[Federal Register Volume 68, Number 128 (Thursday, July 3, 2003)]
[Notices]
[Pages 39921-39929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16822]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. EL03-180-000, et al.]


Enron Power Marketing, Inc. and Enron Energy Services, Inc., et 
al.; Order To Show Cause Concerning Gaming and/or Anomalous Market 
Behavior Through the Use of Partnerships, Alliances or Other 
Arrangements and Directing Submission of Information

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

    In the matter of: EL03-180-000, EL03-181-000, EL03-182-000, 
EL03-183-000, EL03-184-000, EL03-185-000, EL03-186-000, EL03-187-
000, EL03-188-000, EL03-189-000, EL03-190-000, EL03-191-000, EL03-
192-000, EL03-193-000, EL03-194-000, EL03-195-000, EL03-196-000, 
EL03-197-000, EL03-198-000, EL03-199-000, EL03-200-000, EL03-201-
000, EL03-202-000, EL03-203-000 (Consolidated): Enron Power 
Marketing, Inc. and Enron Energy Services, Inc., Aquila, Inc., City 
of Glendale, California, City of Redding, California, Colorado River 
Commission, Constellation Power Source, Inc., Coral Power, LLC, El 
Paso Merchant Energy, L.P., Eugene Water and Electricity Board, 
Idaho Power Company, Koch Energy Trading, Inc., Las Vegas 
Cogeneration, L.P., MIECO, Modesto Irrigation District, Montana 
Power Company, Morgan Stanley Capital Group, Northern California 
Power Agency, PacifiCorp, PECO, Powerex Corporation (f/k/a British 
Columbia Power Exchange Corporation), Public Service Company of New 
Mexico, Sempra Energy Trading Corporation, TransAlta Energy 
Marketing (U.S.) Inc. and TransAlta Energy marketing (California), 
Inc., Valley Electric Association, Inc.

I. Introduction

    1. This order finds that, based on a report by Commission Staff 
(Staff Final Report), and evidence and comments submitted by market 
participants, there is evidence that Enron Power Marketing, Inc. and 
Enron Energy Services Inc. (Enron) and a number of entities identified 
below (collectively, Partnership Entities) worked in concert through 
partnerships, alliances or other arrangements (jointly, Partnerships) 
to engage in activities that constitute gaming and/or anomalous market 
behavior (Gaming Practices) 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.\1\ 
This order also finds that there is evidence that a number of 
Partnership Entities, identified below, appear to have had similar 
Partnerships, which could be attempts to engage in similar activities 
as the Enron partnerships.\2\
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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 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 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 Order on June 19, 2001, 
modifying and expanding the mitigation plan, effective June 20, 
2001). While the mitigation plan 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 average of $275/MWh and total 
congestion costs for June 2001 were $0.5 million, down from $7 
million in May.
    \2\ The Staff Final Report listed a number of entities that may 
have had a partnership, alliance or other arrangement with Enron. 
Not all of these entities are addressed in this order. Commission 
Staff is conducting further analysis to determine if any further 
action is appropriate for these other entities.
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    2. Consequently, this order directs those Partnership Entities, in 
a trial-type evidentiary hearing to be held before an administrative 
law judge (ALJ), to show cause why their behavior during January 1, 
2000 to June 20, 2001 does not constitute gaming and/or anomalous 
market behavior as defined in the ISO and PX tariffs.\3\ In addition, 
we also direct the ALJ to hear evidence and render findings and 
conclusions quantifying the full extent to which the Partnership 
Entities may have been unjustly enriched as a result of their conduct, 
and the ALJ may recommend the monetary remedy of disgorgement of unjust 
profits and any other additional, appropriate non-monetary remedies. 
For example, the ALJ may identify non-monetary remedies such as 
revocation of a Partnership Entity's market-based rate authority and 
revisions to a Partnership Entity's code of conduct if the ALJ finds 
such remedies appropriate.
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    \3\ This order also directs the Partnership Entities to (1) 
inventory all revenues from their partnerships, alliances or other 
arrangements discussed below and (2) file, as part of their show 
cause responses, these revenue figures as well as file all related 
correspondence, e-mail, memoranda, tapes, phone logs, transaction 
data, billing statements and agreements.

