proposed? Since, this was deemed outside the
scope of the August hearings by the ALJ, neither this empirical evidence nor our
October 24, 2001 Motion to establish a May 22, 2000 through June 19, 2001
refund effective date (FERC Submittal 20011024-5001) was allowed to be
litigated. The ALJ failed to even discuss the fact that based on the August 13,
2002 Staff Report on Potential Manipulation of Short-Term Electric and Natural
Gas Prices in the West, that the time period of January 1st, 2000 through April 1st,
2000 is the appropriate time interval to determine the appropriate pre-
mitigation data to use as a baseline for applying the Mitigated Market
Clearing Prices (MMCPs) litigated as Issue (1) in this proceeding in order
to calculate refunds.
The data from Figure 1 is derived by manually2 transposing hard
copy data provided by P.G.&E. under docket EL02-71 covering its sales
into three distinct energy markets. These are the Real-Time Market (or
Spot Market), Real-Time and Hour Ahead markets, or Day-Ahead
(Forward Market).
1
Pursuant to the FERC regulations and Orders approving power marketer’s market-based rates “the
Commission allows sales at market-based rates if the seller (and each of affiliates) does not have, or has
adequately mitigated, market power in generation and transmission and cannot erect barriers to entry.”
2
CARE wishes to acknowledge the work of its UCSC interns for spending approximately 40 hours
transcribing hard copy data to MS Excel. CARE will provide this Excel format data via e-mail by request.
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ISO Real Time Energy data covers the period 1/1/00 through
12/31/01, with a Mean Real Time Price of $31.43/MWh during the time
interval 1/1/00 through 4/1/00. Utilizing this as the baseline Mitigated
Market Clearing Price for the Utility’s sales in the spot market, P.G.&E.
made a miniscule $54,261,339 excess profit on its spot market sales
reported in the time interval 1/1/00 through 12/31/01.
ISO Real Time and Hour Ahead energy sales data covers the period
1/1/00 through 12/31/01, with a Mean Real Time and Hour Ahead price of
$32.36/MWh during the time interval 1/1/00 through 4/1/00. Utilizing this as the
baseline Mitigated Market Clearing Price for the Utility’s sales in the Real Time
and Hour Ahead markets, P.G.&E. made $807,101,088 excess profit on its a
Real Time and Hour Ahead sales reported in the time interval 1/1/00 through
12/31/01.
PX Day Ahead Energy data covers the period 1/1/00 through 12/27/00,
with a Mean Day Ahead Price of $30.08/MWh during the time interval 1/1/00
through 4/1/00. Utilizing this as the baseline Mitigated Market Clearing Price for
the Utility’s sales in the Day Ahead market, P.G.&E. made an astronomical
$3,967,597,716 excess profit on its PX Day Ahead market sales reported in the
time interval 1/1/00 through 12/27/00.
Starting around May 22, 2000, the wholesale price of electricity
dramatically increased in comparison to previous years and was far above the
cost of producing electricity. Generators, marketers, their brokers, and the IOUs
were able to charge these unreasonably high prices because of increased
demand and tight electricity supply contrived by these same parties in concert
with the producer controlled California Independent System Operator (ISO)
board, through the with holding of generation, round-trip trading, and other
fraudulent market practices. This is the time period that CARE alleges fraudulent
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PG&E Daily Energy Sales for Real Time, Real Time & Hour Ahead, and Day Ahead Markets
$120,000,000
$110,000,000
Total Daily Energy Sales ($)
$100,000,000
$90,000,000
$80,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
Real Time Energy Sales
1/1/00-4/1/00 Mean Price=$31.42637
Excess Profit=$54,261,339
Real Time & Hour Ahead Energy Sales
1/1/00-4/1/00 Mean Price=$32.36396
Excess Profit=$807,101,088
Day Ahead Energy Sales
1/1/00-4/1/00 Mean Price=$30.08143
Excess Profit=$3,967,597,716
$87,638,892
$85,642,305
$82,749,968
$80,298,629
$79,504,124
$72,425,808
$57,298,978
$50,586,620
$48,872,984
$42,913,377
$37,803,140
$33,480,990
$32,838,090
$26,197,391
$20,000,000
$10,000,000
$9,179,033
$7,407,261
$6,852,289
$2,526,337
$1,977,054
$5,503,002
$0
08/28/1999 12/06/1999 03/15/2000 06/23/2000 10/01/2000 01/09/2001 04/19/2001 07/28/2001 11/05/2001 02/13/2002
Delivery Date
Figure 1 P.G.&E. ISO Real Time, ISO Real Time & Hour Ahead, and PX Day Ahead Energy Market Sales
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market transactions first took place that contaminated subsequent market-based
transactions by involved Generators, marketers, their brokers, and the IOUs,
which where contrived by these parties in concert with the producer controlled
ISO board. CARE provides the graph of IOU PG&E’s market –based sales into
the PX Day-ahead, ISO Real Time, and Real Time and Hour Ahead Energy
Markets. PG&E made forty million dollars in windfall profit on May 23, 2000 in its
Day-ahead Market Sales into the PX, with a normal load sales price of about four
million dollars per day (or $30.08/MWh) as the price for all the power sold in the
PX day ahead market by PG&E.
