[Federal Register Volume 68, Number 128 (Thursday, July 3, 2003)]
[Notices]
[Pages 39906-39920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16821]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket Nos. El03-127-000 et al.]


American Electric Power Service Corporation et al.; Order To Show 
Cause Concerning Gaming and/or Anomalous Market Behavior

Issued June 25, 2003.
Before Commissioners: Pat Wood, III, Chairman; William L. Massey, and 
Nora Mead Brownell.

    In the matter of: EL03-137-000, EL03-138-000, EL03-139-000, EL03-
140-000, EL03-141-000, EL03-142-000, EL03-143-000, EL03-144-000, EL03-
145-000, EL03-146-000, EL03-147-000, EL03-148-000, EL03-149-000, EL03-
150-000, EL03-151-000, EL03-152-000, EL03-153-000, EL03-154-000, EL03-
155-000, EL03-156-000, EL03-157-000, EL03-158-000, EL03-159-000, EL03-
160-000, EL03-161-000, EL03-162-000, EL03-163-000, EL03-164-000, EL03-
165-000, EL03-166-000, EL03-167-000, EL03-168-000, EL03-169-000, EL03-
170-000, EL03-171-000, EL03-172-000, EL03-173-000, EL03-174-000, EL03-
175-000, EL03-176-000, EL03-177-000, EL03-178-000, EL03-179-000: 
American Electric Power Service Corporation, Aquila, Inc., Arizona 
Public Service Company, Automated Power Exchange, Inc., Bonneville 
Power Administration, California Department of Water Resources, 
California Power Exchange, Cargill-Alliant, LLC, City of Anaheim, 
California, City of Azusa, California, City of Glendale, California, 
City of Pasadena, California, City of Reeding, California, City of 
Riverside, California, Coral power, LLC, Duke Energy Trading and 
Marketing Company, Dynegy Power Marketing Inc., Dynegy Power Corp., El 
Segundo Power, LLC, Long Beach Generation LLC, Cabrillo Power I LLC, 
and Cabrillo Power II LLC, Enron Power Marketing, Inc. and Enron Energy 
Services Inc., F P & L Energy, Idaho Power Company, Los Angeles 
Department of Water and Power, Mirant Americans Energy marketing, LP, 
Mirant California, LLC, Mirant Delta, LLC, and Mirant Potrero, LLC, 
Modesto Irrigation District, Morgan Stanley Capital Group, Northern 
California Power Agency, Pacific Gas and Electric Company, PacifiCorp, 
PGE Energy Services, Portland General Electric Company, Powerex 
Corporation, (f/k/a British Columbia Power Exchange Corp.), Public 
Service Company, of Colorado, Public Service Company of New Mexico, 
Puget Sound Energy, Inc., Reliant Resources, Inc., Reliant Energy Power 
Generation, and Reliant Energy Services, Inc., Salt River Project 
Agricultural Improvement and Power District, San Diego Gas & Electric 
Company, Sempra Energy Trading Corporation, Sierra Pacific Power 
Company, Southern California Edison Company, TransAlta Energy marketing 
(U.S.) Inc. and TransAlta Energy Marketing (California), Inc., Tucson 
Electric Power Company, Western Area Power Administration, Williams 
Energy Services Corporation.

I. Introduction

    1. As discussed below, the entities listed in the caption 
(Identified Entities) appear to have participated in activities (Gaming 
Practices), that constitute gaming and/or anomalous market behavior in 
violation of the California Independent System Operator Corporation's 
(ISO) and California Power Exchange's (PX) tariffs during the period 
January 1, 2000 to June 20, 2001, that warrant a monetary remedy of 
disgorgement of unjust profits and that may warrant other additional, 
appropriate non-monetary remedies. These determinations are based on 
certain of the tariffs' provisions, an ISO study, a report by 
Commission Staff, and evidence and comments submitted by market 
participants.
    2. As the Identified Entities appear to have participated in 
activities that constitute gaming and/or anomalous market behavior in 
violation of the ISO and PX tariffs, this order directs the Identified 
Entities, in a trial-type evidentiary hearing to be held before an 
administrative law judge (ALJ), to show cause why their behavior, as 
set forth infra, during the period January 1, 2000 to June 20, 2001 \1\ 
does not constitute gaming and/or anomalous market behavior as defined 
in the ISO and PX

[[Page 39907]]

tariffs.\2\ In addition, we also direct the ALJ to hear evidence and 
render findings and conclusions quantifying the full extent to which 
the Identified Entities may have been unjustly enriched as a result of 
their conduct. The ALJ may recommend the monetary remedy of 
disgorgement of unjust profits and any other additional, appropriate 
non-monetary remedies.\3\ For example, the ALJ may identify non-
monetary remedies such as revocation of an Identified Entity's market-
based rate authority and revisions to an Identified Entity's code of 
conduct if the ALJ finds such remedies appropriate.
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    \1\ June 20, 2001 has been selected as the end date of the 
relevant period in this proceeding when a prospective mitigation and 
market monitoring plan took effect. See infra note 56; see San Diego 
Gas & Electric Co., et al., 95 FERC ] 61,115 (April 26, 2001 Order), 
order on reh'g, 95 FERC ] 61,418 (2001) (June 19, 2001 Order) (In 
the April 26, 2001 Order, the Commission issued a prospective 
mitigation and market monitoring plan for wholesale sales through 
the organized real-time markets operated by the ISO; the Commission 
acted on requests for rehearing and clarification of the April 26, 
2001 Order on June 19, 2001, modifying and expanding the mitigation 
plan, effective June 20, 2001.)
    \2\ As discussed below, we will also direct the ISO to provide 
the Identified Entities with certain transaction data that it relied 
upon in its study which is discussed below, and contemporaneously 
file that data with the Commission.
    \3\ This potential disgorgement would apply to the period 
January 1, 2000 to June 20, 2001 and would be in addition to any 
refunds owed for the period after October 2, 2000 in the California 
Refund Proceeding. By order issued on August 23, 2000, the 
Commission, among other things, established a refund effective date 
of October 29, 2000, 60 days after the date of publication in the 
Federal Register of the Commission's intent to institute an 
investigation. San Diego Gas & Electric Co. v. Sellers of Energy and 
Ancillary Services Into Markets Operated by the California 
Independent System Operator and the California Power Exchange, et 
al., 92 FERC ] 61,172 (2000) (August 23, 2000 Order). By order 
issued on November 1, 2000 in the same proceeding, the Commission 
granted rehearing in part of the August 23, 2000 Order by changing 
the refund effective date from 60 days after publication of notice 
in the Federal Register (October 29, 2000) to 60 days after the date 
of SDG&E's complaint (October 2, 2000). San Diego Gas & Electric 
Co., et al., 93 FERC ] 61,121 at 61,370 (2000) (November 1, 2000 
Order), order on reh'g, 97 FERC ] 61,275 (2001) (December 19, 2001 
Order) (denying rehearing of the November 1, 2000 Order with respect 
to the October 2, 2000 refund effective date). In a December 15, 
2000 order, the Commission found that the spot markets operated by 
the ISO and PX were dysfunctional. San Diego Gas & Electric Co., et 
al., 93 FERC ] 61,294 (2000) (December 15, 2000 Order).
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    3. Further, this order finds that certain activities allegedly 
engaged in by the Identified Entities constituted Gaming Practices, but 
the circumstances in which they engaged in such activities do not 
warrant disgorgement of unjust profits. This order also finds that 
certain activities identified below (California Practices) allegedly 
engaged in by the Identified Entities do not constitute tariff 
violations; instead, many were legitimate transactions, which, while 
they have the superficial appearance of gaming, were not manipulative. 
This order also recognizes that some of the characteristics that were 
used to identify potential Gaming Practices may also be present in 
certain transactions that were not actually Gaming Practices. As a 
result, the Identified Entities will have an opportunity to submit 
evidence to the ALJ that the transactions were not Gaming Practices.
    4. This order benefits customers by establishing procedures to 
address activities inconsistent with the ISO and PX tariffs during the 
period January 1, 2000 to June 20, 2001, consistent with due process.

II. Background

    5. By order issued on February 13, 2002, in Docket No. PA02-2-000, 
the Commission directed a Staff investigation into whether any entity 
manipulated prices in electricity or natural gas markets in the West or 
otherwise exercised undue influence over wholesale electricity prices 
in the West since January 1, 2000.\4\
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    \4\ Fact-Finding Investigation of Potential Manipulation of 
Electric and Natural Gas Prices, 98 FERC ] 61,165 (2002) (February 
13, 2002 Order). The February 13, 2002 Order, of course, was not the 
beginning point of our investigation into the justness and 
reasonableness of the rates of public utility sellers into the ISO 
and PX markets. For a general recitation of this procedural history, 
including the series of events and circumstances giving rise to the 
California energy crisis, see December 19, 2001 Order, 97 FERC ] 
61,275 (2001).
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    6. Pursuant to the directive of the February 13, 2002 Order, Staff 
undertook a comprehensive fact-finding investigation, encompassing both 
data gathering and data analysis of physical and financial transactions 
in and out of the California bulk power marketplace and related markets 
during 2000-2001. Staff's investigation has included a review of a wide 
variety of factors and behaviors that may have influenced electric and 
natural gas prices in the West over this period.
    7. In August 2002, Staff released its Initial Report on potential 
manipulation of electric and natural gas prices in these markets, in 
which it concluded certain conduct was gaming while other practices 
were legitimate practices.\5\ The Initial Report noted that data 
requests were sent to over 130 sellers of wholesale electricity; 
entities from all sectors of the industry may have engaged in such 
trading practices. (Based on the analysis in the Initial Report, the 
ISO subsequently designed market screens in an effort to review its 
transaction data and identify potential transactions with 
characteristics indicative of these trading practices, including the 
practices that were identified by Staff as legitimate practices; the 
ISO's results are discussed below.) Staff expressly noted in this 
Initial Report, however, that its investigation into certain matters 
was ongoing and that other areas of inquiry and recommendations not 
addressed in its Initial Report may be included in its Final Report.\6\ 
The Staff Final Report on its fact-finding investigation was publicly 
released on March 26, 2003.\7\
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    \5\ Initial Report on Company-Specific Separate Proceeding and 
Generic Reevaluations; Published Natural Gas Price Data; and Enron 
Trading Strategies: Fact-Finding Investigation of Potential 
Manipulation of Electric and Natural Gas Prices, Docket No. PA02-2-
000, issued in August 2002.
    \6\ In the Initial Report, Staff also recommended that the 
Commission initiate FPA section 206 proceedings against Enron and 
three of its trading partners. See El Paso Electric Co., et al., 100 
FERC ] 61,188 (2002) (El Paso Electric); Portland General Electric 
Co. and Enron Power Marketing, Inc., 100 FERC ] 61,186 (2002) 
(Portland); Avista Corporation, et al.,100 FERC ] 61,187 (2002) 
(Avista Corp.). Those cases are in various stages of progress, with 
full or partial settlements having been proposed in some.
    A settlement agreement between Trial Staff and Avista 
Corporation was filed on January 30, 2003 in Avista Corp. Comments 
in opposition to the agreement were filed on February 19, 2003, by 
the City of Tacoma, Washington and the California Attorney General. 
On May 15, 2003, Trial Staff amended its study in support of the 
settlement agreement and requested that the agreement be certified 
to the Commission. Additional comments were filed by Tacoma and 
California on May 27, 2003, with reply comments filed by Trial Staff 
and Avista Corporation. The settlement agreement is awaiting a 
determination by the Chief Judge on whether it should be certified. 
Moreover, on April 9, 2003, the Chief Judge issued an order in 
Avista Corp. in which he determined that the settlement or hearing 
in that proceeding will cover all issues raised by the Staff Final 
Report. Avista Corp. and Avista Energy Inc., Order of the Chief 
Judge Confirming Rulings Made at Prehearing Conference and 
Establishing Further Procedures, Docket No. EL02-115-000 (issued 
April 9, 2003). Therefore, this order does not address Avista Corp.
    In the El Paso Electric proceeding, on May 28, 2003, the judge 
certified an uncontested settlement to the Commission with a 
recommendation that it be accepted. El Paso Electric Company, et 
al., 103 FERC ] 63,036 (2003). Accordingly, this order does not 
address El Paso Electric.
    Further, this order only addresses issues that are not being 
litigated in the on-going Portland proceeding.
    \7\ Final Report on Price Manipulation in Western Markets: Fact-
Finding Investigation of Potential Manipulation of Electric and 
Natural Gas Prices, Docket No. PA02-2-000 (March 26, 2003) (Staff 
Final Report). The Staff Final Report is available on the 
Commission's Web site at http://www.ferc.gov/western.
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    8. Since 1998, the ISO and PX tariffs have contained provisions 
that identify and prohibit ``gaming'' and ``anomalous market behavior'' 
in the sale of electric power.\8\ As explained in more detail below, 
the ISO tariff, through the ISO's Market Monitoring and Information 
Protocol (MMIP), defines gaming, in part, as ``taking unfair advantage 
of the rules and procedures set forth in the PX or ISO tariffs, 
Protocols or Activity Rules * * * to the detriment of the efficiency 
of, and of consumers in, the