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[[Page 39922]]

    3. This order complements an order being issued concurrently, in 
which the Commission (1) determines that certain conduct by a number of 
market participants, during the period January 1, 2000 to June 20, 
2001, constituted Gaming Practices that violated the ISO and PX 
tariffs, (2) directs those who engaged in those Gaming Practices,in a 
trial-type evidentiary proceeding to be held before an ALJ, to show 
cause why their behavior during the relevant period does not constitute 
gaming and/or anomalous market behavior as defined in the ISO and PX 
tariffs, (3) directs the ALJ to hear evidence and render findings and 
conclusions quantifying the full extent of their conduct, and (4) 
provides that the ALJ may recommend the monetary remedy of disgorgement 
of unjust profits and any other additional, appropriate non-monetary 
remedies.\4\ Gaming Practices for which the Gaming Practices Show Cause 
Order institutes a show cause proceeding involve: False Import; 
Congestion-Related Practices (Cutting Non-firm, Circular Scheduling, 
Scheduling Counterflows on Out-of-Service Lines, and Load Shift); 
Ancillary Services-Related Practices (Paper Trading and Double 
Selling); and Selling Non-Firm Energy as Firm.\5\ Whereas the Gaming 
Practices Show Cause Order concerns allegations that a number of market 
participants engaged in Gaming Practices, this order addresses 
allegations that certain market participants engaged in Gaming 
Practices in concert with other market participants.\6\
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    \4\ American Electric Power Service Corp., 103 FERC ] 61,345 
(2003) (Gaming Practices Show Cause Order).
    \5\ The Commission's analysis regarding what constitutes Gaming 
Practices is set forth in the Gaming Practices Show Cause Order and 
incorporated by reference here. See Gaming Practices Show Cause 
Order, 103 FERC ] 61,345 at P 35-67 (Section III-D, Gaming Practices 
and California Practices).
    \6\ The potential remedies in this case, as with the potential 
remedies in the Gaming Practices Show Cause Order (see id. at P 2 & 
n.3), 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.
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    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.\7\
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    \7\ 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 San Diego Gas & Electric Co., et al., 
97 FERC ] 61,275 (2001) (December 19, 2001 Order).
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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.\8\ 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 strategies; 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.\9\ 
The Staff Final Report on its fact-finding investigation was publicly 
released on March 26, 2003.\10\
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    \8\ 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.
    \9\ 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.
    \10\ 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.\11\ 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 ISO Markets.'' \12\ 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.'' \13\ The 
Staff Final Report, among other things, cites to a study by the 
ISO,\14\ in which

[[Page 39923]]

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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    \11\ 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.
    \12\ ISO's MMIP 2.1.3. As explained below, the MMIP is part of 
the ISO tariff.
    \13\ MMIP 2.1.1.
    \14\ 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.\15\ 
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.\16\ On February 10, 
2003, the Commission issued an order affording parties an opportunity 
to respond to submissions made by adverse parties.\17\ 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.\18\ These filings are referred 
to as the ``100 Days Evidence.''
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    \15\ San Diego Gas & Elec. Co. v. Sellers of Energy and 
Ancillary Serv., et al., 101 FERC ] 61,186 (2002) (Discovery Order).
    \16\ Id. at P 27.
    \17\ 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).
    \18\ San Diego Gas & Elec. Co. v. Sellers of Energy and 
Ancillary Serv., et al., 102 FERC ] 61,194 (2003) (February 24, 2003 
Order).
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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.\19\ 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.\20\
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    \19\ Notice of Intent to Release Information and Opportunity to 
Comment, 68 Fed. Reg. 11,821 (March 12, 2003).
    \20\ 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,\21\ 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. Their comments 
are discussed below in the section on the MMIP provisions.
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    \21\ Fact-Finding Investigation into Possible Manipulation of 
Electric and Natural Gas Prices, 103 FERC ] 61,016 (2003).
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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 \22\ 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).\23\ 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.\24\ Thus, with respect 
to 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 it finds 
violations of the ISO and PX tariffs and finds that a monetary remedy 
is appropriate for such violations. 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 
additional disgorgement of unjust profits for tariff violations that 
occurred after October 2, 2000 (i.e., to June 20, 2001).\25\
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    \22\ San Diego Gas & Electric 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).
    \23\ 16 U.S.C. Sec.  824e (2000).
    \24\ 96 FERC at 61,507-08, citing Washington Water Power Co., 83 
FERC ] 61,282 (1998). See also Jack J. 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).
    \25\ 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 Partnership Entities are 
governmental entities, subject to the jurisdictional exemption set 
forth in section 201(f) of the FPA.\26\ 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 potential remedies specified in this 
order, including 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 Partnership Entities.
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    \26\ See 16 U.S.C. Sec.  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 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.\27\ The Commission 
continued:
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    \27\ July 25, 2001 Order, 96 FERC at 61,512; accord id. at 
61,511-13.