On June 13,14, & 15, 2000 PG&E made fifty five million, seventy million,
and fifty three million excess profits respectively. This is the time period that
CARE, in our FERC complaint in docket EL01-2, alleges fraudulent market
transactions took place that contaminated subsequent market-based transactions
by involved Generators, marketers, their brokers, and the IOUs which where
contrived by these parties in concert with the producer controlled ISO board, to
create a blackout in the San Francisco bay area contrived through the with
holding of generation capacity, round-trip trading, and other fraudulent market
practices.
June 22, 23, & 24 witnessed a sharp price spike as a result of
manipulation by El Paso Gas, who followed suit with generators by constraining
capacity to raise the price of natural gas. PG&E made eighty two million on the
22nd, seventy-eight million on the23rd, and sixty-eight million on the 24th profits
respectively in the PX Day-ahead markets. Did the spot prices for natural gas at
the California delivery points correlate with prices at producing basins and Henry
Hub for the time interval May 22, 2000 through October 2000?Is this the
appropriate time interval for determining the appropriate pre-mitigation data to
use as a baseline for applying the Mitigated Market Clearing Prices (MMCPs)
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litigated as Issue 1 in this proceeding in order to calculate refunds? Can Staff
conclude or certify that the data for the time interval May 22, 2000 through
October 2000 can be independently verified by the Commission to assure that
they are statistically valid, reliable and free from the effects of price
manipulation?
PG&E made eighty three million dollars profits on its Day-ahead market
sales on December 12, 2000. Wholesale electricity prices soared, peaking at
$1400 per megawatt hour on December 14th 2000, apparently because sellers
had inside information prior to FERC’s December 15, 2000 Order implementing
the so-called “soft” price cap. The utilities filed emergency motions with the
California Public Utilities Commission to modify Rate Stabilization Plans (RSPs)
to provide for 30 percent rate increases on December 14, 2000.
FERC issued an order on December 15, 2000 requiring the dissolution of
the producer controlled ISO board effective January 29, 2001. The December 15,
2000 Order allowed the IOUs to provide their generation capacity to support their
native load requirements. Prior to the FERC’s December 15, 2000 Order in
docket EL00-95 the IOUs where required by FERC regulations to sell their
generation into the California Power Exchange (PX). PG&E ending its Day-ahead
sales into the PX markets on December 27, 2000.
The ALJ denied CARE an opportunity to allow cross-examination and
production of witnesses nor did he accept our document as pre-filed hearing
testimony in his Order (August 2, 2002 Order at 15).
CARE’s July 19 motion requested the opportunity at the August
2002 hearing to sponsor expert testimony and evidence on “mmcp
issues”. The “mmcp issues” which CARE belatedly seeks to
address and to have adjudicated at the August hearing do not
involve implementation of the Commission’s mitigated market
clearing pricing methodology that have been stipulated by the
participants and adjudicated earlier this year. Instead, CARE’s selfstyled “mmcp issues” are said to concern alleged inappropriate or
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fraudulent utility practices. CARE’s motion for reconsideration
elaborates that it wishes to sponsor witness testimony in support of
a document styled “How Deregulation Let the Power Industry Steal
$71 Billion From California. CARE claims that this report “shows
that California was not a victim of the laws of supply and demand,
as it has been widely portrayed. The California energy crisis,
instead, was a public relations hoax—orchestrated by the power
industry that will cost $2,200 for every Californian.”
