Duke: CA Monitoring Rules Lack 'Clarity' to Justify FERC Retroactive Sanctions

Contrary to FERC staff's conclusion in its western energy market report, the CAISO and now-defunct Cal-PX Market Monitoring and Information plans (MMIPs) did not offer market participants "sufficient notice" as to what conduct was allowed or prohibited in California, or clearly state that violators would be subject to retroactive sanctions by the Commission, Duke Energy contends.

"Duke Energy had no such notice," Duke Energy North America LLC and Duke Energy Trading and Marketing LLC told FERC.

"The law is clear that the Commission may not impose retroactive remedies to redress alleged violations of provisions that failed to give market participants adequate notice of what conduct was prohibited or required. Unless a provision states with 'ascertainable certainty' what conduct is prohibited, a regulated party cannot...be subject to retroactive sanctions," they claimed.

The Duke Energy companies responded to FERC's invitation last week for industry to comment on staff's interpretation of the extent of the agency's authority under the MMIPs [PA02-2-005]. Staff concluded the MMIPs "[put] market participants on notice regarding their rights and obligations in the markets." It further said participants in the California markets "cannot reasonably argue" they were unaware that their questionable behavior may have violated the MMIPs (see Daily GPI, April 4).

Based on its reading of the MMIPs, staff recommended that FERC issue orders against companies to show cause why profits gained from improper behavior should not be disgorged. The Commission already has taken show-cause actions against a number of Enron-affiliated companies, BP Energy and Reliant Energy Services, and is contemplating similar orders against 37 other energy companies, including Duke Energy. In addition to being forced to turn over profits, companies could lose either their ability to sell power at unregulated rates or their blanket gas marketing certificates.

While FERC staff claims the MMIPs clearly identified the code of behavior for regulated companies in California, the Duke Energy companies painted a picture of confusion. "Evidence [uncovered during] the 100-days discovery proceeding...shows that at least the chief PX market monitor considered market monitors and participants alike to lack a clear understanding as to the scope of the MMIP, what conduct would constitute a violation of the MMIP, and whether the MMIP was a prescriptive code of conduct, or instead a monitoring guide to facilitate further market reform," they said.

"If the market monitors themselves were uncertain as to the purpose, meaning and scope of the MMIP provisions, market participants must be deemed to have lacked notice of what conduct was violative of the MMIPs."

The Duke Energy companies urged the Commission to refrain from issuing orders "on the scope of its authority to pursue retroactive enforcement actions based on putative violations of the MMIPs without the benefit of a complete factual record." Toward that aim, they asked FERC for expedited approval to conduct discovery of CAISO and Cal-PX market monitors on a single issue -- "whether the MMIPs afforded market participants the requisite notice to support a retroactive enforcement proceeding."

The Duke Energy companies are seeking to take depositions of the California market monitors on or after Tuesday. They also have submitted data requests to the CAISO and Cal-PX, and requested replies by Wednesday.

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