[[Page 39908]]

ISO Markets.'' \9\ The ISO tariff, through the MMIP, defines anomalous 
market behavior, in part, as ``behavior that departs significantly from 
the normal behavior in competitive markets that do not require 
continuing regulation or as behavior leading to unusual or unexplained 
market outcomes.'' \10\ The Staff Final Report, among other things, 
cites to a study by the ISO,\11\ in which the ISO identifies activities 
that purport to fall within the definitions of gaming and/or anomalous 
market behavior identified in the ISO tariff, and which occurred during 
the period January 1, 2000 to June 20, 2001.
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    \8\ See California Independent System Operator Corp., 82 FERC ] 
61,327 at 62,291 (1998); California Power Exchange Corp., 82 FERC ] 
61,328 at 62,296 (1998); cf. AES Southland, Inc., et al., 94 FERC ] 
61,248 at 61,873 & nn. 25-27, order approving stipulation and 
consent agreement, 95 FERC ] 61,167 (2001).
    In relevant part, the terms of the two tariffs, the ISO's tariff 
and the PX's tariff, are substantially identical. Thus, for 
convenience, we often refer below only to the ISO's tariff.
    \9\ ISO's MMIP 2.1.3. As explained below, the MMIP is part of 
the ISO tariff.
    \10\ MMIP 2.1.1.
    \11\ See Department of Market Analysis, California ISO, Analysis 
of Trading and Scheduling Strategies Described in Enron Memos, 
(October 4, 2002), publicly released on January 6, 2003, available 
at <http://www.caiso.com/docs/2003/03/26/2003032613435514289.pdf pdf (last viewed June 9, 2003); Addendum to October 4, 
2002 Report on Analysis of Trading and Scheduling Strategies 
Described in Enron Memos: Revised Results for Analysis of Potential 
Circular Schedules (``Death Star'' Scheduling Strategy), (January 
17, 2003), available at <http://www.caiso.com/docs/2003/03/26/2003032613593115924.pdf (last viewed June 9, 2003); and 
Supplemental Analysis of Trading and Scheduling Strategies Described 
in Enron Memos, (June 2003), available at <http://www.caiso.com/docs/2003/06/18/2003061806053424839.pdf (last viewed June 
18, 2003), (collectively, ISO Report). The ISO released its June 
2003 Supplemental Analysis after the issuance of the Staff Final 
Report. The Commission has reviewed the ISO's Supplemental Analysis.
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    9. In addition, on November 20, 2002, the Commission issued an 
order that allowed parties in Docket Nos. EL00-95-000, EL00-95-048, 
EL00-98-000 and EL00-98-042 to conduct additional discovery into market 
manipulation by various sellers during the western power crisis of 2000 
and 2001, and specified procedures for adducing this information.\12\ 
The Discovery Order allowed the parties to conduct discovery, review 
the material and submit directly to the Commission additional evidence 
and proposed new and/or modified findings of fact based upon proffered 
evidence that is either indicative or counter-indicative of market 
manipulation, no later than February 28, 2003.\13\ On February 10, 
2003, the Commission issued an order affording parties an opportunity 
to respond to submissions made by adverse parties.\14\ The Rehearing 
Order allowed parties to file reply comments directly with the 
Commission by March 17, 2003. The Commission in a later order extended 
the February 28, 2003 deadline to March 3, 2003, and allowed the reply 
comments to be filed by March 20, 2003.\15\ These filings are referred 
to as the ``100 Days Evidence.'' \16\
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    \12\ San Diego Gas & Elec. Co. v. Sellers of Energy and 
Ancillary Serv., et al., 101 FERC ] 61,186 (2002) (Discovery Order).
    \13\ Id. at P 27.
    \14\ San Diego Gas & Elec. Co. v. Sellers of Energy and 
Ancillary Serv., et al., 102 FERC ] 61,164 (2003), reh'g pending 
(Rehearing Order).
    On the same day, the Commission expanded the coverage of these 
responses to include the proceeding in Docket No. EL01-10-007. See 
Puget Sound Energy, Inc., et al. v. All Jurisdictional Sellers of 
Energy and/or Capacity at Wholesale into Electric Energy and/or 
Capacity Markets in the Pacific Northwest, Including Parties to the 
Western Systems Power Pool Agreement, 102 FERC ] 61,163 (2003).
    \15\ San Diego Gas & Elec. Co. v. Sellers of Energy and 
Ancillary Serv., et al., 102 FERC ] 61,194 (2003) (February 24, 2003 
Order).
    \16\ Attachment E to this order lists the parties that submitted 
100 Days Evidence. Much of the 100 Days Evidence consisted of sworn 
testimony and affidavits.
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    10. On March 5, 2003, the Commission issued a notice providing that 
the Commission intended to release: (1) All documents submitted in 
Docket No. PA02-2-000, except documents obtained from other Federal 
agencies in accord with the Federal Records Act, 44 U.S.C. Sec.  
3510(b), and (2) all documents submitted in response to the Discovery 
Order and Rehearing Order.\17\ On March 21, 2003, the Commission issued 
an order directing the release of information no later than March 26, 
2003 in accordance with the above notice.\18\
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    \17\ Notice of Intent to Release Information and Opportunity to 
Comment, 68 Fed. Reg. 11,821 (March 12, 2003).
    \18\ Fact Finding Investigation of Potential Manipulation of 
Electric and Natural Gas Prices, et al., 102 FERC ] 61,311 (2003).
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    11. Finally, by order issued on April 2, 2003,\19\ the Commission 
provided for the submission of briefs on Commission Staff's 
interpretation of the MMIP provisions concerning gaming and anomalous 
market behavior as prohibiting certain practices by market 
participants. Thirty-three parties filed in response.\20\ Their 
comments are discussed below in the section on the MMIP provisions.
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    \19\ Fact-Finding Investigation into Possible Manipulation of 
Electric and Natural Gas Prices, 103 FERC ] 61,016 (2003).
    \20\ These commenters are listed in Attachment F.
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III. Discussion

A. The Commission's Authority in This Case

1. Commission Authority With Respect to the Period Prior to October 2, 
2000
    12. In our July 25, 2001 order \21\ and the November 1, 2000 Order 
in the California Refund Proceeding, we established a refund effective 
date (October 2, 2000) concerning the market manipulation allegations 
at issue in that proceeding, based on the evidence available at that 
time and the refund limitations set forth in section 206 of the Federal 
Power Act (FPA).\22\ As such, we did not include within the scope of 
that proceeding, conduct relating to a portion of the period at issue 
here, i.e., for the period from January 1, 2000 to October 2, 2000. In 
doing so, however, we noted that the Commission could take action to 
address earlier periods if, during those earlier periods, a seller did 
not charge the filed rate or violated tariffs.\23\ Thus, for the period 
prior to the October 2, 2000 refund effective date, the Commission can 
order disgorgement of monies above the post-October 2, 2000 refunds 
ordered in the California Refund Proceeding, if we find violations of 
the ISO and PX tariffs. Further, while refund protection has been in 
effect for sales in the ISO and PX short-term energy markets since 
October 2, 2000, the Commission can additionally order disgorgement of 
unjust profits for tariff violations that occurred after October 2, 
2000 (i.e., to June 20, 2001).\24\
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    \21\ San Diego Gas & Elect. Co. v. Sellers of Energy and 
Ancillary Serv., et al., 96 FERC ] 61,120 at 61,506-11 (July 25, 
2001 Order), order on clarification and reh'g, 97 FERC ] 61,275 
(2001).
    \22\ 16 U.S.C. Sec.  824e (2000).
    \23\ 96 FERC at 61,507-08, citing Washington Water Power Co., 83 
FERC ] 61,282 (1998). See also Gynsburg v. Rocky Mountain Natural 
Gas Co., 90 FERC ] 61,247 at 61,825-26, reh'g denied, 93 FERC ] 
61,180 at 61,587 (2000); Public Service Co. of Colorado, 85 FERC ] 
61,146 at 61,588 (1998).
    \24\ See December 19, 2001 Order, 97 FERC at 61,239 (the 
Commission can order equitable remedies, such as disgorgement, for 
unjust enrichment); accord. AES Southland, Inc. and Williams Energy 
Marketing & Trading Corp., 95 FERC ] 61,167 at 61,538 (2001); 
Transcontinental Gas Pipe Line Corp. v. FERC, 998 F.2d 1313 (5th 
Cir. 1993).
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2. Commission Authority With Respect to Governmental Entities
    13. We note that several of the Identified Entities are 
governmental entities, subject to the jurisdictional exemption set 
forth in section 201(f) of the FPA.\25\ In the July 25, 2001 Order, as 
reiterated in the December 19, 2001 Order, the Commission found that 
refund liability should apply to energy sold in the ISO and PX short-
term energy markets, including that sold by governmental entities. 
Here, as well, we find that the disgorgement of unjust profits for the 
pre-October 2, 2000 period, should apply to sales made by governmental 
entities as well as to those sales by the other Identified Entities.
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    \25\ See 16 U.S.C. 824(f) (2000).
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    14. In the July 25, 2001 Order, the Commission explained that its 
jurisdiction attached to ``the subject matter of the affected 
transactions: wholesale sales of electric energy in interstate commerce 
through a Commission-regulated centralized

[[Page 39909]]

clearinghouse that set a market clearing price for all wholesale seller 
participants, including [governmental entities]'' and thus that 
jurisdiction may properly be asserted over sales by governmental 
entities.\26\ The Commission continued:
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    \26\ July 25, 2001 Order, 96 FERC at 61,512; accord id. at 
61,511-13.
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    Here, the central transactions, wholesale sales of energy in 
interstate commerce, were governed by FERC-approved rules and a FERC-
jurisdictional ISO and PX * * * [and] thus fell within FERC's 
jurisdiction regardless of the jurisdictional nature of the sellers or 
buyers. Further, the centralized wholesale spot electricity markets 
operated by the California ISO and PX were established (and have been 
modified) subject to FERC review and approval. Because the market did 
not exist prior to FERC authorization, all those who participated in 
the market had to recognize the controlling weight of FERC authority. 
Moreover, it is fair that all those who benefitted from this market 
also bear responsibility for remedying any potential unlawful 
transactions that might have occurred in the market.
* * * * *
    Consequently, if the price for a specific sale is found to be 
unjust and unreasonable, then all sellers who obtained that price 
received an unjust and unreasonable rate. To the extent the Commission 
determines refunds are an appropriate remedy for that sale, consumers 
can only be made whole by refunds from all sellers who received the 
excessive price. As [governmental entity] sellers of energy and 
ancillary services accounted for up to 30 percent of all sales in the 
California centralized ISO and PX spot markets, excluding them from a 
potential refund remedy could have a serious detrimental effect on 
consumers.\27\
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    \27\ Id. at 61,513 (footnote omitted); accord id. at 61,511-13. 
On rehearing, the Commission reaffirmed its jurisdiction over these 
transactions. December 19, 2001 Order, 97 FERC at 62,180-87.
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    15. This rationale applies equally in the context of violations of 
MMIP provisions that prohibit gaming and/or anomalous market behavior, 
as such provisions apply to all transactions in the California market.