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[[Page 39924]]

    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.\28\
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    \28\ 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 Partnership 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.\29\ The Staff Final Report also cites the underlying 
purposes of the MMIP,\30\ discussed in MMIP 1.1 (Objectives) which 
provides in pertinent part:
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    \29\ As further explained below, the MMIP has been part of the 
ISO's and PX filed tariffs since 1998.
    \30\ 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.\31\
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    \31\ 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.'' \32\ Gaming is defined at 
Section 2.1.3 of the ISO's MMIP as follows:
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    \32\ 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.\33\
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    \33\ 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.\34\
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    \34\ 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 \35\
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    \35\ 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,\36\ and the MMIP was 
part of the ISO and PX tariffs on file with the Commission during the 
relevant period.\37\ 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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    \36\ MMIP 7.3.
    \37\ 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 MMIP.\38\ 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;

[[Page 39925]]

(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.
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    \38\ 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.\39\ 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.
---------------------------------------------------------------------------

    \39\ E.g., California Generators; Competitive Supplier Group; 
Enron; Reliant Resources, Inc.
---------------------------------------------------------------------------

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. In sum, 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.\40\ 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.\41\ That is, in the Staff Final Report, 
Staff concludes, and we agree, 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.
---------------------------------------------------------------------------

    \40\ 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.
    \41\ 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.\42\ 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.
---------------------------------------------------------------------------

    \42\ 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.\43\
---------------------------------------------------------------------------

    \43\ 16 U.S.C. Sec. Sec.  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.'' \44\ 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, 1998).\45\ 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.
---------------------------------------------------------------------------

    \44\ Pacific Gas and Electric Co., et al., 81 FERC ] 61,320 at 
62,471 (1997).
    \45\ 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. The Gaming Practices Show Cause Order also addresses the 
California Parties' argument that there may have been violations of 
other tariff provisions, besides the MMIP. That order determines that 
the WSCC requirements cited by the California Parties make no reference 
to gaming

[[Page 39926]]

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. That order also finds that conduct 
involving arbitrage, underscheduling and confidentiality of certain 
data either (a) constituted Gaming Practices, but did not warrant 
remedies, or (b) did not constitute Gaming Practices. Further, that 
order states that the Commission is currently investigating alleged 
violations related to physical withholding.

C. Overview of PX and ISO Operations

    28. As explained in more detail in the Staff Final Report and the 
Gaming Practices Show Cause Order, 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. 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.
---------------------------------------------------------------------------

    29. 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.
---------------------------------------------------------------------------

D. Alleged Partnership Gaming Involving Enron

    30. In this section, we discuss evidence indicating that Enron 
worked in concert with other entities, both inside and outside 
California, to implement Gaming Practices in ways that manipulated 
market outcomes. We also discuss evidence that other entities may have 
had similar agreements with other market participants.
1. Alleged Partnership Gaming \48\
---------------------------------------------------------------------------

    \48\ The Staff Final Report (ch. VI at 37-44) discusses evidence 
of various practices engaged in by Enron in concert with other 
market participants. This evidence demonstrates how Enron and the 
other named market participants appear to have used their 
partnerships, alliances or other arrangements to engage in various 
gaming practices. The show cause proceeding ordered herein will 
address whether Enron and the other named market participants used 
their partnerships, alliances or other arrangements to engage in the 
Gaming Practices for which the Commission seeks appropriate remedies 
in the Gaming Practices Show Cause Order, but here involving such 
conduct by market participants acting in concert with other market 
participants.
---------------------------------------------------------------------------

