good morning and may have seen it's the court my name is dan berman and i represent the california parties i'll be sharing my time today with mr kevin mckeown who will be addressing the issue of refunds for purchases by the state of thousand the market manipulation another an exercise of market power that led to the over charges started at least on a massive scale and the first two thousand the relief should start may first two thousand usual whether or not there should be relief for the period may first two thousand throughout sober first two thousand which are sometimes called the summer two thousand issue is worth billions of dollars to the rate pairs of california issue number two relates to the fact that in january two thousand and one the state of california so over power purchasing in the state and the sales directly to the state of california were excluded from litigation that the mall type day and exchange transactions or in kind transactions that meet all of the commission's other criteria for relief in terms of the time that they incur that they work that they occurred the parties that were involved the markets that were involved but have been arbitrarily excluded from release those transactions and denial of relief for those transactions is worth hundreds of millions of dollars a very large amount but in the context of th period in august two thousand and november two thousand and we've been citing to the other statutory provisions including actions two zero five and three zero nine as a basis for relief so we've made it clear to the commission from way back that we were sticking  truly narrow grounds that have been set for consideration and with the sole exception really as a claim against enron which they've been too embarrassed to say that all they have settled through is sham settlements or resolved markets and which prices are set market wide to look at things individually does not give market wide relief there's a bit of the fact that there's pervasive misconduct in every hour during the period and and when when different story if we could go to the other cases and raise our claim if we could participate at that and then if they were not doing it right we could raise that issue to you and say they're not doing it right and you could consider that but they don't say that they're not right and so we would be better off that that's for sure but it would not provide all the relief we need because for one thing it would not provide market wide relief and would not address the fact that numerous market p obscene relief in this place given the market structure where prices are set market why where what one party is doing affects the prices that all the other parties are doing does not allow us to get our full release and that's what we deserve we deserve our full relief if we paid if we paid an extra three billion dollars for the summer of two thousand over what a competitive market would have yielded then we deserve to get our three billion dollars back and not a mere fraction dollars if we don't get the money back from sellers californians california consumers are going to be paying the bill for the next twenty years what i'd like to do is take two minutes to talk about the facts that show why refusing to grant refunds on sale california wholesale markets were unjust and on reasonable and that refunds would be granted so especially for who sang relief is on the way that was in november and even earlier than november in two thousand nobody had a crystal ball of course and so when san november and earlier that refunds would be granted because the prices were so outrageous and because there was market power the first had seen and and then as the crisis got worse service had to be creative and sort of stepped into the role of the understand why as a matter of precaution it would have just been filed and then asked a consolidator to say well it's already in there and it's a personalized router there are actually two procedural tricks if you will the first at least we're in a separate proceeding rather than delany's you could be left with neither of them and if that's a tactical choice i understand why you might do that but on the other hand you risked an all or nothing approach to th and defining market broadly then it would necessarily include perhaps some changes in the market or cation if you read it more narrowly that just involve the i s o on p x markets then i think that probably adversely is the existence of a functioning competitive market it doesn't require a men's right to destroy the market it's an absolute requirement that the market exists if the market does not exist for any reason market based rates cannot withstand the scrutiny dictated by sexual five fell apart right now our argument is bounded by few parameters on the one hand we do not challenge the providing the relief providing the protection for customers that was being sought in these a public proceedings and basically our position is the first major fundamental of our of law not discretion l we can be protested the commission can reject it except that except it's subject to refund and once it has been accepted the filed right doctrine provides a degree of protection formula where it is different a formula and operating generation you could nevertheless go back and provide refunds and that is because that is the only way that the commission can maintain the full bond of protection that the federal power act was intended to supply doesn't mean that it becomes a just and reasonable filed right that is not subject to refund and importantly incurred cost actions regarding the failure to properly manage the point these are things that are not articulated them in based rate authority the commission did not say we here my permit you to charge without notice of prior filing anything you can get away with unless you have evil intent what the authority and when the commission tried to correct things it didn't go to individual market based rate authority individual terrorists it went to try to correct the markets the commission recognized that the markets had failed and it was the markets that were supposed to reserving actually no time i think to get that in proper context you have to look at temporarily how this case came about and how can how the commission responded to it because i don't think that the commission necessarily stated that it was not going to exercise three zero nine powers in certain situations but recall when this case first came to the commission it was with the san diego so for example when the sellers wanted to have market based rate authority they had to come to us under what's called a section two zero five filing and ask for a market based rate of that already at that time people could come in and protest the filing what the way that we look at