B. The MMIP's Provisions Concerning Gaming and/or Anomalous Market 
Behavior

1. Provisions Cited in the Staff Final Report
    16. Concerning the Commission's remedial authority with respect to 
the Identified Entities' alleged practices, the Staff Final Report 
notes that the MMIP is one of several protocols that the Commission 
required the ISO and PX to include as part of their filed rate 
schedules.\28\ The Staff Final Report also cites the underlying 
purposes of the MMIP,\29\discussed in MMIP 1.1 (Objectives) which 
provides in pertinent part:
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    \28\ As further explained below, the MMIP has been part of the 
ISO's and PX filed tariffs since 1998.
    \29\ Staff Final Report, ch. VI at 6-7.
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    This Protocol sets forth the workplan and, where applicable, the 
rules under which the ISO will monitor the ISO Markets to identify 
abuses of market power, to ensure to the extent possible the efficient 
working of the ISO Markets immediately upon commencement of their 
operation, and to provide for their protection from abuses of market 
power in both the short term and the long term, and from other abuses 
that have the potential to undermine their effective functioning or 
overall efficiency in accordance with section 16.3 of the ISO 
Tariff.\30\
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    \30\ MMIP 1.1.
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    17. The Staff Final Report also cites part 2 of the MMIP which 
specifies what are termed ``Practices Subject to Scrutiny.'' Among 
those practices are two that the Staff Final Report identifies as being 
of particular concern to the Commission; the first is ``gaming,'' and 
the second is ``anomalous market behavior.'' \31\ Gaming is defined at 
section 2.1.3 of the ISO's MMIP as follows:
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    \31\ Staff Final Report, ch. VI at 7-10.
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    [T]aking unfair advantage of the rules and procedures set forth in 
the PX or ISO Tariffs, Protocols or Activity Rules, or of transmission 
constraints in periods in which exist substantial Congestion, to the 
detriment of the efficiency of, and of consumers in, the ISO Markets. 
``Gaming'' may also include taking undue advantage of other conditions 
that may affect the availability of transmission and generation 
capacity, such as loop flow, facility outages, level of hydropower 
output or seasonal limits on energy imports from out-of-state, or 
actions or behaviors that may otherwise render the system and the ISO 
Markets vulnerable to price manipulation to the detriment of their 
efficiency.\32\
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    \32\ MMIP 2.1.3.
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    18. Anomalous market behavior is defined at Section 2.1.1 of the 
ISO's MMIP:
    ``Anomalous market behavior'' * * * is * * * behavior that departs 
significantly from the normal behavior in competitive markets that do 
not require continuing regulation or as behavior leading to unusual or 
unexplained market outcomes. Evidence of such behavior may be derived 
from a number of circumstances, including: withholding of Generation 
capacity under circumstances in which it would normally be offered in a 
competitive market; unexplained or unusual redeclarations of 
availability by Generators; unusual trades or transactions; pricing and 
bidding patterns that are inconsistent with prevailing supply and 
demand conditions, e.g., prices and bids that appear consistently 
excessive for or otherwise inconsistent with such conditions; and 
unusual activity or circumstances relating to imports from or exports 
to other markets or exchanges.\33\
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    \33\ MMIP 2.1.1.5 further provides that: The Market Surveillance 
Unit shall evaluate, on an ongoing basis, whether the continued or 
persistent presence of such circumstances indicates the presence of 
behavior that is designed to or has the potential to distort the 
operation and efficient functioning of a competitive market, e.g., 
the strategic withholding and redeclaring of capacity, and whether 
it indicates the presence and exercise of market power or of other 
unacceptable practices.
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2. The Staff Final Report's Interpretation of the MMIP \34\
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    \34\ See Staff Final Report, ch. VI at 8-10.
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    19. In brief, the Staff Final Report interprets the MMIP as ``rules 
of the road'' which the Commission may enforce, and as barring the 
kinds of practices at issue here. The Staff Final Report explains that 
the MMIP enumerates objectionable practices, the MMIP authorizes the 
ISO to impose ``sanctions and penalties'' or to refer matters to the 
Commission for appropriate sanctions or penalties,\35\ and the MMIP was 
part of the ISO and PX tariffs on file with the Commission during the 
relevant period.\36\ Accordingly, entities that transact through the 
ISO or PX and engage in such enumerated practices are in violation of 
filed tariffs. Further, the Staff Final Report concludes that various 
practices were violations of the MMIP and thus violations of the ISO's 
and PX's filed tariffs.
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    \35\ MMIP 7.3.
    \36\ As the Staff Final Report notes, and as discussed in more 
detail below, the MMIP has been part of the ISO and PX tariffs on 
file with the Commission since 1998, which encompasses the relevant 
period of January 1, 2000 through June 20, 2001.
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3. Comments Regarding the Staff Final Report's Interpretation of the 
MMIP
a. Supporting Comments
    20. Several commenters supported the Commission Staff's 
interpretation of the

[[Page 39910]]

MMIP.\37\ They argue that: (1) The MMIP is on file with the Commission 
as part of a filed tariff, and has been for some time, and thus can be 
enforced by the Commission; (2) the MMIP applies to all market 
participants, and is expressly intended to identify abuses and to 
provide for protection from such abuses; (3) the MMIP provides that the 
practices that are expressly subject to scrutiny are gaming and 
anomalous market behavior, and each is defined in some detail; (4) 
while the MMIP does not expressly prohibit such Gaming Practices as 
``ricochet'' or ``get shorty,'' such a standard would require a level 
of detail that would be impossible to achieve, and it would require 
anticipating all of the myriad ways that could be dreamed up to 
``game'' the markets, and to spell them all out in the MMIP; (5) it is 
hard to conceive that market participants as sophisticated as those 
here did not realize that the kind of trading practices at issue here 
were inappropriate; and (6) as part of a filed tariff, the MMIP 
ultimately is for the Commission to interpret and enforce, and the MMIP 
itself recognizes that the Commission is the ultimate enforcement 
authority.
---------------------------------------------------------------------------

    \37\ E.g., the California Parties, which include the California 
Attorney General and the California Public Utilities Commission, 
among others.
---------------------------------------------------------------------------

b. Opposing Comments
    21. Several parties filed comments opposing Commission Staff's 
interpretation of the MMIP.\38\ They argue that: (1) The MMIP was 
intended to provide direction to the ISO and not be a standard by which 
the Commission prosecuted market participants' conduct; (2) the MMIP 
does not expressly bar any trading practices; and (3) the MMIP does not 
identify with precision the particular strategies that are subject to 
scrutiny, and thus, it is too vague to serve as a standard by which to 
judge market participants' conduct. They argue that the Commission 
cannot hold market participants responsible in these circumstances, 
when they have not had fair notice that the trading practices at issue 
here are prohibited. Further, they contend that there is extrinsic 
evidence indicating that market participants, particularly including 
the ISO itself, did not view the MMIP as a bar to the kind of trading 
practices at issue here or as a basis for ordering disgorgement of 
unjust profits. In this respect, the parties argue that the Commission 
to date has never indicated that it viewed the MMIP as a bar to such 
conduct; its orders, to the extent that they have touched on such 
matters at all, have, in fact, implied the contrary, according to the 
opposing commenters. They also suggest that if the Commission initiates 
an investigation, it would discourage new investment.
---------------------------------------------------------------------------

    \38\ E.g., California Generators (Mirant, Dynegy, Williams), 
Competitive Supplier Group (Aquila, Aquila Merchant Services, 
Arizona Public Service Company, Avista Energy, Constellation Power 
Source, Coral Power, El Paso Merchant Energy, IDACORP Energy, Idaho 
Power Company, Pinnacle West Capital Corporation, Portland General 
Electric, Puget Sound Energy, and Sempra Energy Trading Corp.), 
Enron, and Reliant.
---------------------------------------------------------------------------

c. Other Comments
    22. The California Parties also argue that other tariff provisions 
may have been violated, citing the following tariff provisions from the 
ISO Tariff: (1) Section 5.5.1 (Planned Maintenance); (2) Section 5.5.3 
(Forced Outages); (3) Section 5.3 (Identification of Generating Units); 
(4) Section 5.4 (Western Systems Coordinating Council (WSCC) 
Requirements); (5) Section 2.2.7.2 (Submitting Balanced Schedules); (6) 
Section 2.5.22.11 (Failure to Conform to Dispatch Instructions); and 
(7) Section 20.3 (Confidential Information).
3. Commission Determination
    23. The MMIP puts market participants on notice regarding their 
rights and obligations in the marketplace. It serves as the rules of 
the road for market participants. It also contemplates that these rules 
will be enforced by the Market Surveillance Unit, in the form of 
monitoring and reporting, or by the appropriate body or bodies 
(including this Commission), in the form of corrective actions.\39\ 
While the Commission's role in this regard may be triggered by the 
referral procedures outlined in the MMIP, the Commission also possesses 
the authority to enforce a filed tariff even in the absence of a 
referral.\40\ We agree with the Staff Final Report that one key 
function of the MMIP is to put market participants on notice as to the 
rules of the road for market participants, so that the markets operated 
by the ISO are free from abusive conduct and may function as 
efficiently and competitively as possible. The Staff Final Report 
finds, and again we agree, that market participants cannot reasonably 
argue that they were not on notice that conduct such as the Gaming 
Practices discussed below would be a violation of the ISO and PX 
tariffs. In short, the key function of the MMIP is to put market 
participants on notice of what practices would be subject to monitoring 
and, potentially, corrective or enforcement action, by either the ISO 
in the first instance or by the Commission, whose role includes 
enforcing the terms and conditions of filed rate schedules. 
Accordingly, it is appropriate for us to institute this proceeding.
---------------------------------------------------------------------------

    \39\ Sections 2.3, 3.3.4 and 7.3 of the MMIP outline the 
procedures to be followed by the ISO and the PX when a market 
participant is found to have engaged in any of the suspect practices 
delineated in the MMIP.
    \40\ 16 U.S.C. Sec. Sec.  824d, 824e, 825h (2000).
---------------------------------------------------------------------------

    24. MMIP 2.3 and its several subparts address how the ISO, 
including the Market Surveillance Unit, is to respond to market 
participants engaging in any of the suspect practices delineated in the 
MMIP. While the MMIP outlines intermediate steps (such as arranging for 
alternative dispute resolution or proposing language changes to the 
tariff), ultimately the MMIP directs the Market Surveillance Unit to 
refer matters to this Commission for enforcement.\41\ The MMIP 
contemplates that, while the ISO 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 the gaming and/
or anomalous market behavior misconduct defined in the MMIP. While part 
2 of the MMIP enumerates suspect practices, MMIP 7.3 authorizes the ISO 
to impose ``sanctions and penalties'' or, as particularly relevant 
here, to refer matters to the Commission for appropriate sanctions or 
penalties.
---------------------------------------------------------------------------

    \41\ MMIP 3.3.4.
---------------------------------------------------------------------------

    25. We agree with the Staff Final Report that if entities are found 
to have engaged in the identified misconduct, they will have violated 
the ISO's and PX's filed tariffs even if such formal procedures as 
referral outlined in the MMIP did not occur. The Commission can enforce 
a filed tariff even when there are processes in that tariff which, had 
they been used, would have assisted the Commission. Ultimately, the 
Commission can enforce a filed tariff with or without the assistance of 
a complaint or a referral.\42\
---------------------------------------------------------------------------

    \42\ 16 U.S.C. 824d, 824e (2000).
---------------------------------------------------------------------------

    26. In this regard, we note that the ISO and PX each initially 
submitted its MMIP (along with other protocols), for informational 
purposes only, on October 31, 1997. The Commission, however, found that 
the protocols, including the MMIP, ``govern a wide range of matters 
which traditionally and typically appear in agreements that should be 
filed with and approved by the Commission.'' \43\ The Commission 
accepted the protocols, including the MMIP, for filing, and directed 
the ISO and PX each to post the protocols on its Internet site and to 
file its complete protocols pursuant to Section 205 of the FPA within 
60 days of the ISO's and PX's Operations Date (that date ultimately was 
April 1,

[[Page 39911]]

1998).\44\ Accordingly, the MMIP has been part of the ISO's and PX's 
filed tariffs since 1998, which includes the period January 1, 2000 to 
June 20, 2001 at issue here.
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    \43\ Pacific Gas and Electric Co., et al., 81 FERC ] 61,320 at 
62,471 (1997).
    \44\ Id. The ISO (in Docket No. EC96-19-029, et al.) and PX (in 
Docket No. EC96-19-28, et al.) each made that compliance filing on 
June 1, 1998.
---------------------------------------------------------------------------

    27. With respect to tariff provisions besides the MMIP cited by the 
California Parties: (1) The WSCC requirements cited by the California 
Parties make no reference to gaming strategies or anomalous market 
behavior (as does the MMIP), and therefore, those provisions do not 
provide a basis for finding gaming and/or anomalous market behavior; 
and (2) conduct involving arbitrage, underscheduling and 
confidentiality of certain data is addressed below in the discussion of 
Gaming Practices and California Practices. We are also currently 
investigating alleged violations related to physical withholding.