    31. Enron created a marketing program based on the use of other 
entities' assets, thus avoiding large capital expenditures and the risk 
of owning its own resources, to carry out its various Gaming Practices. 
Enron focused not only on partnerships and alliances with investor-
owned utilities, but also on smaller utilities, such as public utility 
districts, municipalities, and qualifying facilities.\49\ Enron, using 
these Partnerships with others, gained market share, acquired 
commercially sensitive data, acquired decisionmaking authority, and 
promoted reciprocal dealings and equity sharing of profits, among other 
things, as explained below. Enron formed these Partnerships without 
filing the agreements with the Commission or notifying the Commission 
as required under its market-based rate authorizations.\50\
---------------------------------------------------------------------------

    \49\ The other market participants allegedly involved in 
Partnership Gaming with Enron are: City of Glendale, California 
(Glendale); City of Redding, California (Redding); Colorado River 
Commission; Las Vegas Cogeneration, L.P. (Las Vegas Cogeneration); 
Modesto Irrigation District (Modesto); Montana Power Company (now d/
b/a NorthWestern Energy, LLC) (Montana Power); Northern California 
Power Agency (NCPA); Powerex Corporation (f/k/a British Columbia 
Power Exchange Corporation) (Powerex); Public Service Company of New 
Mexico (PSNM); and Valley Electric Association, Inc. (Valley 
Electric).
    \50\ See Enron Power Marketing, Inc., et al., 103 FERC ] 61,343 
(2003) (Enron); see also 16 U.S.C. Sec.  824d (2000); Enron Power 
Marketing, Inc., 65 FERC ] 61,305 at 62,405 (1993); Enron Energy 
Services, Inc., 81 FERC ] 61,267 at 62,319 (1997).
---------------------------------------------------------------------------

    32. A company's business strategy is devised by top management. In 
Enron's case, the business model is described in broad-brush terms in 
Enron documents as ``Skilling's `Enron Network' story.'' Its 
promotional literature entitled ``Why customers choose Enron,'' was 
intended to convince others that using Enron, with its market knowledge 
of complicated markets such as in California, was a good business 
decision; using Enron would save these entities labor and systems 
costs, and importantly, using Enron would be profitable.
    33. Under this business model, the nature of Enron's interaction 
with its business partners developed over time. For example, Enron 
would first offer ``consulting'' services that allowed entities to 
outsource certain tasks rather than manage these tasks themselves. 
Enron gradually developed these relationships by expanding its services 
in an attempt to effectively control the assets of others. Enron's 
compensation for these ``services'' usually started with a fee 
structure (e.g., a charge/MWh for scheduling energy with the PX). 
However, as the original relationship grew into a more comprehensive 
partnership, alliance or other arrangement, the compensation typically 
changed to an equity basis (share of profits) when the marketing of 
wholesale power was involved. An Enron Services Handbook explains that, 
in most instances, profits from marketing energy were split on a 50/50 
basis while profits from capacity sales for ancillary services were 
split 25/75, with 25 percent going to Enron and 75 percent to its 
partner.
    34. The Staff Final Report cites a presentation at an Energy West 
Power Business Review Meeting that characterizes this business strategy 
bluntly, under a section entitled ``Gaining Control of Assets.'' The 
presentation states:
    Currently pursuing two strategies. The first is gaining control of 
a variety of small resources or capabilities around the west. For 
example, the combination of El Paso Electric, Las Vegas Cogen, Valley 
Electric, and Glendale joint venture provide us with a useful mix of 
loads and resources in the southwest. These transactions require 
relatively little capital, but will require automated IT links to 
customers and more people in the logistics group. [Citation omitted.]
    35. Essentially, Enron developed initial business relationships 
with entities, which over time evolved into partnerships, alliances and 
other arrangements in which Enron could gain control of decisionmaking 
in a way that maximized profits for itself and its business partners. 
The Staff Final Report cites the summary of the Energy West Power 
Business Review Meeting, which states:

[[Page 39927]]