market based rate is already it's whether the applicant either does not have market power or market power is adequately medicaid so if you wanted to protest and say they did have the power at the time a decision is made either they can have the market based rate authority or not and same thing would occur back in the days when i started  had cost base rate to come in with your rates going to be x people would come in and fight about whether it should be x or y it's the same thing so you could protest at that time but once you have the market based or the cost based rate that's out of six comes in that's what i meant by having an existing approved rate at the commission and the only way that you can challenge it at the time under the act is through to us six the only way we can change it and there are certain specific statutory standards that we have to follow that is we have to find the existing rate isn't just an unreasonable then we have to that what will be the just and reasonable rate to follow now any and all access needed to enforce the statute so we would go back to two zero six into zero five and if we see a gap we would attempts through three of nine to fill that gap in a way that was consistent with the underlying purposes of those two structures so i think it is not your position that a party is precluded from seeking a through online remedy and which you've turned into a sex pursuit absolutely not the issue here is why didn't for allowing these parties to pursue a three on remedy in your answer seems to be is that we had our own eyes ears of the three on the line and we have never pursued it isn't that sort of what it comes down to no i don't think so thomas that where at that that's why i said go with go to where we work temporarily at the time when this san diego complaint was filed the commission responded by saying look we think there are some serious market structure problems in particular the one that you see is there is an over reliance on spot markets which we with the day ahead of the hour had the real time in the ancillary market market power may be exercised and so we're going to try to stop those conditions and we without going through them all we brought in various structural changes that so that was our first step then we started with the refined proceedings to try to build on what we had done with the structural changes and start to look to the past here in getting money back to customers then just i mean really telescoping this but then we got some more information pretty much about the manipulation that was occurring in the market and that's when we started a whole different series of proceedings attempting to go through those particular problems so the way i would look at it is the commission saw a particular set of problems unusually it reacted to those then it tried to expand that a little bit and then a whole new set of problems came in order for a whole new set of allegations came in and responded to that so i don't think we were attempting to limit but certainly being at the commission at the time i case and what principle gives you the right if properly presented nephi no that's an issue to say we're not going to deal with that issue in this case we're going to instead use an entirely different procedure to pursue this remedy well first of all i would i would say that we didn't say we were just going in again i would come back to the to the point that occurred over time and what we step but what's being what's happened here it's that people are trying to compress everything that we knew everything if we knew everything that we knew now on the day the san diego complaint came in we would have reacted differently but we didn't know everything and i take your point and i understand that for cases trying to respond in a way that thanks mark the most appropriate w pursuing this through on remedy but that doesn't answer the california parties complying that they would like to pursue it through online remedies they don't like the way that you're pursuing it may be in accord with around when you say six why what's wrong with having a dual agency and we do have a statutory mandate and we do have statutory controls and one of the stars just to be quite blunt about it under the a have an absolute discretion to choose what cases to prosecute to decide not to take action if we choose on past conduct we have an absolute discretion to decide to settle cases so we have a wide range but in this case the commission when three hundred day evidence came up in the commission staff report was finished the commission was sort of at the point where i think you are judge thomas in saying look we have this ref case that's been going on for a while we suddenly have a whole bunch of new evidence related to manipulation what are we going to do the commission gave very sound reasons and we quote him in our brief basically saying  is pretty far along we're getting some refunds back we have a whole bunch of new issues a lot of the seven into this new we're just starting to investigate it we're going to decide to treat those in two separate sets of proceedings as it were and we think this is helpful not only to us in the administration of our act but it's also helpful to the parties because some parties i think we know the small parties would be in a mega proceeding as we called it where the whole bunch of issues where we don't think that economically viable for them to be when they may only have a small issue so i think what the commission did in response to the situation you are saying is that we looked at the whole circumstances within our discretion we decided how to order our docket and we ordered them in a way that dealt with the refund proceedings continued on and with the manipulation in different proceedings where we thought it was going to be better addressed in terms of procedures economic sufficien from any relief at all or from paying her for her on this issue right that's correct that is a position that we have that this is not an issue that has is only in this case that is a position not as you know from the briefs baltimore gas and electric involving the natural gas act there are other cases in investigations again we have absolute discretion the panel that was hearing the prior case recall the limit is the issue to whether the party should be allowed to intervene or not it's that is what the issue is  have we have the right to decide whether they should be intervening because we are the people who are investigating and the settlement is made through us yes but that's what the law both structure the investigation and potential remedy that now i don't think that's correct i think that the investigation this recall related to the manipulations so they were separate and apart from the san diego complaint and so that the san diego