C. Overview of PX and ISO Operations

    28. The Staff Final Report provides an overview of the ISO and PX 
operations and trading rules in order to put the alleged practices in 
the context of Western energy markets.\45\ This overview is recited 
below.
---------------------------------------------------------------------------

    \45\ See Staff Final Report, ch. VI at 4-6.
---------------------------------------------------------------------------

    29. The ISO operates much of the transmission grid in California 
and is responsible for real-time operations, such as continually 
balancing generation and load and managing congestion on the 
transmission system it controls. In California, a certified scheduling 
coordinator is the intermediary between the ISO and the ultimate 
customer. Under California's restructuring legislation, the PX was 
created primarily to operate two markets in which energy was traded on 
an hourly basis. These were the day-ahead and day-of markets. These 
markets established a single clearing price for each hour across the 
entire ISO control area, provided there were no transmission 
constraints. Where transmission congestion existed, a separate clearing 
price was established for each transmission constrained area or zone in 
California. Each zonal clearing price was based on adjustment bids 
submitted by sellers and buyers. The adjustment bids represented the 
value to an entity of increasing or decreasing (i.e., adjusting) its 
use of the system. In essence, this is a redispatch of the system to 
deal with congestion.\46\
---------------------------------------------------------------------------

    \46\ For a more detailed description of the day-ahead auction 
process, see the Staff Final Report, ch. VI at 5.
---------------------------------------------------------------------------

    30. The ISO operates a variety of markets in order to procure the 
resources necessary to reliably operate the transmission system, 
including a day-ahead market and an hour-ahead market for relieving 
transmission congestion and an energy market to continuously balance 
the system's energy needs in real time. The latter real-time market is 
the final energy market to clear chronologically, after all other 
markets in the region clear. Bilateral spot markets at trading hubs 
outside California generally operated in the time period between the 
close of the PX market and the ISO real-time market.\47\
---------------------------------------------------------------------------

    \47\ Id. at 5-6.
---------------------------------------------------------------------------

    31. As the Staff Final Report notes, understanding the interaction 
of the PX and ISO spot markets with all their complexities, together 
with the different market operations outside of California, is crucial 
to understanding and analyzing the impact of the various conduct 
discussed below. An example of these complexities is the transmission 
congestion management system. A transmission path is ``congested'' when 
total schedules exceed the available transmission capacity of the 
facilities. The ISO used, as suggested above, a zone-based approach to 
alleviate congestion. Sellers and buyers submitted adjustment bids 
identifying the prices they were willing to use to increase or decrease 
their generation on demand to relieve congestion in a particular zone. 
However, the software used by the ISO to evaluate adjustment bids did 
not accept prices that were higher than the ISO price cap. These and 
other complexities created an opportunity for the market participants 
to engage in the conduct described below.\48\
---------------------------------------------------------------------------

    \48\ Id. at 6.
---------------------------------------------------------------------------

    32. In addition, it is important to remember that California's 
restructuring plan required the three California public utilities 
(Southern California Edison Company (SoCal Edison), San Diego Gas & 
Electric Company (SDG&E), and Pacific Gas and Electric Company (PG&E)) 
to sell all of their generation resources into the PX and to buy all of 
their energy needs from the PX. This made the PX by far the largest 
scheduling coordinator in California, representing at times close to 90 
percent of the load served by the ISO grid. This requirement that the 
three public utilities exclusively use the PX was critical in the 
restructuring program, since this was how the three public utilities 
were to calculate savings from using the new market structure and apply 
those savings to recover their stranded costs.\49\
---------------------------------------------------------------------------

    \49\ Id. at 4.
---------------------------------------------------------------------------

    33. Thus, under the California restructuring rules, the three 
California public utilities were both buyers and sellers in the PX. The 
prices paid for buying back their own resources through the PX served 
to value those resources for stranded cost purposes. As long as the 
three public utilities paid less than the frozen retail rates, they 
used the difference to write off stranded costs. This formula broke 
down, however, when the public utilities had to buy back their 
resources at more than the frozen retail rates.\50\
---------------------------------------------------------------------------

    \50\ Id. at 4-5. As noted in the Commission's December 15, 2000 
Order, 93 FERC at 62,002 & n.54, stranded cost estimates showed that 
by then PG&E had collected $8.3 billion, and SoCal Edison had 
collected $9.3 billion; SDG&E had fully recovered its stranded costs 
earlier in 2000. Staff Final Report, ch. VI at 5.
---------------------------------------------------------------------------

D. Gaming Practices and California Practices

    34. Since the inception of the Commission's investigation into 
whether any entity manipulated prices in the electricity and gas 
markets in the West and the release of the first Enron memorandum in 
May 2002 discussing its trading strategies, there have been a multitude 
of studies and reports written about the alleged inappropriate conduct 
in California by market participants during 2000 and 2001. In addition 
to the Staff Final Report that addresses these issues, we have reviewed 
the ISO Report and the several studies and testimony by witnesses 
submitted in the 100 Days Evidence. Most notable among the testimony 
submitted with respect to alleging gaming conduct by market 
participants are the testimony and studies conducted by Dr. Peter Fox-
Penner.\51\
---------------------------------------------------------------------------

    \51\ See Prepared Testimony of Dr. Peter Fox-Penner on Behalf of 
California Parties, Exhibit No. CA-1, and Appendices to Prepared 
Testimony of Dr. Peter Fox-Penner on Behalf of California Parties, 
Exhibit No. CA-2 attached to California Parties' Supplemental 
Evidence Filing in Docket No. EL00-95-075, et al. (filed March 3, 
2003).
---------------------------------------------------------------------------

    35. As a result of our review and analysis of this material, the 
Commission has determined that some of these alleged gaming practices 
violated the MMIP. As to those practices that violated the MMIP 
(hereafter collectively referred to as the Gaming Practices), we found 
two categories of violations: (1) Gaming Practices that violated the 
MMIP and for which we are seeking disgorgement of all unjust profits 
received as a result of those violations; and (2) Gaming Practices that 
violated the MMIP, but for which there were no unjust profits earned or 
other countervailing and mitigating circumstances existed that caused 
the market participants to engage in the

[[Page 39912]]

Gaming Practices such that it would not be just for the Commission to 
seek the disgorgement of unjust profits.
    36. We have determined that certain of the market participants' 
practices did not violate the MMIP, and we are not pursuing market 
participants for having engaged in such activities (hereafter 
collectively referred to as the California Practices). Rather, we find 
that the California Practices did not violate the ISO tariff or any 
rule, and were recognized and widely accepted as appropriate arbitrage 
activity.
1. Gaming Practices
a. False Import
    37. This practice, which is also known as ``Ricochet'' or 
``Megawatt Laundering,'' took advantage of the price differentials that 
existed between the day-ahead or day-of markets and out-of-market sales 
in the real-time market. A market participant made arrangements to 
export power purchased in the California day-ahead or day-of markets to 
an entity outside the state and to repurchase the power from the out-
of-state entity, for which the out-of-state entity received a fee. The 
``imported'' power was then sold in the California real-time market at 
a price above the cap.
    38. The essence of the False Import practice was to ``park'' day-
ahead or day-of California energy with a company outside of California, 
buy it back for a small fee and then sell it to the ISO as ``imported'' 
out-of-market power. When power was parked under this practice, no 
power actually left the state of California. The reason for creating 
this fictional import was to take advantage of the fact that the ISO 
was making out-of-market purchases that were not subject to the price 
cap during real time whenever there was insufficient supply bid into 
its market.\52\ The ISO buyers responsible for obtaining the energy 
needed in the real-time market were willing to pay a price above the 
cap for energy imported from outside of California and accepted offers 
from sellers engaging in the False Import practice.
---------------------------------------------------------------------------

    \52\ ``Out-of-market purchases'' refers to all generation 
purchased by the ISO that was not bid into the market or was bid at 
a price above the effective price cap. Out-of-market purchases were 
especially frequent prior to the implementation of the ``must 
offer'' requirement effective on May 29, 2001, which mandates that 
all generators with participating generator agreements with the ISO 
provide available generation to the ISO unless the ISO grants a 
waiver. See San Diego Gas & Electric Co., 95 FERC ] 61,115 
(implementing the must offer requirement), clarified, 95 FERC ] 
61,275 (2001).
---------------------------------------------------------------------------

    39. Those market participants who engaged in the False Import 
practice violated the MMIP by unfairly taking advantage \53\ of the 
rules permitting energy to be purchased at prices above the cap in out-
of-market purchases during real time and the ISO's practice of 
permitting such uncapped purchases for imported power. More precisely, 
the market participants engaging in False Import deceived the ISO by 
falsely representing that their available power had been imported in 
order to receive a price above the cap. In fact, however, the 
generation was California generation, and no power had left the state 
in the fictional export-import parking transaction.
---------------------------------------------------------------------------

    \53\ See MMIP 2.1.3.
---------------------------------------------------------------------------

    40. Based on the ISO Report and studies by Dr. Fox-Penner,\54\ the 
following parties may have engaged in the False Import Practice in 
violation of the MMIP and unjustly received prices in excess of the cap 
for energy that was falsely represented as being imported energy: (1) 
Aquila, Inc.; (2) Arizona Public Service Company; (3) Bonneville Power 
Administration; etc., as set forth in Attachment A to this Order.\55\
---------------------------------------------------------------------------

    \54\ As discussed below in section E, because the ISO Report and 
Dr. Fox-Penner's studies were broadly inclusive, we recognize that 
some of the transactions identified in those reports may have been 
legitimate transactions and not Gaming Practices.
    \55\ The monetary remedy of disgorgement of unjust profits for 
this particular Gaming Practice would be imposed only until such 
time as the mitigated market clearing price was put in place for 
transactions, i.e., on June 21, 2001. Furthermore, during the period 
covered by the refund period (October 2, 2000-June 21, 2001), see 
supra note 3, all spot market sales through the PX in the day ahead 
market are mitigated as are all transactions with the ISO in the 
real time market. Therefore, both the energy price for the export 
and the import are mitigated during this period. Accordingly, 
disgorgement for this strategy will apply to only transactions 
between May 2000 and the start of the refund period on October 2, 
2000.
---------------------------------------------------------------------------

b. Congestion-Related Practices.
    41. According to the ISO rules, market participants received 
congestion relief payments for relieving flows in the direction of 
congestion or increasing counterflows in the opposite direction. There 
were four practices that market participants engaged in that involved 
false scheduling of load or counterflow energy that appeared to relieve 
congestion in real time so that they could receive congestion 
payments.\56\
---------------------------------------------------------------------------

    \56\ As noted above, supra notes 1 and 3, June 20, 2001 has been 
selected as the end date of the relevant period in this proceeding. 
While the mitigation plan, which became effective on that date, was 
primarily intended to control the real-time energy market, it also 
had a disciplining effect on congestion costs and eliminated the 
opportunity to profit from Gaming Practices. The ISO Market Analysis 
Report for June 2001 shows that the average price of real-time 
electricity in June decreased 62 percent to $104/MWh from the May 
2001 average of $275/MWh and total congestion costs for June 2001 
were $0.5 million, down from $7 million in May 2001. A. Sheffrin, 
Market Analysis Report for June 2001, (July 20, 2001), available at 
<http://www.caiso.com/docs/2001/07/20/200107201733319105.pdf.
---------------------------------------------------------------------------

    42. The first such Congestion-Related practice is referred to as 
Cutting Non-firm, also sometimes known as Non-firm Export. This 
practice involved the scheduling of non-firm power by a market 
participant that did not intend to deliver or cannot deliver the power. 
Upon receipt of the congestion payment for cutting the schedule, the 
market participant then canceled the non-firm power after the hour-
ahead market closed but kept the congestion payment. No power was 
transmitted and no congestion was relieved, but the market participant 
was paid for congestion relief. In some instances, the market 
participant may have submitted a schedule for non-firm power that it, 
in fact, had not acquired.
    43. The second Congestion-Related practice is Circular Scheduling, 
also sometimes referred to as ``Death Star.'' The Circular Scheduling 
practice involved the market participant scheduling a counterflow in 
order to receive a congestion relief payment. In conjunction with the 
counterflow, the market participant scheduled a series of transactions 
that included both energy imports and exports into and out of the ISO 
control area and a transaction outside the ISO control area in the 
opposite direction of the counterflow back to the original place of 
origin. With the same amount of power scheduled back to the point of 
origin, however, power did not actually flow and congestion was not 
relieved. Circular Scheduling was profitable as long as the congestion 
relief payments were greater than the cost of scheduled transmission.
    44. The third Congestion-Related practice was Scheduling 
Counterflows on Out-of-Service Lines, also sometimes referred to as 
``Wheel Out.'' This practice involved a market participant submitting a 
schedule across an intertie line at the ISO border that was known to be 
out of service and had been derated to zero capacity, thus creating 
artificial congestion. The market participant would then schedule a 
counterflow export, a ``wheel out,'' and be paid for congestion relief 
in the day-ahead or hour-ahead market. However, because the line was 
completely constrained, the initial schedule was certain to be cut by 
the ISO in real time and the market participant would receive a 
congestion payment for energy it did not actually supply.
    45. The fourth Congestion-Related practice, known as ``Load 
Shift,'' involved a market participant

[[Page 39913]]

underscheduling load in one zone in California and overscheduling load 
in another, thereby increasing congestion in the direction of the 
overscheduled zone. Congestion ``relief'' occurred when the market 
participant later adjusted the two schedules to reflect actual expected 
loads. This adjustment created a counterflow toward the underscheduled 
zone, earning the market participant a congestion relief payment from 
the ISO. The market participant had to own Firm Transmission Rights 
(FTRs) in the direction of the overscheduled zone to cover its exposure 
to ISO congestion charges, but any of the FTRs that it did not use may 
have earned artificially high FTR payments from the ISO.
    46. Each of the four Congestion-Related practices violated the MMIP 
because the market participants submitted false schedules to the ISO. 
In the cases of Cutting Non-firm, Circular Scheduling, and Scheduling 
Counterflows on Out-of-Service Lines, the market participants 
fraudulently received congestion relief payments for energy that was 
never provided and did not relieve congestion. Similarly, market 
participants who engaged in the Load Shift practice received congestion 
payments for their FTRs as a result of the very congestion that they 
created. As a result of these false representations, the market 
participants that engaged in these Congestion-Related practices 
unfairly took advantage of the ISO rules regarding payment for 
congestion relief.
    47. Based on the ISO Report and studies by Dr. Fox-Penner, the 
following parties may have engaged in one or more of these four 
Congestion-Related Practices in violation of MMIP and unjustly received 
congestion payments: (1) American Electric Power Service Corp.; (2) 
Aquila, Inc.; (3) Duke Energy Trading and Marketing Company; etc., as 
set forth in Attachment B to this Order.

c. Ancillary Services-Related Practices.