    (1) Currently provide scheduling services to El Paso Electric, 
Glendale, CFE (Mexico), Tosco, Washington Water Power, and Enron Energy 
Services.
    (2) Use scheduling as a platform that will dovetail with click 
trade and that will lead to larger transactions that will make more 
money (e.g., joint venture with the City of Glendale). [Footnote 
omitted.]
    36. In this regard, the Handbook contains a list of California 
market conditions with instructions for Enron employees concerning whom 
to call and what steps the partner should follow in order to take 
advantage of a particular market situation. For example, if prices in 
the California market are high, the Enron employee would refer to the 
handbook section entitled ``Who do you call and what action to take?'' 
The Enron employee first decides if the price is high enough to be 
profitable to the ``customer.'' If it is profitable, the Enron employee 
would: ``generate or import and fake, or increase, load.'' In this 
situation, the Enron employee could call, for example, Glendale or 
Valley Electric and instruct them to increase imports into the 
California ISO control area; the Handbook lists the transmission paths 
to be used. Or the Enron employee could call, for example, Redding and 
instruct it to increase generation in northern California to implement 
this strategy. The pricing structure for this strategy specifies an 
even 50/50 split of profits between Enron and its partner. In another 
example, the Handbook alerts the Enron employee to check to see if 
there are high ancillary service prices. In that situation, the Enron 
employee should ``call Glendale, Puget and El Paso Electric to try to 
get ancillary services bids in'' and ``call customers and have them 
`bid in' more.''
    37. The Handbook also includes a list of steps to take if the 
prices in California are low. In this situation, the instructions call 
for the opposite strategy: ``artificially reduce load and export.'' The 
same counterparties are listed with corresponding delivery points for 
exporting their resources out of California. A similar pricing 
structure is also listed. Other Enron documents describe arrangements 
that go beyond joint coordinated activity and describe total Enron 
control of decisionmaking authority.\51\
---------------------------------------------------------------------------

    \51\ The Staff Final Report notes that, in an August 22, 2000 
West Mid-Market Quarterly Business Review, Enron states that it 
``touched/managed 3,500 MW/day.'' Staff Final Report, ch. VI at 41.
---------------------------------------------------------------------------

    38. As its relationship with a customer grew, Enron also collected 
data from the customer, which it then used for its own trading and 
marketing activities. For example, its strategy allowed ``Enron to know 
as much or more about the customer's near term position.'' Finally, 
under this strategy, Enron planned to:
    Store operational data that the customer's merchant group would not 
normally be storing. Provide service around analysis and manipulation 
of data. [Enron North America] would own the data--a potential to lock 
customers in--if they leave [Enron North America] their data stays 
here.
    39. The Staff Final Report states that the evidence indicates that 
Enron, on its own, could not have implemented all of its Gaming 
Practices; it was only with the cooperation of others that these 
strategies could have been executed. We agree. It appears that Enron 
used these partnerships and alliances to employ Gaming Practices in 
violation of the ISO and PX tariffs. At Enron's direction, other 
entities both inside and outside California made business decisions 
that capitalized on market conditions in an effort to maximize profits 
from their assets on a coordinated basis, and changed market outcomes. 
Market problems and dysfunctions, in short, were considered 
opportunities.
    40. Further, as discussed in an order being issued concurrently 
with this order, Timothy N. Belden and Jeffrey S. Richter, former Enron 
executives, signed plea agreements in which they state that they 
engaged in fraudulent schemes in the California markets in order to 
obtain increased revenue from wholesale electricity customers and other 
market participants in California.\52\
---------------------------------------------------------------------------

    \52\ See Enron, 103 FERC ] 61,343 at P 54 (2003) (citing U.S. v. 
Timothy N. Belden, (N.D. Cal. Case No. CR02-0313-MJJ); U.S. v. 
Jeffrey S. Richter, (N.D. Cal. Case No. CR03-0026-MJJ).
---------------------------------------------------------------------------