August 13, 2002, the FERC Staff issued a press release confirming beyond any
reasonable doubt that the so-called “inappropriate and fraudulent market
practices” CARE cited are highly likely to have occurred during the refund period
under hearing in the August 19th to August 23rd 2002 hearings in San Francisco
California.
Today's Commission actions stem from findings in an interim FERC
Staff Report, also issued today, on potential manipulation of shortterm electric and natural gas prices in the West. Key findings and
recommendations in the staff fact-finding investigation are:
• there exists sufficient evidence to warrant formal
investigations of possible violations of the Federal Power Act
by Portland General Electric Company, Enron Power Marketing,
Inc., Enron Capital Trade Resources Corporation, El Paso Electric
Company and Avista Corporation and Avista Energy.
• historically, the spot prices for natural gas at the California
delivery points highly correlate with prices at producing
basins and Henry Hub. During the months of October 2000 to
July 2001 – the refund period in the California refund
proceeding – the correlation was abnormally low. Since that time,
the high correlation has resumed.
• given the abnormal correlation for this isolated period, staff
attempted to independently verify the price data to assure that it is
statistically valid, reliable and free from the effects of price
manipulation.
• the published natural gas spot prices at the California
border–California delivery points–used as a basis for refunds
in the pending California refund proceedings (Docket Nos.
EL00-95-045 and EL00-98-042) cannot be independently
verified and may have been manipulated.
• Enron's trading strategies, described in the previously
released Enron memos, used false information in an attempt to
manipulate prices.
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• staff recommends that the Commission require that all marketbased rate tariffs include language specifically prohibiting
misleading or false misinformation. This will allow refunds for any
revenues obtained in violation of the tariff.
• staff recommends that the Commission reevaluate the
"simultaneous offer" rule that it uses to discipline affiliate
transactions to ensure that it is effective and verifiable.
• staff endorses expanded civil penalty authority applicable to
jurisdictional companies that violate Commission orders and
regulations.
CARE’s answers to specific questions before the Commission
1. Should the Commission change the method that is used to
determine the cost of natural gas for purposes of calculating refunds
in this proceeding?
To answer this question the Commission staff must answer the following data
requests.
a. Did the spot prices for natural gas at the California delivery points
correlate with prices at producing basins and Henry Hub for the time
interval May 22, 2000 through October 2000?
b. Is this the appropriate time interval for determining the appropriate premitigation data to use as a baseline for applying the Mitigated Market
Clearing Prices (MMCPs) litigated as Issue 1 in this proceeding in order to
calculate refunds?
c. Can Staff conclude or certify that the data for the time interval May 22,
2000 through October 2000 can be independently verified by the
Commission to assure that they are statistically valid, reliable and free
from the effects of price manipulation?
We have consistently maintained our position that any transaction
subsequent to exercise of market power have a direct bearing on the MMCP
and any refunds owed to California are required to be based on the difference
between the price charged and the cost of production, not the FERC’s “socalled” Mitigated Market Clearing Price (MMCP), because FERC’s issuance
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of market-based rate authority to all market participation are conditioned on
market participants’ agreements not to exercise market power3. This is a
matter in the “public interest”; therefore the “just and reasonable” standard
need not be applied.
2. What method should be used?
Based on the August 13, 2002 Staff Report on Potential Manipulation of
Short-Term Electric and Natural Gas Prices in the West, and PG&E’s market
– based sales into the PX Day-ahead, ISO Real Time, and Real Time and
Hour Ahead Energy Markets, the time period of January 1st, 2000 through
April 1st, 2000 is the appropriate time interval to determine the appropriate
pre-mitigation data to use as a baseline for applying the Mitigated Market
Clearing Prices (MMCPs) litigated as Issue (1) in this proceeding in order to
calculate refunds.
3. Is Staff's recommended substitute method appropriate? If not, what
method should be used instead?