    48. There are three different practices that market participants 
engaged in that involved selling ancillary services, also sometimes 
collectively referred to as ``Get Shorty.'' Two of these we consider to 
be Gaming Practices and violations of the MMIP and are discussed here. 
The third, we determine to be a form of legitimate arbitrage and is 
discussed below, in the section addressing the California Practices.
    49. The first Ancillary Services-Related practice we refer to as 
Paper Trading. This practice involved selling ancillary services in the 
day-ahead market even though the market participant did not have the 
required resources available to provide the ancillary services. The 
market participant then bought back these ancillary services in the 
hour-ahead market at a lower price.
    50. The second Ancillary Services-Related practice we refer to as 
Double Selling. This practice involved selling ancillary services in 
the day-ahead market from resources that were initially available, but 
later selling those same resources as energy in the hour-ahead or real-
time markets.
    51. Market participants that engaged in Paper Trading and/or Double 
Selling violated the MMIP since they unfairly took advantage \57\ of 
the market rules by using false representations and/or receiving 
payments for services that they did not provide. With respect to Paper 
Trading, the ISO's tariff requires that any bid for the provision of 
ancillary services specify the generating unit, system unit, load or 
system resource which will be used to provide the ancillary service. 
Additionally, a scheduling coordinator must identify the specific 
operating characteristics of that resource which would qualify it to 
provide ancillary services.\58\ However, market participants engaged in 
Paper Trading falsely represented that the resources were available to 
provide ancillary services when they were not actually available. 
Similarly, with respect to Double Selling, the market participant 
misled the ISO by selling capacity that it had already committed to 
reserve as ancillary services, thus making that capacity no longer 
available in real time if the ISO were to call upon that resource to 
provide ancillary services. In addition to violating the MMIP, those 
market participants that engaged in Double Selling also violated 
Section 2.5.22.11 of ISO tariff.\59\
---------------------------------------------------------------------------

    \57\ See MMIP 2.1.3.
    \58\ ISO Tariff Sec.  2.5.6.1 (applicable to generation within 
California); and ISO Tariff Sec. Sec.  2.5.7.4.2 and 2.5.7.4.3 
(applicable to resources outside of California).
    \59\ Section 2.5.22.11 of the ISO Tariff (Failure To Conform To 
Dispatch Instructions) requires that resources that have been 
committed to provide ancillary services for a given period must be 
available and capable of providing the services for the full 
duration of the period.
---------------------------------------------------------------------------

    52. Although the ISO Report includes a list of market participants 
that may have engaged in Paper Trading, the ISO does not have the 
information necessary to determine the extent to which the capacity for 
ancillary services sold in the day-ahead market and then sold back in 
the hour-ahead was not actually available or could not have been 
provided. However, in a market notice, dated July 3, 2002, the ISO 
listed market participants that received payments for ancillary 
services that were called upon but for which they could not deliver the 
services.\60\ Based on the identification of market participants in the 
July 3, 2002 market notice as well as the ISO Report, the Commission 
believes that the following parties may have engaged in Paper Trading 
in violation of the MMIP and Section 2.5.22.11 of the ISO tariff and 
unjustly received payments for ancillary services: (1) Arizona Public 
Service Co.; (2) Automated Power Exchange, Inc.; (3) Bonneville Power 
Administration; etc., set forth on Attachment C to this Order.
---------------------------------------------------------------------------

    \60\ California ISO, Ancillary Services Payments Rescinded Due 
to Generator Unavailability, Market Notice (July 3, 2002). For the 
convenience of parties, the ISO's July 3, 2002 market notice is 
attached as Attachment G to this order.
---------------------------------------------------------------------------

    53. Based on the studies by Dr. Fox-Penner, the Commission believes 
that the following parties may have engaged in Double Selling in 
violation of MMIP and unjustly received payments for ancillary 
services: (1) Duke Energy Trading and Marketing Corp.; (2) Dynegy Power 
Marketing Inc., Dynegy Power Corp., El Segundo Power LLC, Long Beach 
Generation LLC, Cabrillo Power I LLC, and Cabrillo Power II LLC; (3) 
Mirant Americas Energy Marketing, LP, Mirant California, LLC, Mirant 
Delta, LLC, and Mirant Potrero, LLC; and (4) Reliant Resources, Inc., 
Reliant Energy Power Generation, and Reliant Energy Services, Inc.; as 
set forth on Attachment D to this Order.
d. Selling Non-Firm Energy as Firm
    54. The practice of Selling Non-Firm Energy as Firm involved Enron 
\61\ buying non-firm energy from outside California and then selling it 
to the ISO as firm energy. Enron was able to derive an unjust profit 
from this practice because it avoided the cost of purchasing the 
operating reserves that are required for firm energy.
---------------------------------------------------------------------------

    \61\ In the 100 Days Evidence, Seattle alleges that Avista, El 
Paso, Portland General, PowerEx, and Transalta engaged in all of the 
Gaming Practices. However, we have seen no evidence that any market 
participant engaged in Selling Non-Firm Energy as Firm other than 
Enron.
---------------------------------------------------------------------------

    55. The practice of Selling Non-Firm Energy as Firm was a flagrant 
false representation by Enron to the ISO. Thus, it was a violation of 
the MMIP.
2. Gaming Practices for Which Disgorgement of Unjust Profits Is Not 
Sought
a. Underscheduling Load.
    56. This practice was an effort by the load-serving entities, 
primarily the three California utilities (PG&E, SoCal Edison, and 
SDG&E), to reduce the overall price paid for generation. For months 
they understated their load consistently in

[[Page 39914]]

schedules submitted to the PX in an effort to reduce the amount of 
generation purchased in the day-ahead market, thereby lowering the 
price. The remainder of the utilities' generation needs would be 
purchased in the ISO's capped real-time market.
    57. Under the then-existing market rules, the utilities were 
required to satisfy their need for energy with purchases from the PX 
and were to bid in their generation in the PX day-ahead market in an 
amount equal to their load.\62\ However, during 2000, in an effort to 
minimize their energy costs, the three California public utilities 
began to routinely underschedule their load in the PX day-ahead market. 
Due to the large size of the three California public utilities, changes 
in their purchasing strategies had a significant impact on market 
outcomes, including the market-clearing prices in the PX day-ahead 
market. By moving a significant amount of their load out of the PX day-
ahead market, less supply bids were needed to clear the market which, 
in turn, resulted in lower market clearing prices in the PX day-ahead 
market. As a direct result of the underscheduling by the three public 
utilities in the day-ahead market, however, the ISO had to meet a 
larger percentage of the load in real time, causing serious operational 
and reliability problems.
---------------------------------------------------------------------------

    \62\ The Commission halted this practice created under 
California legislation (see AB 1890 (September 23, 1996)) and began 
allowing the utilities to procure resources under long-term 
contracts in December 2000. See supra note 3.
---------------------------------------------------------------------------

    58. Because Underscheduling Load required the utilities to submit 
false schedules with regard to their loads to the PX, this conduct was 
certainly troublesome and is not condoned by the Commission.\63\ 
Moreover, it violated the MMIP by unfairly taking advantage of the 
rules and caused a demonstrable detriment to the efficiency of the 
market.\64\ Although we disapprove of the practice of Underscheduling 
Load and we have the authority to order disgorgement of unjust profits, 
there are no profits to disgorge since this was a price-reducing 
purchasing strategy.
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    \63\ The Commission previously noted in several orders that the 
widespread underscheduling of load was taking place in the 
California markets, and directed changes to the market rules and 
allowed penalties, in an attempt to address the problem. See 
December 19, 2001 Order, 97 FERC at 62,226-27; December 15, 2000 
Order, 93 FERC at 62,002-03; November 1, 2000 Order, 93 FERC at 
61,361-62; and August 23, 2000 Order, 92 FERC at 61,608.
    \64\ MMIP 2.1.3.
---------------------------------------------------------------------------

b. Overscheduling Load.
    59. The practice of Overscheduling Load involved a market 
participant with more generation than load falsely overstating to the 
ISO its scheduled load to correspond with the amount of generation in 
its schedule. This practice, also sometimes referred to as ``Inc-ing'' 
or ``Fat Boy,'' permitted the market participant to be dispatched by 
the ISO during real time to its full capacity and receive the real-time 
market clearing price even though it did not have scheduled load equal 
to its generation capacity when it bid into the day-ahead market. Thus, 
Overscheduling Load ensured that generation would not go unsold in the 
real-time market.
    60. Overscheduling Load required the market participant to submit a 
false load schedule to the ISO since the ISO required that only 
balanced schedules of load and generation could be bid into the day-
ahead market. Although the submission of such false schedules is a 
violation of the MMIP, there were countervailing circumstances that 
existed in the California market at the time that caused the market 
participants to engage in Overscheduling Load. The ISO rules required 
that all market participants submit schedules containing balanced 
levels of generation and load. However, as noted above, in an effort to 
minimize their procurement costs in the California market due to the 
interplay between the PX and ISO rules, the utilities routinely 
underscheduled their load. The market participants who engaged in 
Overscheduling Load did so as a direct response to the utilities' 
practice of Underscheduling Load.\65\ Overscheduling Load actually 
helped reduce reliability problems in the real-time market. In fact, 
Overscheduling Load was often actively encouraged by the ISO because it 
reduced the need for real-time energy due to the utilities' 
underscheduling.\66\ Finally, participants who engaged in 
Overscheduling Load did not set the market clearing price because, as 
uninstructed energy, they were price takers who were paid the ex-post 
price for imbalance energy which was set by the bid of the marginal 
unit dispatched.\67\ Therefore, we are not seeking disgorgement of 
unjust profits from those market participants who engaged in 
Overscheduling Load.
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    \65\ The phenomenon of market participants engaging in 
Overscheduling Load in response to the utilities' practice of 
Underscheduling Load was widely known and accepted. See Report on 
California Energy Markets Issues and Performance: May-June, 2000, 
Special Report, by Department of Market Analysis, California ISO, 
dated August 10, 2000, pages 2-3, 25-37, available at <http://www.caiso.com/docs/09003a6080/07/40/09003a6080074029.pdf.
    \66\ Some of the generators in the 100 Days Evidence indicated 
that the ISO had encouraged the practice of Overscheduling Load to 
obtain needed supply. For example, Reliant stated that the ISO 
assisted it by creating an artificial load point, i.e., helped it 
provide additional generation to the market. See Reliant's Reply to 
the March 3, 2003 Submission of California Parties, Vol. I. Exhibit 
REL-27 at 33-34 (Docket No. EL00-95-089, et al., March 23, 2003). In 
addition, in explaining that Overscheduling Load did not cause or 
exacerbate the high price in May 2000, an ISO report states that the 
generation that was overscheduled was not hidden from the ISO but 
was directly factored into the ISO's decision about how much 
generation would be required to meet real time demand. E. 
Hildebrandt, ISO's Department of Market Analysis, Did Any of Enron's 
Trading and Scheduling Practices Contribute to Outages in 
California? at 12-13 (November 15, 2002), available at http://www.caiso.com/docs/2002/11/26/2002112610411219558.pdf.
    \67\ See ISO Tariff section 2.5.23.
---------------------------------------------------------------------------

3. California Practices
    61. As noted, the Commission has determined that some of the 
conduct discussed in the Staff Final Report and the 100 Days Evidence 
did not violate the MMIP or any other tariff violation. These 
California Practices were widely recognized and accepted as appropriate 
and legitimate practices, as discussed below. They did not involve any 
false representations or take unfair advantage of ISO rules. 
Accordingly, we are not seeking to recover the profits earned by market 
participants as the result of engaging in such conduct.
a. Export of California Power
    62. This practice involved a purchase of power in the California 
day-ahead market at or below the price cap and then a resale of the 
power outside the state at a higher (uncapped) price. Unlike the False 
Import practice discussed above, energy is actually exported out of 
California.
    63. This practice did not violate the tariffs or rules of the PX or 
ISO.\68\ Market participants were engaging in arbitrage between the 
California market, which had price caps in effect, and markets outside 
of California that did not have price caps and where they could receive 
a higher price.\69\ This type of export practice has never been 
prohibited and, to the extent it does not involve collusion with other 
market participants,\70\ represents legitimate economically rational 
attempts by the

[[Page 39915]]

market participants to maximize their profits.
---------------------------------------------------------------------------

