With a more hospitable subcommittee chair, four witnesses to a House energy subcommittee Monday told a less-than-sensational story about Perot Systems Corp.’s role in the development of California’s wholesale electricity markets, leaving the congressional chair to question what all the fuss has been in Sacramento, which happens to be part of his district.

In fact, one witness, a consultant to the California grid operator, said the large investor-owned utilities actually kicked off the use of some market strategies when they began systematically underscheduling supply needs in the day-ahead market, and they instituted various gaming strategies as offensive and defensive tactics to protect themselves.

Eventually, lacking state regulatory support for the utilities’ using gaming strategies to protect themselves, they adopted a “perfect victim” strategy of doing nothing but trying to ride out market volatility, according to the gaming theory witness. These included “perfectly legitimate gaming processes,” the witness told the subcommittee.

The witnesses included the current CEO of California’s independent electricity transmission grid, Cal-ISO; a university economist and member of the Cal-ISO market design advisory committee, and a separate consultant and employee for Perot Systems that made the presentations back in the 1996-99 time frame that some state officials have called a “blueprint” to game the state’s power market.

In different ways and perspectives each of the witnesses — who were mostly questioned only by Rep. Doug Ose (R-CA), the subcommittee chairman — cleared Perot of any wrongdoing as it pertains to the alleged manipulation of California’s market. This is contrary to the allegations emerging from the California state Senate select committee’s hearings and ongoing investigation that through subpoenas has turned up information in which a Cal-ISO trader two years ago sought specific trades from an Enron counterpart, leading to the person’s firing earlier this year. It also uncovered the Perot marketing presentation, which everyone agrees resulted in no new business for Perot Systems.

“Based on the information we have today, I am a bit at a loss to explain all of the allegations,” Ose said. “The other aspect that is germane is that the work Perot Systems did for the most part took place prior to the market opening, and that what they did with what is alleged to be nonpublic information, nobody bought.

“I don’t understand this. I think I am missing something.”

In response to specific questions from Ose, George Backus, a Denver-based commodity market gaming theory model researcher, and Paul Gribik, a former technical manager for Perot Systems working with Cal-ISO and the now-defunct California Power Exchange (Cal-PX), both said they had no access to the Cal-ISO computer code or algorithms, both of which could have given them (and Perot presumably) a competitive advantage.

Part of Perot’s marketing efforts were directed at the major investor-owned utilities and regulators throughout the western states to forewarn them about Backus’ market gaming theory. “It was absolutely never proprietary information and was all publicly available, well known information,” Backus said in response to a specific question, adding that no other consultants were doing his research, which assumed the market would be imperfect and thus more vulnerable to gaming.

The utilities were “an obvious place to attempt to market” consulting services that would arm the utilities with both defensive and offensive tools against gaming of the wholesale commodity market, said Charles Cicchetti, a university professor and member of the Cal-ISO market design advisory committee. “The culture of the industry traditionally was cost-plus, so people thought it would be a good market to try to teach engineers and others from the old culture what could go wrong in this commodity market.

“Essentially, however, nobody who tried to do this training got hired. The industry went out and hired traders from other commodity markets, figuring it was easier to teach them about the energy industry than to teach utility engineers about commodity markets.”

Cicchetti said companies like Pacific Gas and Electric Co. and Southern California Edison Co. did that. He thinks the market dysfunctions were first initiated not from the merchant generator/marketers, but from the private-sector utilities underscheduling for the day-ahead market in the Cal-PX “to get a lower price there for consumers, knowing they might have to pay a higher price in the real-time market that the Cal-ISO ran.

“After the buyers began that process, it is something we discovered and reported in a state audit report (on the California market), and that is when the sellers adopted a similar strategy,” mushrooming the Cal-ISO real-time market from its anticipated 3-5% share of the market to more than 30% of the daily market in late 2000, requiring the grid operator to go out of market, buying power from other states.

“This is where the game of megawatt laundering was discovered,” Cicchetti said. “None of this — the underscheduling mostly by buyers or the megawatt laundering — was anything that anyone would have thought would be the natural evolution of the market when Perot Systems was offering its services. These were purely California problems, and it was the behavior of the utilities in California that started it all.”

Terry Winter, the CEO of the Cal-ISO, pointed out that during the first two years of California’s restructured electricity market, the utilities enjoyed good success in paying down ahead of schedule their stranded costs.

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