complaint we did try to make that as broad as possible with with with and what we term to be the star statutory limits but then individually abused their markets power so to improve that kind of conduct it has to be on an individual by individual investigation so there were two separate proceedings this winter proceedings you're saying no we are going to look at them company by company and see whether there was market manipulation so it seems like and in that way the issues aren't even joined as it's kind of what i'm saying and i want trouble getting my hands around the commissions position for not including market wise so it didn't limit the remedies it just said we're not going to deal with it in this proceeding if there were if the findings were made that there was enough evidence to show that there should be a market an individual company were required to make the market whole the commission which settled on that basis i don't think the commission's investigations are somehow limited to what ultimate relief should be granted it may be stated in different terms but the commission tried to be as broad as possible in allowing different types of relief for these individual market investigation i'm not sure i understand what you mean by make the markets whole and in particular we have the allocation are the effect of raising the price for everybody right now in these individual proceedings the investigative proceeding which are still going on are you saying that making the market whole means recovering in some fashion for the buyers everything that that was overcharged or only the overcharge that wound up in the pockets of the ones who were actually manipulating the former that's clipped in in the reliance settlement that's in our brief that dealt with those two days in june that's that was based on making the market hold the settlement was not limited to the sales not reliant was involved in was covered all the sales that were made on those two particular day so yes when we say make the market whole what we mean is that in certain situations we will attempt to settlement or we'll let me put it this way we are looking for relief that is its broadest possible and in certain circumstances we will give it for the entire market even though only one seller is being investigated  investigations and and prosecutorial decisions we have absolute discretion and that was given to us by congress or more important it was taken away from you by congress and yes ultimately in a case and a case if you read the box well excuse me if you read baltimore gas and electric yes it's absolute you do not have it you do not have authority under the a p a to review whatever decision it is that we come up with on how to settle a case or whether or not we should have prosecuted past conduct you can't really mean has a defined discrete side of facts not if we did the situation that you're saying we would be saying in the future we're never going to prosecute a through z except for the s p no no i mean if you said right now  i've gone through all of these and the only three online claims i'm going to bring are the s people and the others i'm just not going to bring them and i'm going to bring them because we like the theory is tied to the fact that all these cases should have been brought in what's called the refund proceeding and the commission looked at that question but those are backward looking they're more prosecutorial in function rather than regulating in terms of what should be ongoing and i would like to address the court also to rule two of the commission's rule for having committed terrify alicia and those are in the process of being evaluated by the commission in the staff report which is a one hundred page staff report showing allegation by allegation through many of offending party and what how that would be that but that's no different your honor than what you face here because you would be forced if the cowboys are correct to go back to force the commission to go back open up a proceeding that is going to become even more unwieldy than it already is and then you're going to be forced to go party by party by party names you do so review to determine on the basis of standards that are going to be different whether it's if you are six or three zero nine issue because the federal power act is not just about consumer protection it's also about providing certainty and notice to seller so that consumers do have utilities that will provide electric power so that there is not retroactive rate making and an opportunity for course to go back and say we're going to recreate history we're going to reset the rates and we're going to force the discourse mint of billions of dollars so that investors are not going to have reasonable expectations about how they spend their money in  time under the prior law there would still be no refund effective date because that would only trigger on a final order of the commission so for throughout the entire pendency even investigation there would be no refunds it would be permitted even though there was a charge of on just an unreasonable right but that's a balance congress struck is one thing to talk about certainly to the investor in a time when the rates filed were numbers you also buying on the market at high prices so that those same uncertainties were being created by marketers who are spying and selling power and they were attempting to figure out when i've got to provide power for my consumers how much am i going to have to pay in order to get that on the market at a time when california political officials were in treating the sellers to provide electricity in this market notwithstanding the everyone in the market understood that to mean that when you have a fixed price via lateral contract that is not part of this and it is not subject to refund importantly the commission basically invited the california party that was the focus of the commission's orders it's very clear that what was happening and i think you heard discussion of it earlier this morning was the commission was learning more and getting more familiar with the subject matter very clearly the paradigm there either has to be a complaint or there has to be formal notice of an investigation by the commission the complaint requirement of two is not satisfied here because under rule two effective date has to be under the statute the commission has no answer to this case they act thirteen months later intreated this all a sort of one consolidated investigation but that doesn't answer the launched its formal investigation now i would like to address a jurisdictional point that was raised by the kalpoe already in a late filing twenty eight j letter in which they challenged the jurisdiction of this court to address this question at the time of the november one order he