    \68\ We note, however, that the ISO does have the authority to 
alter scheduled deliveries of energy and ancillary services into or 
out of the ISO controlled grid to avert a system emergency. See ISO 
Tariff Sec.  5.6.1.
    \69\ In fact, this is precisely what arbitrage is--i.e., the 
purchase of a commodity, such as electricity, in one market (day-
ahead), for immediate resale in another market (real-time) in order 
to profit from the unequal prices. As more parties engage in 
arbitrage, prices between the markets converge and the opportunity 
for profits should disappear.
    \70\ There has been no evidence discovered to suggest that there 
was any collusion between market participants to export their energy 
outside of California in order to create scarcity within California.
---------------------------------------------------------------------------

b. Ancillary Services-Related Practices--Arbitrage.
    64. As noted above, market participants engaged in several 
different practices involving ancillary services. Two of those we 
discussed above (Paper Trading and Double Selling) and we consider 
those practices to be Gaming Practices in violation of the MMIP. 
However, to the extent a market participant was merely taking advantage 
of systematic differences in the day-ahead and hour-ahead market prices 
for ancillary services by selling ancillary services in the day-ahead 
market and buying them back at a lower price in the hour-ahead market, 
we find this practice to be consistent with legitimate arbitrage.\71\ 
Thus, as long as the market participant had the generation available to 
provide the ancillary services or appropriately contracted for it, 
selling the energy at one price and buying it back at a lower price did 
not violate the ISO rules or tariff and was nothing more than a method 
for the market participant to reap a valid profit from the price 
differential in the day-ahead and real-time markets.
---------------------------------------------------------------------------

    \71\ See California Independent System Operator Corporation, 82 
FERC ] 61,327 (1998) (Commission accepted ISO Tariff Amendment No. 
4, which allowed scheduling coordinators to buy back and sell 
ancillary services in the hour-ahead market).
---------------------------------------------------------------------------

c. Access to IIR Outage Data.
    65. For an annual fee, market participants could subscribe to a 
generation outage notification service provided by Industrial 
Information Resources (IIR). IIR provided information to subscribers 
via daily e-mails and upon request regarding plant outages in the West. 
The information sometimes included the cause of outages, prospective as 
well as current plant outages, and expected start and end dates. IIR 
obtained information directly from the generating plants.
    66. In the 100 Days Evidence, the California Parties alleged that 
market participants who utilized IIR violated the ISO tariff regarding 
confidentiality of outage data and that subscriptions to the IIR 
service raised issues under the antitrust laws. We disagree. The ISO 
tariff prohibits the ISO from revealing market participants' 
confidential outage data; the tariff does not prohibit the market 
participants providing the information to third parties and then 
subscribing to third-parties' services.\72\ Further, subscribing to a 
service that provides outage information does not mean that the 
subscribers used that information to manipulate the market. There has 
been no evidence to suggest that the sharing of outage information was 
used to manipulate the market. Subscribing to IIR's service did not 
involve any false representations, rule violations, or violations of 
MMIP. Furthermore, no evidence was offered to suggest that any outage 
data was used in a collusive manner to raise prices.
---------------------------------------------------------------------------

    \72\ ISO Tariff 20.3.1-20.3.3.
---------------------------------------------------------------------------

E. Further Clarification as to What Constitutes Gaming Practices

    67. The screens used by the ISO and Dr. Fox-Penner are broadly 
inclusive and some of the characteristics that were used to identify 
potential Gaming Practices may also be present intransactions that were 
not actually Gaming Practices. In fact, the 100 Days Evidence indicates 
that there may be legitimate explanations for many of the transactions 
that may initially appear to be Gaming Practices. As a result, the 
Identified Entities will have an opportunity to submit evidence to the 
ALJ that may demonstrate that any or all of the transactions identified 
in the ISO Report or Dr. Fox-Penner's studies were not Gaming 
Practices. For example, with respect to transactions identified as 
False Imports, evidence that may demonstrate that the transactions were 
legitimate transactions and not part of a False Import practice might 
include establishing that: (a) The ``imported'' power was actually 
imported from outside the state of California and not a fictitious 
import, i.e., not an export and import that constitutes a False Import, 
as described above; (b) the transaction was designed to work around a 
transmission constraint (such as on Path 15) which limited the movement 
of power between two points within the ISO control area by using an 
uncongested transmission path (such as the Pacific DC intertie) to move 
the power to a point outside the ISO control area and back to its 
intended destination; (c) the export and import were actually two 
independent and unrelated obligations such as a pre-existing long-term 
bilateral contractual export obligation followed by a real-time import 
from the same party in an unrelated transaction; or (d) the market 
participant was importing power on behalf of the ISO or California 
Department of Water Resources (California DWR), because suppliers were 
unwilling to assume the credit risk of dealing directly with the ISO or 
California DWR.
    68. Similarly, evidence that may establish that transactions were 
not part of a Cutting Non-firm practice might be that, with respect to 
any energy that was scheduled, but did not flow, the energy did not 
flow due to circumstances beyond the control of the market participant 
and without prior knowledge by the market participant that the energy 
would not flow. Regarding Paper Trading and Double Selling, evidence 
that may establish that the transactions, identified by the ISO and Dr. 
Fox-Penner, were not in fact Gaming Practices, but were instead 
legitimate transactions might include showing that: (a) The resources 
to provide the ancillary services sold in the day-ahead market were 
actually available to the bidder; (b) ancillary services payments were 
not received for capacity that was not available to provide ancillary 
services, or (c) the ISO requested that the market participant provide 
energy in the real-time market even though it knew that such energy was 
being held for ancillary services previously sold to the ISO.

F. Identified Entities With Revenues of $10,000 or Less

    69. We are exercising our prosecutorial discretion and not 
prosecuting certain of the Identified Entities which the ISO Report 
states have earned revenues of $10,000 or less for a particular Gaming 
Practice and where we have no other basis to prosecute them for that 
particular Gaming Practice.\73\ In the ISO's latest report analyzing 
various practices, the ISO states that its analysis includes market 
participants with a relatively small number of transactions and 
revenues from particular practices. The ISO explains that the smaller 
the volume of transactions and the revenues identified for individual 
market participants, the less the likelihood that the transactions 
represent prohibited Gaming Practices. The ISO, in fact, recommends 
applying a minimum threshold in any further investigations of these 
practices.\74\ We agree that the burden and costs to both the parties 
and

[[Page 39916]]

the Commission associated with litigating whether market participants 
whose revenues were less than $10,000 for particular Gaming Practices 
engaged in those practices may exceed any unjust profits on the 
revenues that resulted from such transactions. Accordingly, we are 
exercising our prosecutorial discretion and not proceeding against 
certain Identified Entities for particular Gaming Practices.
---------------------------------------------------------------------------

    \73\ We, thus, are exercising our prosecutorial discretion and 
not prosecuting Constellation Power Source, Inc. for False Import 
practice.
    Further, we are exercising our prosecutorial discretion and not 
prosecuting, Calpine Corp., Idaho Power Company, Modesto Irrigation 
District, TransAlta Energy Marketing (U.S.) Inc. and TransAlta 
Energy Marketing (California), Inc., and Williams Energy Services 
Corp. for Cutting Non-firm.
    We, likewise, are not prosecuting Arizona Public Service 
Company, Calpine Corp., Hafslund Energy Trading, LLC, Portland 
General Electric Company, and Puget Sound Energy, Inc. for Circular 
Scheduling.
    We, similarly, are not prosecuting Calpine Corp., City of 
Vernon, Constellation Power Source, Inc., Public Service Company of 
New Mexico and Portland General Electric Company for Paper Trading.
    \74\ ISO Report at 3-4 (June 2003) .
---------------------------------------------------------------------------

G. Show Cause Order and Institution of Trial-Type Evidentiary 
Proceeding

    70. As described above, and as the Staff Final Report concludes, 
the Gaming Practices identified above violate the ISO's and PX's filed 
tariffs, and the Identified Entities appear to have engaged in such 
practices, as identified above.
    71. Accordingly, we require these entities to show cause, in a 
trial-type evidentiary proceeding to be held before an ALJ, why they 
should not be found to have engaged in Gaming Practices in violation of 
the ISO's and PX's tariffs.\75\ In addition, we direct the ALJ to hear 
evidence and render findings and conclusions, quantifying the full 
extent to which the entities named herein may have been unjustly 
enriched by their engaging in Gaming Practices.\76\ We require that any 
and all such unjust profits for the period January 1, 2000 to June 20, 
2001 be disgorged in their entirety. We also direct the ALJ to consider 
any additional, appropriate non-monetary remedies, as may be 
appropriate, e.g., revocation of an Identified Entity's market-based 
rate authority and revisions to an Identified Entity's code of 
conduct.\77\
---------------------------------------------------------------------------

    \75\ We will incorporate the Staff Final Report and the 
underlying record in Docket No. PA02-2-000 by reference into the 
record in this proceeding.
    \76\ We will permit the parties to introduce relevant evidence 
from the 100 Days Evidence proceeding. See supra P 9.
    As discussed in the Staff Final Report and in the body of this 
order, there is evidence of gaming and/or anomalous market behavior 
sufficient to require the Identified Entities to show cause why they 
should not be found to have engaged in Gaming Practices in violation 
of the ISO's and PX's tariffs. As a result, the burden of going 
forward will be placed on the Identified Entities. However, the 
ultimate burden is upon the Commission. To that end, the Commission 
is aware that many parties in California and elsewhere in the West 
have sought a forum in which to address the issues raised in this 
proceeding. Those parties may participate in this proceeding upon 
attaining intervenor status.
    \77\ See supra P 2.
---------------------------------------------------------------------------

    72. The ISO shall, within 21 days of the date of this order, 
provide the Identified Entities all of the specific transaction data 
for each of the Gaming Practices discussed in the ISO Report, including 
an explanation of the screen(s) that it used to identify the 
transactions in question. The ISO shall contemporaneously file that 
transaction data, including the explanation of its screen(s), with the 
Commission. Unless the Identified Entity files an offer of settlement 
as discussed below, within 45 days thereafter, the Identified Entities 
shall file their show cause responses.
    73. We recognize that, in some instances, the burdens and costs to 
both the parties and the Commission associated with litigating whether 
certain market participants engaged in particular Gaming Practices and 
violated the MMIP may exceed the revenues and unjust profits that 
resulted from such transactions. There are also many disputed issues of 
fact which, in litigation, would tend to prolong uncertainty for the 
Identified Entities and the marketplace as a whole. Therefore, we 
encourage the Identified Entities to resolve these proceedings by 
settlement with the Commission's Trial Staff. In this regard, should 
participants not settle on a mechanism to distribute monies, the ALJ 
should request comment and render a finding on a mechanism that will 
fairly distribute any monies to those customers harmed by the Gaming 
Practices.
    74. Finally, given the commonality of issues of law and fact 
presented herein, Docket Nos. EL03-137-000, EL03-138-000, EL03-139-000, 
EL03-140-000, EL03-141-000, EL03-142-000, EL03-143-000, EL03-144-000, 
EL03-145-000, EL03-146-000, EL03-147-000, EL03-148-000, EL03-149-000, 
EL03-150-000, EL03-151-000, EL03-152-000, EL03-153-000, EL03-154-000, 
EL03-155-000, EL03-156-000, EL03-157-000, EL03-158-000, EL03-159-000, 
EL03-160-000, EL03-161-000, EL03-162-000, EL03-163-000, EL03-164-000, 
EL03-165-000, EL03-166-000, EL03-167-000, EL03-168-000, EL03-169-000, 
EL03-170-000, EL03-171-000, EL03-172-000, EL03-173-000, EL03-174-000, 
EL03-175-000, EL03-176-000, EL03-177-000, EL03-178-000 and EL03-179-000 
will be consolidated for purposes of hearing and decision.
    The Commission orders:
    (A) Pursuant to the authority contained in and subject to the 
jurisdiction conferred upon the Federal Energy Regulatory Commission by 
section 402(a) of the Department of Energy Organization Act and the 
Federal Power Act, and pursuant to the Commission's Rules of Practice 
and Procedure and the regulations under the Federal Power Act (18 CFR 
Chapter I), a public hearing shall be held in Docket Nos. EL03-137-000, 
EL03-138-000, EL03-139-000, EL03-140-000, EL03-141-000, EL03-142-000, 
EL03-143-000, EL03-144-000, EL03-145-000, EL03-146-000, EL03-147-000, 
EL03-148-000, EL03-149-000, EL03-150-000, EL03-151-000, EL03-152-000, 
EL03-153-000, EL03-154-000, EL03-155-000, EL03-156-000, EL03-157-000, 
EL03-158-000, EL03-159-000, EL03-160-000, EL03-161-000, EL03-162-000, 
EL03-163-000, EL03-164-000, EL03-165-000, EL03-166-000, EL03-167-000, 
EL03-168-000, EL03-169-000, EL03-170-000, EL03-171-000, EL03-172-000, 
EL03-173-000, EL03-174-000, EL03-175-000, EL03-176-000, EL03-177-000, 
EL03-178-000 and EL03-179-000: (1) where the Identified Entities shall 
show cause why they should not be found to have employed the above-
described Gaming Practices in violation of the ISO's and PX's tariffs; 
and (2) where the appropriate remedies may be identified and 
quantified, as discussed in the body of this order.
    (B) Any interested person desiring to be heard in these proceedings 
should file a notice of intervention or motion to intervene with the 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, in accordance with Rule 214 of the Commission's 
Rules of Practice and Procedure (18 CFR Sec.  385.214), within 21 days 
of the date of this order.
    (C) The ISO is hereby directed to provide the Identified Entities 
with all of the specific transaction data for each of the Gaming 
Practices discussed in the ISO Report, including an explanation of the 
screen that it used to identify the transactions in question, within 21 
days of the date of this order, as discussed in the body of this order. 
The ISO shall contemporaneously file such transaction data with the 
Commission.
    (D) Within 45 days of the ISO's submittal made pursuant to Ordering 
Paragraph (C) above, the Identified Entities shall submit show cause 
responses, as discussed in the body of this order.
    (E) An administrative law judge, to be designated by the Chief 
Administrative Law Judge, shall convene a prehearing conference in this 
proceeding to be held within approximately fifteen (15) days of the 
filing of the show cause submissions ordered in Ordering Paragraph (D) 
above, in a hearing room of the Federal Energy Regulatory Commission, 
888 First Street, NE., Washington, DC 20426. Such conference shall be 
held for the purpose of establishing a procedural schedule. The 
presiding judge is authorized to establish procedural dates and to rule 
on all motions (except motions to dismiss), as provided in the