No, Staff’s recommended use of a substitute based on the spot price for
natural gas in certain production basins plus the regulated cost of
transportation, does not address or mitigate the effects of “inappropriate or
fraudulent practices” by sellers of natural gas and/or energy during the time
interval May 22, 2000 through October 2000. CARE’s position is that January
1st, 2000 through April 1st, 2000 is the appropriate time interval to determine
the appropriate pre-mitigation data to use as a baseline for applying the
Mitigated Market Clearing Prices (MMCPs) litigated as Issue (1) in this
proceeding in order to calculate refunds. Refunds should include all markets
contaminated by exercise of market power and other “inappropriate or
fraudulent practices” by sellers, including the PX Day-Ahead and forward
markets including CERS contracts. Refunds must cover the refund effective
3
Pursuant to the FERC regulations and Orders approving power marketer’s market-based rates “the
Commission allows sales at market-based rates if the seller (and each of affiliates) does not have, or has
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period May 22, 2000 through June 19, 2001, to mitigate all market power
abuses by all sellers, and to do so in the “public interest”.
4. What is an appropriate way to account for scarcity?
CARE’s position on the appropriate way to account for scarcity rents is as
follows:
a. Determine (for both electricity and natural gas) on a regional basis the
native generation capacity and available contractually obligated import
capacity for a given delivery area.
b. Determine the historic maximum load requirements (constrained market)
for the delivery area, (for both electricity and natural gas) and the historical
Market Price for energy or gas sold. Such historic load maximum, and
associated Market Price, must be based on data Certified by the
Commission to be free from contamination from market power abuse by
the Commission in order to establish this benchmarked Market Price and
maximum load (i.e., the time interval May 22, 2000 through June 19, 2001
does not apply). Such must include the Commission’s Certification that
there now exists a legal and evidentiary basis for inducing the public’s
reliance on implied and express claims and assurances that all the
evidence was properly considered necessary to assure true and full
disclosure of the facts in determining the historic load maximum, and
associated Market Price.
c. Determine (for both electricity and natural gas) those generation sources
that are with holding generation capacity due to planned or unplanned
outages. Such determination must determine whether or not the source in
question is contractually obligated to deliver under Reliable Must Run,
other contractual agreements, and/or the Commission’s “Must Offer”
requirements. Those sources found to be with holding capacity in violation
of the Commission’s Orders, their contractual obligations, or dispatch
adequately mitigated, market power in generation and transmission and cannot erect barriers to entry.”
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orders from ISO, must be assessed a with holding penalty against all such
sales, which must be passed onto the buyer and/or consumers.
d. Those Sellers (both electricity and natural gas) whose sales are required
because of load demand in excess of the historic native generation
capacity and available contractually obligated import capacity for a given
delivery area, whose sale price does not exceed the associated maximum
Market Price as Certified by the Commission, and sources found not to be
with holding generation capacity in violation of the Commission’s Orders,
their contractual obligation, or dispatch orders from ISO, may be allocated
scarcity rent, on a prorated basis as determined by the ISO subject to the
Commission’s Order on such.
Conclusion
CARE respectfully submits our comments on the method for determining
natural gas prices for purposes of calculating refunds along with a Request for
Consideration of CARE’s motion to reopen the refund hearing records for
evidence of “inappropriate or fraudulent practices”. CARE contends that the
Refunds determined in this case are no longer legally based on whether or not
the MMCP meets a “just and reasonable” standard, but now, due to the presence
of “inappropriate or fraudulent practices”, whether or not the MMCP is in the
“public interest”.
Respectfully submitted,
President, CARE dated this 10th day of September 2002.
(831) 465-9809
5439 Soquel Drive
Soquel, CA 95073
E-mail: michaelboyd@sbcglobal.net
Certificate of Services
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I hereby certify that I have this day served the foregoing document upon each
person designated on the official restricted service list, via electronic mail,
compiled by the Secretary in this proceeding in Docket EL00-95 et.al. Rule
2010(f)(3) provides that you may serve pleadings by email. I further certify that
those parties without electronic mail have been served this day via US mail or via
ListServ.
Verification
I am an officer of the complaining corporation herein, and am authorized to make
this verification on its behalf. The statements in the foregoing document are true
of my own knowledge, except matters, which are therein stated on information
and belief, and as to those matters I believe them to be true.
I declare under penalty of perjury that the foregoing is true and correct.
Dated this 10th day of September 2002.
Respectfully submitted,
President, CARE
(831) 465-9809
5439 Soquel Drive
Soquel, CA 95073
E-mail: michaelboyd@sbcglobal.net
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