The California Public Utilities Commission (CPUC) and the California Electricity Oversight Board (CEOB) last Tuesday asked FERC to reopen the record in a proceeding involving the agencies’ challenge to several power contracts entered into by the California Department of Water Resources (CDWR) and various power suppliers during the state’s 2000-2001 energy crisis.

The CPUC and CEOB want the proceeding reopened in order to include a FERC staff report issued last month that concluded the wholesale natural gas and electricity markets in California and other western states were significantly manipulated during the critical 2000 and 2001 period (see NGI, March 31).

The two agencies also want to include evidence of market manipulation and abuse in the western energy markets unearthed in other related dockets at the Commission [EL01-10, IN01-3, EL02-113, EL02-114, EL02-115, EL02-80, EL02-81, EL02-82 and EL02-83].

The inclusion of the staff report and other market manipulation evidence within the record for the CDWR proceeding is “clearly appropriate” under FERC rules, the CPUC and CEOB said in their joint filing.

The CPUC and CEOB in early 2002 filed separate, but virtually identical, complaints at FERC seeking to modify more than 30 long-term power supply contracts that the CDWR entered into with various suppliers. Power suppliers targeted in the complaints are Allegheny Energy Supply, Coral, Dynegy, El Paso Merchant Energy, Mirant, Morgan Stanley Capital Group and Sempra Energy Resources.

The two agencies this week noted that they have always “maintained that evidence of market abuse is relevant both in establishing the connection between the dysfunctional spot market and forward prices, and to decide whether the specific contracts at issue in this proceeding should be reformed: the two global issues the Commission set for hearing in this proceeding.”

The CPUC and CEOB said that the FERC staff’s investigation has established “convincing evidence of widespread market abuse and confirmed the central premises” of the agencies’ position in the CDWR contract proceeding.

Specifically, the CPUC and CEOB noted that FERC staff concluded that the dysfunctions in the spot market, including the exercise of market power, adversely affected forward prices, particularly for contracts calling for delivery in 2001 and 2002. Also, six of the seven power suppliers involved with the CDWR contracts being challenged “engaged in various forms of market manipulation,” the CPUC and CEOB said.

The agencies argued that regardless of the overall contract duration, it is “undisputed” that each of the contracts in dispute in the CDWR proceeding has embedded within them the expected spot prices for each year of the contract, including 2001 and 2002.

“Thus, a 10-year contract with deliveries starting in June 2001 has embedded within it the same level of spot market dysfunction for 2001 and 2002 as a two-year contract with deliveries starting in June 2001,” the CPUC and CEOB asserted. “In short, each of the contracts at issue in this proceeding contains prices staff concludes were influenced by spot market dysfunction.”

FERC recently scheduled oral arguments in the CDWR contract proceeding for May 15.

Last Wednesday, the Commission heard oral arguments related to bids by Nevada Power Co., Sierra Pacific Power Co. and two other western-based power entities to reform several power contracts they entered into with power suppliers during the height of the 2000-2001 western energy crisis (see related story).

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