November 18, 2014

Brattle Economists Contribute to FERC Ruling Supporting Findings of Manipulative Behavior by Power Suppliers During the California Energy Crisis

On November 10, 2014, the Federal Energy Regulatory Commission (FERC) issued an order affirming the initial decision grated on February 15, 2013 in the matter of San Diego Gas & Elec. Co. v. Sellers of Energy and Ancillary Servs. In the initial decision, the Administrative Law Judge (ALJ) found that over 34,000 market transactions and energy exchanges that occurred during the 2000-2001 energy crisis constituted tariff violations and exhibited evidence of market manipulation. The ALJ relied on testimony provided by Brattle principals Peter Fox-Penner and Gary Taylor that power suppliers MPS Merchant Services, Shell Energy North America, and Koch Energy Trading, Inc. engaged in tariff violations that affected market prices.

The FERC order confirms the ALJ’s prior ruling that sellers in the California energy market engaged in the following types of manipulative behavior: Anomalous Bidding (economic withholding), False Exports, False Load Scheduling, and sale of ancillary services without market-based rate authorization. As part of its ruling, the ALJ examined whether there was a consistent pattern of market activities indicating that a seller engaged in a behavior that rendered the transactions unjustifiable as a legitimate business practices to determine whether the transactions executed constituted tariff violations. Brattle testimony provided voluminous documentary evidence of trading schemes intended to evade California Power Exchange and Independent System Operator (ISO) tariff requirements. Screens developed by Brattle witnesses were relied upon by the FERC to assess the volume and frequency of such behavior. Brattle experts also constructed a price effect analysis to evaluate whether or not manipulative transactions had the effect of increasing the market clearing price.

Additionally, the FERC order awarded power purchaser San Diego Gas & Electric a refund of $2,845,024 for a forward market transaction that was found to be not just and reasonable by the Commission. The Commission confirmed the ALJ ruling that the forward market transaction is not entitled to the Mobile-Sierra protection because it was very similar to OOM spot transactions, which were made by California’s ISO outside the ISO single price auction market within 24 hours or less of delivery, and served to stabilize the grid when supply was insufficient to meet demand.

To learn more about how Brattle’s experts are assisting clients in matters involving manipulative trading practices in electric power and natural gas markets, please click here.

Associated Experts
Broehm 076
Dr. Broehm is an economic expert in the electric utility industry specializing in the areas of market competition, impacts of regulatory policies on wholesale power markets and power assets and valuation, and the evaluation of power procurement. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4
Taylor 066
Mr. Taylor's areas of expertise include contract and market risks and incentives, antitrust and regulatory economics, and transition markets. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4
Fox penner 131
Academic Advisor
Dr. Fox-Penner specializes in economic, regulatory, and strategic issues in network industries. His practice centers on energy and environmental policies and electric regulation, planning, and competition issues. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4