In its report on western energy market manipulation, FERC staff concluded the agency has sufficient authority under the CAISO and now-defunct Cal-PX Market Monitoring and Information plans (MMIP) to take enforcement action against “bad actors” in the California energy markets. The Commission, however, requested last week that industry comment on staff’s interpretation of the extent of FERC’s authority under the MMIP.

According to staff’s reading, “the MMIP contemplates that while the [CAISO] may try to correct misconduct on its own, the Commission is to be ‘the court of last resort’ for misconduct committed by market participants, including ‘gaming’ and ‘anomalous market behavior’ misconduct [as] defined in the MMIP,” said the order asking for industry reaction [PA02-2-005].

FERC staff in its final report said the MMIP authorized the CAISO, which operates California’s electric transmission system, to impose “sanctions and penalties” on its own or refer matters to FERC for appropriate action. However, staff believes the agency also can take action to enforce a rate schedule even in the “absence of a referral” by California, the order noted. The MMIP has been on file at FERC as part of the CAISO and Cal-PX tariffs since 1998.

The MMIP outlines a “work plan” for the CAISO to monitor its energy markets for potential abuses of market power, and to provide protection against “gaming” and “anomalous market behavior” by energy companies. Staff contends the MMIP “puts market participants on notice regarding their rights and obligations in the markets,” the order noted. As a result, market participants “cannot reasonably argue” that they were unaware that their questionable behavior may have violated the MMIP, staff said.

“Based on [staff’s] interpretation that the MMIP is a prohibition on certain market behaviors and that the MMIP is incorporated in tariffs on file with the Commission, and its determination that certain market participants, either individually or with others, appear to have engaged in market manipulation (including the Enron trading strategies and economic withholding and inflated bidding), Commission staff [recommended] that the Commission issue orders to show cause why profits should not be disgorged,” the order noted.

It urged industry to submit comments on staff’s interpretation “on or before” April 11 so that FERC can “move forward promptly on these matters.” The comments are to be no more than 30 pages.

It’s unclear to what extent FERC relied on staff’s interpretation of the MMIP when it issued two show-cause orders on March 26, directing Enron-affiliated companies, BP Energy and Reliant Energy Services to justify their questionable behavior in the western energy markets or face losing either their ability to sell power at unregulated rates and/or their blanket gas marketing certificates (see NGI, March 31).

The Commission also signaled that it was contemplating similar show-cause actions against 37 other energy companies. In addition to being stripped of their market rate authorities, companies could be forced to return any profits gained from illegal activities.

FERC took this action based on the staff’s finding that the wholesale natural gas and electricity markets in California and other western states were the target of pervasive manipulation during the critical 2000 and 2001 period.

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