[[Page 39917]]

Commission's Rules of Practice and Procedure.
    (F) Docket Nos. EL03-137-000, EL03-138-000, EL03-139-000, EL03-140-
000, EL03-141-000, EL03-142-000, EL03-143-000, EL03-144-000, EL03-145-
000, EL03-146-000, EL03-147-000, EL03-148-000, EL03-149-000, EL03-150-
000, EL03-151-000, EL03-152-000, EL03-153-000, EL03-154-000, EL03-155-
000, EL03-156-000, EL03-157-000, EL03-158-000, EL03-159-000, EL03-160-
000, EL03-161-000, EL03-162-000, EL03-163-000, EL03-164-000, EL03-165-
000, EL03-166-000, EL03-167-000, EL03-168-000, EL03-169-000, EL03-170-
000, EL03-171-000, EL03-172-000, EL03-173-000, EL03-174-000, EL03-175-
000, EL03-176-000, EL03-177-000, EL03-178-000 and EL03-179-000 are 
hereby consolidated for purposes of hearing and decision.
    (G) The Secretary is hereby directed to publish a copy of this 
order in the Federal Register.

    By the Commission. Commissioner Massey dissented in part with a 
separate statement attached.
Magalie R. Salas,
Secretary.

Attachment A.--Market Participants Alleged to Have Engaged in the False 
Import Practice in Violation of the MMIP

1. Aquila, Inc.
2. Arizona Public Service Co.
3. Bonneville Power Administration
4. City of Glendale
5. Coral Power, LLC
6. Duke Energy Trading and Marketing Co.
7. Dynegy Power Marketing Inc., Dynegy Power Corp., El Segundo Power 
LLC, Long Beach Generation LLC, Cabrillo Power I LLC, and Cabrillo 
Power II LLC
8. Enron Power Marketing, Inc. and Enron Energy Services Inc.
9. Idaho Power Co.
10. Los Angeles Department of Water and Power
11. Mirant Americas Energy Marketing, LP, Mirant California, LLC, 
Mirant Delta, LLC, and Mirant Potrero, LLC
12. Pacificorp
13. PGE Energy Services
14. Portland General Electric Co.
15. Powerex Corp.
16. Public Service Co. of New Mexico
17. Puget Sound Energy
18. Reliant Resources, Inc., Reliant Energy Power Generation, and 
Reliant Energy Services, Inc.
19. Salt River Project Agricultural Improvement and Power District
20. Sempra Energy Trading Corp.
21. Tuscon Electric Power Co.
22. Williams Energy Services Corp.

Attachment B--Market Participants Alleged to Have Engaged in 
Congestion-Related Practices in Violation of the MMIP

Cutting Non-firm

1. American Electric Power Services Corp.
2. Aquila, Inc
3. Cargill-Alliant, LLC
4. City of Glendale
5. City of Riverside
6. Coral Power, LLC
7. Duke Energy Trading & Marketing Company
8. Dynegy Power Marketing Inc., Dynegy Power Corp., El Segundo Power 
LLC, Long Beach Generation LLC, Cabrillo Power I LLC, and Cabrillo 
Power II LLC
9. Enron Power Marketing, Inc. and Enron Energy Services Inc.
10. Mirant Americas Energy Marketing, LP, Mirant California, LLC, 
Mirant Delta, LLC, and Mirant Potrero, LLC
11. Morgan Stanley Capital Group
12. Pacific Gas and Electric Company
13. PacifiCorp.
14. Portland General Electric Company
15. Powerex Corp.
16. Puget Sound Energy, Inc.
17. San Diego Gas & Electric Company
18. Sempra Energy Trading
19. Sierra Pacific Power Company
20. Southern California Edison Company

Circular Scheduling

1. American Electric Power Service Corp.
2. Aquila, Inc.
3. Automated Power Exchange, Inc.
4. Cargill-Alliant, LLC
5. City of Glendale
6. City of Redding
7. City of Riverside
8. Coral Power, LLC
9. Duke Energy Trading and Marketing Company
10. Dynegy Power Marketing Inc., Dynegy Power Corp., El Segundo Power 
LLC, Long Beach Generation LLC, Cabrillo Power I LLC, and Cabrillo 
Power II LLC
11. Enron Power Marketing, Inc. and Enron Energy Services Inc.
12. F P & L Energy
13. Idaho Power Company
14. Los Angeles Department of Water and Power
15. Mirant Americas Energy Marketing, LP, Mirant California, LLC, 
Mirant Delta, LLC, and Mirant Potrero, LLC
16. Modesto Irrigation District
17. Morgan Stanley Capital Group
18. Pacificorp
19. PGE Energy Services
20. Powerex Corp.
21. Public Service Company of Colorado
22. Salt River Project Agricultural Improvement and Power District
23. San Diego Gas & Electric Company
24. Sempra Energy Trading Corp.
25. Southern California Edison Company
26. TransAlta Energy Marketing (U.S.) Inc. and TransAlta Energy 
Marketing (California), Inc.
27. Williams Energy Services Corp.

Scheduling Service on Out-of-Service Lines

1. City of Anaheim
2. Coral Power, LLC
3. Duke Energy Trading and Marketing Company
4. Dynegy Power Marketing Inc., Dynegy Power Corp., El Segundo Power 
LLC, Long Beach Generation LLC, Cabrillo Power I LLC, and Cabrillo 
Power II LLC
5. Enron Power Marketing, Inc. and Enron Energy Services Inc.
6. Morgan Stanley Capital Group
7. Powerex Corp.
8. Sempra Energy Trading Corp.

Load Shift

1. City of Glendale
2. Coral Power, LLC
3. Duke Energy Trading and Marketing Company
4. Dynegy Power Marketing Inc., Dynegy Power Corp., El Segundo Power 
LLC, Long Beach Generation LLC, Cabrillo Power I LLC, and Cabrillo 
Power II LLC
5. Enron Power Marketing, Inc. and Enron Energy Services Inc.
6. Los Angeles Department of Water and Power
7. Mirant Americas Energy Marketing, LP, Mirant California, LLC, Mirant 
Delta, LLC, and Mirant Potrero, LLC
8. Northern California Power Agency
9. Powerex Corp.
10. Williams Energy Services Corp.

Attachment C.--Market Participants Alleged To Have Engaged in Paper 
Trading in Violation of the MMIP

1. Arizona Public Service Co.
2. Automated Power Exchange, Inc.
3. Bonneville Power Administration
4. California Department of Water Resources
5. California Power Exchange
6. City of Anaheim
7. City of Azusa
8. City of Glendale
9. City of Pasadena
10. Coral Power, LLC
11. Duke Energy Trading & Marketing Co.
12. Dynegy Power Marketing Inc., Dynegy Power Corp., El Segundo 
Power LLC, Long Beach Generation LLC, Cabrillo Power I LLC, and 
Cabrillo Power II LLC
13. Enron Power Marketing, Inc. and Enron Energy Services Inc.
14. Idaho Power Company
15. Los Angeles Department of Water and Power

[[Page 39918]]

16. Mirant Americas Energy Marketing, LP, Mirant California, LLC, 
Mirant Delta, LLC, and Mirant Potrero, LLC
17. Modesto Irrigation District
18. Northern California Power Agency
19. Pacific Gas and Electric Co.
20. Powerex Corp.
21. Puget Sound Energy, Inc.
22. Reliant Resources, Inc., Reliant Energy Power Generation, and 
Reliant Energy Services, Inc.
23. Sempra Energy Trading Corp.
24. Southern California Edison Co.
25. Western Area Power Administration
26. Williams Energy Services Corp.


Attachment D.--Market Parties Alleged to Have Engaged in Double Selling 
in Violation of the MMIP

1. Duke Energy Trading and Marketing Co.
2. Dynegy Power Marketing Inc., Dynegy Power Corp., El Segundo Power 
LLC, Long Beach Generation LLC, Cabrillo Power I LLC, and Cabrillo 
Power II LLC
3. Mirant Americas Energy Marketing, LP, Mirant California, LLC, 
Mirant Delta, LLC, and Mirant Potrero, LLC
4. Reliant Resources, Inc., Reliant Energy Power Generation, and 
Reliant Energy Services, Inc.

Attachment E.-- Entities that Submitted 100 Day Evidence in California 
(Docket Nos. EL00-95, EL00-98, EL01-10, EL02-60 and EL02-62) \80\
---------------------------------------------------------------------------

    \80\ The following entities filed comments in a related 
proceeding in Puget Sound Energy, Inc., et al. v. All Jurisdictional 
Sellers, Docket No. EL01-10-000: AES, Avista et al., CARE, Public 
Utility District No. 1 of Chelan County, City of Santa Clara, City 
of Seattle, City of Tacoma and Port of Seattle, Coral Power, Duke 
Energy North America, IDACORP and Idaho Power, Kaiser Aluminum & 
Chemical, Modesto Irrigation District, Northern California Power 
Agency, Northwest PUDs (Public Utility District No. 2 of Grant 
County, WA et al.), PacifiCorp, Pinnacle West, Portland General 
Electric, PPL Montana and PPL Energy Plus, Public Service Company of 
New Mexico, Puget Sound Energy, Reliant Energy, Sacramento Municipal 
Utility District, Transaction Finality Group, TransAlta Energy 
Marketing, Williams Energy Marketing & Trading Company.
---------------------------------------------------------------------------

