Echoing the concerns cited by Duke Energy earlier, scores of West Coast energy suppliers disputed FERC staff’s view that the California market monitoring rules provide the legal backing for the Commission to issue show-cause orders against them and other sellers, threatening the loss of market-based rate authority and/or alleged ill-gotten profits.

Among those filing challenges to the agency staff’s interpretation were Morgan Stanley Capital Group Inc., the Los Angeles Department of Water and Power (LADWP), Sempra Energy Trading Corp., Enron Power Marketing Inc., Public Utility District No. 2 of Grant County, WA, Powerex Corp., Avista Energy Inc. and Puget Sound Energy Inc. But California municipal and industrial customers — those who were on the receiving end of high energy prices — believe the Commission staff was right on the money.

At the center of the storm is FERC staff’s conclusion in its report on manipulation of western energy markets that the California Independent System Operator (CAISO) and now-defunct Cal-PX Market Monitoring Information plans (MMIPs) not only gave market participants sufficient prior notice as to what conduct was inappropriate, but they clearly stated violators could be subject to FERC enforcement action. Based on its readings of the MMIPs, agency staff urged the Commission to issue show-cause orders against 37 companies.

“Staff’s public recommendations that the Commission issue show-cause orders without the benefit of a complete and objective analysis of the existing law and all of the relevant facts are having a chilling effect on power markets nationwide,” said Morgan Stanley [PA02-2-005]. “In addition. hard-earned reputations of market participants have been damaged by being named in a staff report that is based on incomplete evidence [and] misreads the MMIP.”

The CAISO’s MMIP, in particular, “does not identify prohibited practices with sufficient specificity to give market participants fair notice that certain behavior is prohibited and subject to retroactive sanctions,” the LADWP claimed. Provisions in the MMIP addressing “gaming” and “anomalous market behavior,” for instance, are simply “too vague and indefinite” to constitute “fair notice,” the municipal utility said.

The Commission, therefore, “should reject staff’s assertion that all practices that may fit within the broad categories” identified in the MMIP “violate the ISO’s filed rates,” and are subject to FERC enforcement, the LADWP argued. “Unless a market participant has reasonable notice that particular activities are prohibited by a tariff, the Commission cannot lawfully find that the market participant violated the tariff.”

The MMIPs are part of the CAISO’s and Cal-PX’s tariffs, which have been on file with FERC since 1998.

The City of San Diego, CA, on the other hand, contends the CAISO and Cal-PX tariffs provide FERC the authority to order the return of unjust profits from suppliers who engaged in “gaming” and “anomalous market behavior.” It also believes the agency has sufficient power to require refunds from suppliers who did not violate the CAISO or Cal-PX tariffs but profited nonetheless from sales of high-priced power, even those that took place prior to Oct. 2, 2000.

Citing its belief the MMIPs were ill-defined, Duke Energy companies have asked FERC for authorization to conduct “limited discovery” into the issue of “whether the MMIPs afforded market participants the requisite notice to support…retroactive enforcement” action against West Coast suppliers (see NGI, April 14). The agency has not responded to Duke Energy’s request yet.

The CAISO has called on the agency to reject Duke Energy’s bid to reopen discovery in the case, saying the Charlotte, NC-based energy company was simply trying to “delay, delay, delay the advent of any potential enforcement actions” against itself and other energy suppliers for improper market activities in California during the 2000 and 2001 period.

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