    41. In sum, it appears that Enron systematically acted in 
partnership or otherwise in alliance with others, without the 
Commission's knowledge, to game the market. The collective behavior of 
these entities turned defects in market rules and market structures 
into profit-making opportunities for Enron and its partners.
    42. Based on the analysis provided in the Staff Final Report and 
the evidence described in the Staff Final Report, we find that Enron 
and the other entities with whom it had partnership, alliance or other 
arrangements like those described above appear to have jointly engaged 
in market manipulation schemes that had profound adverse impacts on 
market outcomes, and that violated the ISO and PX tariffs for which the 
monetary remedy of disgorgement of unjust profits and other 
appropriate, additional non-monetary remedies may be appropriate. 
Accordingly, we institute a show cause proceeding with respect to the 
alleged Partnership Gaming involving Enron, as discussed below.
2. Other Alleged Partnership Gaming
    43. The Staff Final Report states that other entities appear to 
have engaged in promotional activities similar to Enron in an attempt 
to form strategic alliances. For example, according to the Staff Final 
Report, Sempra Energy Trading Corporation (Sempra) and PSNM may have 
competed with Enron in an attempt to perform similar services for El 
Paso Electric Company. The Staff Final Report further states, and the 
California Parties argue, that other evidence indicates that various 
entities appear to have had agreements with other market participants 
that had similar attributes as the Enron partnership, alliance and 
other arrangements discussed above (e.g., coordinating activities). 
These apparent partnerships, alliances or other arrangements are 
alleged to be between: (1) Sempra and Eugene Water and Electricity 
Board (EWEB), Coral Power, LLC (Coral), or PSNM; (2) Coral and 
Glendale; and (3) PSNM and Aquila, Inc. (Aquila), Constellation Power 
Source, Inc. (Constellation), El Paso Merchant Energy, L.P. (El Paso 
Merchant), Enron, Idaho Power Company (Idaho Power), Koch Energy 
Trading, Inc. (Koch), MIECO, Morgan Stanley Capital Group (Morgan 
Stanley), PECO, PacifiCorp, Poweerex, Sempra or TransAlta Energy 
Marketing (U.S.) Inc. and TransAlta Energy Marketing (California) Inc. 
(TransAlta).\53\
---------------------------------------------------------------------------

    \53\ See Staff Final Report, ch. VI at 44. See also (Exh. No. 
CA-1) (100 Days Testimony of California Parties' witness Dr. Fox-
Penner), citing Exh. No. CA-187, regarding California Parties' 
allegations of partnership gaming involving PSNM.
---------------------------------------------------------------------------

    44. Based on the analysis provided in the Staff Final Report and 
the evidence described in the Staff Final Report, we find that these 
entities, through partnership, alliance or other arrangements like 
those described above appear to have jointly engaged in market 
manipulation schemes that had profound adverse impacts on market 
outcomes, and that violated the ISO and PX tariffs for which the 
monetary remedy of disgorgement of unjust profits and other 
appropriate, additional non-monetary remedies may be appropriate. 
Accordingly, we institute a show cause proceeding with respect to the 
alleged Partnership Gaming, as discussed below.

[[Page 39928]]

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

    45. As described above, we find that the Partnership Entities 
identified above, through their partnerships, alliances or other 
arrangements, may have engaged in Gaming Practices as identified in the 
Gaming Practices Show Cause Order, that violated the ISO's and PX's 
filed tariffs.
    46. 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.\54\ They shall submit their show cause 
responses within 30 days of the date of this order.
---------------------------------------------------------------------------

    \54\ We incorporate the Staff Final Report and the underlying 
record in Docket No. PA02-2-000 by reference into the record in this 
proceeding.
---------------------------------------------------------------------------

    47. We also require the Partnership Entities to (1) inventory all 
revenues from their partnerships, alliances or other arrangements 
discussed above and (2) file these revenue figures as well as file all 
related correspondence, e-mail, memoranda, tapes, phone logs, 
transaction data, billing statements and agreements as part of their 
show cause responses. This requirement applies to both sides of an 
agreement regardless of whether the entity is supplying or receiving 
service. If a Partnership Entity does not provide this information and 
it is later discovered that such agreements exist, that may be grounds 
for other possible remedies.
    48. 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 as a result of 
their conduct,\55\ and the ALJ may recommend the monetary remedy of 
disgorgement of unjust profits and any other additional, appropriate 
non-monetary remedies. For example, the ALJ may consider non-monetary 
remedies such as revocation of a Partnership Entity's market-based rate 
authority and revisions to a Partnership Entity's code of conduct if 
the ALJ finds such remedies appropriate.\56\
---------------------------------------------------------------------------

    \55\ We will permit the parties to introduce relevant evidence 
from the 100 Days Evidence proceeding. See San Diego Gas & Electric 
Co., 101 FERC ] 61,186 (2002) (allowing California parties 100 days, 
concluding February 28, 2003, to conduct discovery into market 
manipulation by various sellers during the western power crisis of 
2000 and 2001).
    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 Partnership Entities to show cause why 
they should not be found to have employed 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 Partnership 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 requesting and being granted intervenor status.
    \56\ See supra P 1.
---------------------------------------------------------------------------