1. AES Alamitos, LLC, AES Huntington Beach, LLC, AES Redondo Beach, 
LLC, and AES Southland, LLC (AES)
2. Allegheny Energy Supply Co.
3. Arizona Electric Power Cooperative, Inc.
4. Automated Power Exchange, Inc.
5. Avista Energy, Inc.
6. Avista Corporation d/b/a Avista Utilities
7. Avista Energy, Inc., BP Energy Company, IDACORP Energy L.P., 
Puget Sound Energy, Inc., TransAlta Energy Marketing (U.S.) Inc., 
TransAlta Energy Marketing (California) Inc., and TransCanada 
Energy, Ltd.
8. Bonneville Power Administration
9. BIT (City of Burbank, California, the Imperial Irrigation 
District, Turlock Irrigation District) (Joint Reply Comments and 
Proposed Reply Findings)
10. California Electricity Oversight Board and California Public 
Utilities Commission
11. City of Burbank, California, City of Glendale, California, 
Turlock Irrigation District, and Imperial Irrigation District
12. California Independent System Operator Corporation
13. California Parties (People of the State of California ex rel. 
Bill Lockyer, Attorney General, the California Electricity Oversight 
Board, the California Public Utilities Commission, Pacific Gas and 
Electric Company, and Southern California Edison Company)
14. CAlifornians for Renewable Energy (CARE)
15. Calpine Corporation
16. Cities of Anaheim, Azusa, Banning, Colton and Riverside, 
California
17. City of Glendale, California
18. City of Pasadena, California
19. City of Redding, California
20. City of Santa Clara
21. City of Seattle, Washington
22. City of Vernon, California
23. Competitive Supplier Group (El Paso Merchant Energy, LP, BP 
Energy Company, Coral Power, IDACORP Energy LP, Exelon Corporation 
on behalf of Exelon Generation Company, LLC, PECO Energy Company and 
Commonwealth Edison Company, Portland General Electric Company, 
Public Service Company of New Mexico, Sempra Energy Trading 
Corporation, TransAlta Energy Marketing (U.S.) Inc., TransAlta 
Energy Marketing (California), Inc., TransCanada Energy Ltd., Avista 
Energy, Inc., Puget Sound Energy, Inc., Constellation Power Source, 
Inc., Powerex Corp., and Public Service Company of Colorado)
24. Constellation Power Source, Inc. and NewEnergy, Inc.
25. Coral Power, LLC
26. Duke Energy North America, LLC and Duke Energy Trading and 
Marketing, LLC(Duke Energy)
27. Dynegy Power Marketing, Inc. et al.
28. Electric Power Supply Association
29. El Paso Merchant Energy, LP
30. Enron Power Marketing, Inc. and Enron Energy Services, Inc.
31. Eugene Water & Electric Board
32. Exelon (Exelon Corporation on behalf of Commonwealth Edison 
Company, Exelon Generation Company, LLC and PECO Energy Company)
33. Public Utility District No. 2 of Grant County
34. Hafslund Energy Trading, LLC
35. IDACORP Energy LP and Idaho Power Company
36. Imperial Irrigation District
37. Independent Energy Producers Association
38. Indicated Long-Term Sellers (Allegheny Energy Supply Company, 
LLC, Coral Power, L.L.C., Mirant Americas Energy Marketing, L.P., 
Morgan Stanley Capital Group Inc. and Sempra Energy Resources)
39. Los Angeles Department of Water and Power
40. Merrill Lynch Capital Services, Inc.
41. Mirant (Mirant Americas Energy Marketing, LP, Mirant California, 
LLC, Mirant Delta, LLC, and Mirant Potrero, LLC)
42. Mirant Americas Energy Marketing, LP
43. Morgan Stanley Capital Group, Inc.
44. Northern California Power Agency
45. PacifiCorp
46. PGET and PGEES
47. Pinnacle West Companies
48. Portland General Electric Company
49. Powerex Corp.
50. PPL Montana, LLC and PPL EnergyPlus, LLC (PPL Parties)
51. PPM Energy Inc. (fna Pacificorp Power Marketing Inc.)
52. Public Service Company of Colorado
53. Public Service Company of New Mexico
54. Puget Sound Energy, Inc.
55. Reliant Energy Power Generation, Inc. and Reliant Energy, Inc. 
(Reliant)
56. Sacramento Municipal Utility District
57. Enron
58. Salt River Project Agricultural Improvement and Power District
59. Sempra Energy Resources
60. Sempra Energy Trading Corp.
61. Public Utility District No. 1 of Snohomish County, Washington
62. TransAlta Energy Marketing (U.S.) Inc. and TransAlta Energy 
Marketing (California), Inc.
63. TransCanada Energy, Ltd.
64. Turlock Irrigation District
65. Tuscon Electric Power Company
66. Valley Electric Association, Inc.
67. Western Area Power Administration
68. Western Power Trading Forum
69. Williams Energy Marketing & Trading Company

Attachment F.--Parties Filing Briefs on Commission Staff's 
Interpretation of the MMIP

1. American Public Power Association
2. Arizona Electric Power Cooperative
3. Avista Energy
4. Bonneville Power Administration
5. California Generators (Mirant, Dynegy, Williams)
6. California Independent System Operator Corporation
7. California Parties (California Attorney General, California 
Electricity Oversight Board, California Public Utilities Commission, 
Pacific Gas & Electric Company, and Southern California Edison 
Company)
8. Calpine Corporation
9. CARE
10. City of Glendale, California
11. City of Redding, California
12. City of San Diego, California
13. Colorado River Commission of Nevada
14. Competitive Supplier Group (Aquila, Aquila Merchant Services, 
Arizona Public Service Company, Avista Energy, Constellation Power 
Source, Coral Power, El Paso Merchant Energy, IDACORP Energy, Idaho 
Power Company, Pinnacle West Capital Corporation, Portland General 
Electric, Puget Sound Energy, and Sempra Energy Trading Corp.)
15. Coral Power
16. Duke Energy North America and Duke Energy Trading and Marketing
17. Electric Power Supply Association
18. Electricity Consumers Resource Council
19. Enron Power Marketing, Inc.
20. Grays Harbor County, Washington Public Utility District
21. Los Angeles Department of Water and Power
22. MG Industries, Tamco, and Lehigh Southwest Cement Company

[[Page 39919]]

23. Modesto Irrigation District
24. Morgan Stanley Capital Group
25. Northern California Power Agency
26. PJM Industrial Customer Coalition
27. PacifiCorp
28. Powerex Corp.
29. Public Service Company of New Mexico
30. Public Utility District No. 2 of Grant County, Washington
31. Puget Sound Energy
32. Reliant
33. Sempra Energy Trading Corp.

Attachment G.--ISO Market Notice, July 3, 2002

Ancillary Services Payments Rescinded Due to Generator 
Unavailability

    Market Participants and Scheduling Coordinators: As detailed in 
a Market Notice posted on July 2, 2002, the ISO has received 
requests from various parties for information about Scheduling 
Coordinators (1) that initially received payments for providing to 
the ISO Ancillary Services that subsequently were rescinded because 
the scheduled generating units were unable to provide such services, 
and (2) that agreed to provide Ancillary Services for their own 
needs (i.e., self-provision) but in fact did not do so. As described 
in the July 2, 2002 Market Notice, the ISO does not consider the 
names of such Scheduling Coordinators or the aggregated amounts of 
payments rescinded for non-performance or additional charges for 
failure to self-provide to be confidential or commercially sensitive 
under the ISO Tariff Section 20.3.2.
    The ISO monitors the availability and performance of generating 
resources scheduled to provide Ancillary Services. Beginning on June 
14, 1999, the ISO began rescinding Ancillary Services capacity 
payments when such services were not delivered. Failure to deliver 
such services may be the result of a number of factors, including 
economic decisions, outages, or operational changes. The ISO charges 
the relevant market price to Scheduling Coordinators that indicated 
they would self-provide Ancillary Services but subsequently did not 
do so.
    The Ancillary Services payments listed below represent all 
invoiced amounts through April 30, 2002 and are subject to potential 
change as a result of the dispute resolution process set forth in 
the ISO Tariff.

------------------------------------------------------------------------
                                                      Ancillary service
            Scheduling coordinator name               capacity payments
                                                          rescinded
------------------------------------------------------------------------
Arizona Public Service Co.........................            $17,832.13
Automated Power Exchange..........................            213,288.24
Avista Energy.....................................             53,466.57
Bonneville Power Administration...................             33,432.76
California Department of Water Resources..........          2,167,285.09
California Power Exchange.........................         20,275,167.45
Calpine...........................................                  2.65
City of Anaheim...................................             93,042.14
City of Azusa.....................................              4,450.00
City of Glendale..................................              1,971.41
City of Pasadena..................................            609,196.38
City of Vernon....................................              6,106.33
Constellation Power Source........................              1,456.53
Coral Power.......................................             56,459.65
Duke Energy Trading & Marketing...................         14,355,586.95
Dynegy Electric Clearinghouse.....................         25,193,737.23
Enron Power Marketing Inc.........................            991,443.30
Mirant............................................         11,167,048.87
Modesto Irrigation District.......................             51,176.11
Northern California Power Agency..................            146,592.71
PG&E--Utility.....................................         10,995,192.78
PG&E Transmission.................................             19,411.23
PG&E Transmission--Non-Grid \81\..................             65,199.05
Portland General Electric Co......................              3,347.35
PowerEx...........................................            389,325.10
Puget Sound Energy................................             10,000.00
Reliant Energy Services...........................         16,715,969.28
Sempra Energy Trading.............................             22,215.60
Southern California Edison........................            286,310.15
Western Area Power Administration.................             21,304.02
Williams Energy Services..........................         25,073,505.04
                                                   ---------------------
      Total.......................................       129,040,522.10
------------------------------------------------------------------------
The ``PG&E Transmission--Non-Grid'' charges are in dispute and have not
  yet been invoiced to PG&E Transmission. PG&E Transmission's
  responsibility for payment of these charges currently is under
  consideration by the Federal Energy Regulatory Commission.

    If you have any questions, about this Market Notice, please 
contact your Client Account Representative.

Client Relations Communications.0715
[email protected]

       Department of Energy, Federal Energy Regulatory Commission
------------------------------------------------------------------------
                                                       Docket No.
------------------------------------------------------------------------
American Electric Power Service Corporation..  EL03-137-000
Aquila, Inc..................................  EL03-138-000
Arizona Public Service Company...............  EL03-139-000
Automated Power Exchange, Inc................  EL03-140-000
Bonneville Power Administration..............  EL03-141-000
California Department of Water Resources.....  EL03-142-000

[[Page 39920]]

 
California Power Exchange....................  EL03-143-000
Cargill-Alliant, LLC.........................  EL03-144-000
City of Anaheim, California..................  EL03-145-000
City of Azusa, California....................  EL03-146-000
City of Glendale, California.................  EL03-147-000
City of Pasadena, California.................  EL03-148-000
City of Redding, California..................  EL03-149-000
City of Riverside, California................  EL03-150-000
Coral Power, LLC.............................  EL03-151-000
Duke Energy Trading and Marketing Company....  EL03-152-000
Dynegy Power Marketing Inc., Dynegy Power      EL03-153-000
 Corp., El Segundo Power LLC, Long Beach
 Generation LLC, Cabrillo Power I LLC, and
 Cabrillo Power II LLC.
Enron Power Marketing, Inc. and Enron Energy   EL03-154-000
 Services Inc.
Florida Power & Light........................  EL03-155-000
Idaho Power Company..........................  EL03-156-000
Los Angeles Department of Water and Power....  EL03-157-000
Mirant Americas Energy Marketing, LP, Mirant   EL03-158-000
 California, LLC, Mirant Delta, LLC, and
 Mirant Potrero, LLC.
Modesto Irrigation District..................  EL03-159-000
Morgan Stanley Capital Group.................  EL03-160-000
Northern California Power Agency.............  EL03-161-000
Pacific Gas and Electric Company.............  EL03-162-000
PacifiCorp...................................  EL03-163-000
PGE Energy Services..........................  EL03-164-000
Portland General Electric Company............  EL03-165-000
Powerex Corporation (f/k/a British Columbia    EL03-166-000
 Power Exchange Corp.).
Public Service Company of Colorado...........  EL03-167-000
Public Service Company of New Mexico.........  EL03-168-000
Puget Sound Energy, Inc......................  EL03-169-000
Reliant Resources, Inc., Reliant Energy Power  EL03-170-000
 Generation, and Reliant Energy Services, Inc.
Salt River Project Agricultural Improvement    EL03-171-000
 and Power District.
San Diego Gas & Electric Company.............  EL03-172-000
Sempra Energy Trading Corporation............  EL03-173-000
Sierra Pacific Power Company.................  EL03-174-000
Southern California Edison Company...........  EL03-175-000
TransAlta Energy Marketing (U.S.) Inc. and     EL03-176-000
 TransAlta Energy Marketing (California), Inc.
Tucson Electric Power Company................  EL03-177-000
Western Area Power Administration............  EL03-178-000
Williams Energy Services Corporation.........  EL03-179-000
------------------------------------------------------------------------

(Issued June 25, 2003)

MASSEY, Commissioner, dissenting in part:
    Today the Commissioner takes another step toward addressing the 
market manipulation that contributed to the extraordinary Western 
power crisis. I support this show cause order, and applaud the 
Commission for dealing with these issues. I write separately to 
express my disagreement with two aspects of the order.
    First, I would not limit the monetary penalty for tariff 
violations to disgorgement of unjust profits. Market manipulation 
can raise the single market clearing price paid by all market 
participants and collected by all sellers. The Federal Power Act 
requires that all rates and charges be just and reasonable. Where 
the market has been manipulated so as to affect the market clearing 
price, that price is not just and reasonable and is therefore 
unlawful. Simply requiring that bad actors disgorge their individual 
profits does not make the market whole because all sellers received 
the unlawful price caused by the manipulation. The narrow remedy of 
profit disgorgement is not an adequate remedy for the adverse effect 
of the bad behavior on the market price, and may not be an adequate 
deterrent to future behavior. The appropriate remedy may be that the 
manipulating seller makes the market whole.\1\ Unfortunately, 
today's order appears to take this remedy off of the table. I would 
prefer to wait to see the extent of harm that specific behaviors 
caused before addressing the remedy issue.
---------------------------------------------------------------------------

    \1\ The Commission has accepted the make the market whole remedy 
as part of a settlement for withholding generation from the 
California PX market. See 102 FERC ] 61,108 (2003).
---------------------------------------------------------------------------

    Second, I would not apply the show cause order to non-public 
utilities that are otherwise not jurisdictional. Today's order uses 
the same rationale for doing so as was used to extend a refund 
obligation to non-public utilities in our July 25, 2001 Order.\2\ I 
disagreed with the rationale at that time, and I still do not 
believe the Commission has this authority.
---------------------------------------------------------------------------

    \2\ San Diego Gas & Electric Company et al., 96 FERC ] 61,120 
(2001).
---------------------------------------------------------------------------

    For these reasons, I dissent in part from today's order.

William L. Massey,
Commissioner.
[FR Doc. 03-16821 Filed 7-2-03; 8:45 am]
BILLING CODE 6717-01-P