Separate draft orders were released by FERC last Wednesday approving settlement agreements between FERC staff and Duke Energy Trading and Marketing (DETM) and the Modesto Irrigation District resolving previous allegations of gaming activities on the part of DETM and MID during the California energy crisis of 2000-2001.

The settlement pact between DETM and FERC staff was filed in December 2003 and a FERC administrative law judge (ALJ) certified it to the full Commission in April of this year as contested, but recommending its approval. The MID-FERC staff settlement agreement was filed on Nov. 3, 2003 and certified to the full Commission by a FERC ALJ in March. As with the DETM case, the MID settlement was contested, but the ALJ also recommended it for approval by FERC.

The DETM settlement agreement expressly acknowledges that there may be different views on whether the California Independent System Operator (CAISO) tariff requires the amount of capacity sold as replacement reserves remain unloaded at all times except when dispatched by the CAISO, or that the unit providing the replacement reserves merely be capable of being at a specified load point within 60 minutes.

The settlement agreement states that in the event FERC determines that capacity sold as replacement reserves was required to have remain unloaded at all times except when dispatched by CAISO, FERC staff and DETM agreed that the settlement amount ($458,737) would be increased by a further payment of $1.5 million, the amount of the total alleged revenues from the sale of replacement reserves alleged to be double selling.

DETM argued that the CAISO tariff did not require that the capacity sold as replacement reserves remain unloaded at all times except when dispatched by the CAISO. Conversely, the tariff requires only that the unit providing replacement reserves be capable of being at a specified load point within 60 minutes. DETM contends that the replacement reserves issue is a legal one and not a factual one.

FERC this week said that while the CAISO argued that the capacity should remain unloaded at all times, “we disagree.” The tariff language “simply does not require that the capacity be unloaded,” the draft order said. “Therefore, when Duke sold this capacity, it did not engage in double selling with respect to this replacement reserve capacity.”

FERC said that the settlement agreement between DETM and FERC staff “constitutes a reasonable solution of this proceeding and will be approved.”

The Commission in a separate draft order also signed off on the gaming settlement between FERC staff and MID. The Commission noted that under the agreement, the irrigation district will be returning $14,304, the total revenues — and not merely the profits — from MID’s alleged participation in gaming practices.

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