    49. Given the commonality of issues of law and fact presented 
herein, we consolidate Docket Nos. EL03-180-000, EL03-181-000, EL03-
182-000, EL03-183-000, EL03-184-000, EL03-185-000, EL03-186-000, EL03-
187-000, EL03-188-000, EL03-189-000, EL03-190-000, EL03-191-000, EL03-
192-000, EL03-193-000, EL03-194-000, EL03-195-000, EL03-196-000, EL03-
197-000, EL03-198-000, EL03-199-000, EL03-200-000, EL03-201-000, EL03-
202-000 and EL03-203-000, for purposes of hearing and decision.
    The Commission Orders:
    (A) The Partnership Entities are hereby directed to submit show 
cause responses within 30 days of the date of this order, as discussed 
in the body of this order.
    (B) 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. EL03-180-000, 
EL03-181-000, EL03-182-000, EL03-183-000, EL03-184-000, EL03-185-000, 
EL03-186-000, EL03-187-000, EL03-188-000, EL03-189-000, EL03-190-000, 
EL03-191-000, EL03-192-000, EL03-193-000, EL03-194-000, EL03-195-000, 
EL03-196-000, EL03-197-000, EL03-198-000, EL03-199-000, EL03-200-000, 
EL03-201-000, EL03-202-000 and EL03-203-000: (1) Where the Partnership 
Entities shall show cause why they should not be found to have jointly 
engaged in 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.
    (C) 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.
    (D) 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 (A) 
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 
Commission's Rules of Practice and Procedure.
    (E) Docket Nos. EL03-180-000, EL03-181-000, EL03-182-000, EL03-183-
000, EL03-184-000, EL03-185-000, EL03-186-000, EL03-187-000, EL03-188-
000, EL03-189-000, EL03-190-000, EL03-191-000, EL03-192-000, EL03-193-
000, EL03-194-000, EL03-195-000, EL03-196-000, EL03-197-000, EL03-198-
000, EL03-199-000, EL03-200-000, EL03-201-000, EL03-202-000 and EL03-
203-000 are hereby consolidated for purposes of hearing and decision.
    (F) 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.

       Department of Energy, Federal Energy Regulatory Commission
------------------------------------------------------------------------
                                                       Docket No.
------------------------------------------------------------------------
Enron Power Marketing, Inc. and Enron Energy   EL03-180-000
 Services Inc.
Aquila, Inc..................................  EL03-181-000
City of Glendale, California.................  EL03-182-000
City of Redding, California..................  EL03-183-000

[[Page 39929]]

 
Colorado River Commission....................  EL03-184-000
Constellation Power Source, Inc..............  EL03-185-000
Coral Power, LLC.............................  EL03-186-000
El Paso Merchant Energy, L.P.................  EL03-187-000
Eugene Water and Electricity Board...........  EL03-188-000
Idaho Power Company..........................  EL03-189-000
Koch Energy Trading, Inc.....................  EL03-190-000
Las Vegas Cogeneration, L.P..................  EL03-191-000
MIECO........................................  EL03-192-000
Modesto Irrigation District..................  EL03-193-000
Montana Power Company........................  EL03-194-000
Morgan Stanley Capital Group.................  EL03-195-000
Northern California Power Agency.............  EL03-196-000
PacifiCorp...................................  EL03-197-000
PECO.........................................  EL03-198-000
Powerex Corporation (f/k/a British Columbia    EL03-199-000
 Power Exchange Corporation).
Public Service Company of New Mexico.........  EL03-200-000
Sempra Energy Trading Corporation............  EL03-201-000
TransAlta Energy Marketing (U.S. Inc. and      EL03-202-000
 TransAlta Energy Marketing (California), Inc.
Valley Electric Association, Inc.............  EL03-203-000
                                               (Consolidated)
------------------------------------------------------------------------

(Issued June 25, 2003)

MASSEY, Commissioner, dissenting in part:
    Today the Commission 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.
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    \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).
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    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.
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    \2\ San Diego Gas & Electric Company et al., 96 FERC ] 61,120 
(2001).
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    For these reasons, I dissent in part from today's order.

William L. Massey,
Commissioner.
[FR Doc. 03-16822 Filed 7-2-03; 8:45 am]
BILLING CODE 6717-01-P