became a party by intervening in may two thousand and one and the commission granted intervener status in june of two thousand and one so we want a party did not file a petition for a hearing from the november one  to california iso and p x centralized market operations with parties on notice that only their sales in those markets are subject to refund under that theory and particularly as applied to governmental en transactions but there's a second problem actually second and a third problem with respect to sleaze transactions the second problem is that when we raised this argument about the central i spot market the question offered no response at all particular argument and that is that the commission had an obligation to consider whether it would make sense to impose a refund obligation on entities performing dysfunction where it would be counterproductive their fairly or even to address that characterization of the transaction the commission offered no response so that that argument at all so again as with several other of the issues we've raised we don't know what the commission's reasoning  let me address the but i like to call the oem issues because it's so nice to say that i'm sort of out of market the first time that the commission raised this contrary to what was brought out this morning transactions but requires it to do so when it's necessary for reliability and other words the i so was in a situation where the grid is in danger  f being blacked out or having rolling blackouts or otherwise not being able to provide full service so if declares an emergency in some situations because the i so needs and this is happening in this is happening in what's called the real time market which is has its name implies it's happening to provide with live delivery and that was stated in the first order and that became the rationale throughout as to why these transactions were ultimately let me explain what the commission did there because there's a little bit of i think miscommunication here what the commission did in the boom transaction in the nonemergency to it because these two things work the same way and i think it's the same question for a non emergency judge thomas you know the commission said look we're going to look at all transactions transactions and all non emergency transaction and we're going to use this and i'm see method recall that there are thousands of transactions that we're dealing with i don't even know how many just a large part of all the time it's unreasonable unless there are mitigating circumstances this is no different from situations where the commission has done in the natural gas side area rate or national rates when they did when they did those kind of rate proceedings with the sec what was called the course of called the safety valve issue so that in other words you you have so many situations individuals who have particular circumstances that may require some additional information to adjust their particular rates have an opportunity to do so so we haven't decided first card out of what prices we're further require additional review and possibly let's say you know a supplier comes in with any information the simplest thing would be that all the prices above amps and m c p would be found to be on just an unreasonable but as you've heard there's a lot of factual disputes about what is the m p and so i'm sure you know you are the d c circuit will get a chance to review all of those at some point in the future but that is why  we've made a first cut if you will i think your point the but ultimately you call that the commission was concerned this come back to the room transactions and how they came into the i seldom market to be resolved the commission was concerned that structurally that conditions were created that that sellers could exercise market power otherwise refuse the process and in the last by situation that was where the commission found ultimately that was the largest problem in addition in a non emergency situation the commission an issue really decided i think this is on one twenty seven look in these non emergency situations we're not going to look at this because we've already put in place some cap relief if they were to state one emergency and there's just more supply and not emergency situations we're not expecting to see a noncom non competitive prices during those situations but later at two sixty nine to two seventy the commission sad well we thought this was what was going to happen but we've got some complaints that the prices in non emergency hours have been shown to be above what we would expect in a competitive situation so we're going to do the same thing that we did with the woman that i just explained we're going to measure those again again the commission didn't find that refines would be doing all periods what it said was we're going to measure all periods and only those that are above the m m c p will require further review and as a first cut those would be the ones where we consider there is the most potential for abuse and my question  to wear the commission d the issue of notice here is whether the way that i q it is that the commission indicated there was a must buy situation that was going to fairly characterize that this is the situation that we don't want people in other words if we think if we think that these types of sales may be involved we don't want people to come back six months later and say oh geez well yes you did you did mention it and you did say it was a must buy situation but we want this to be restricted because you know you clarified it later i think what we'd rather say is yes we did clarified and maybe it wasn't all that clear but it isn't like it wasn't in there at all and so that's the kind of i don't think it's a power as much as  we're dealing with situations this was an unprecedented situation in a new type of market we didn't have that much experience with market based rates the situation was changing rapidly there lot of pressure on you know we need some slack to try to get these things going in a way that ultimately will prove the most beneficial to customers remedy of the price cap that their goal of the commission had to institute a separate complaint perceiving and therefore that complaint proceedings doesn't start until sixty days from basically the federal register notice the commission did not deny the complaint the complaint stating the fact the complaint fairly institution of the proceeding relates back to the date of the complaint rather than the issue here is what initiated the proceeding the complaint itself or the commission's action which would be a federal register ninth the first time and then on rehearing when it was asked to look at it again looked at it again and came back with i'm sorry picked october twenty ninth and then when it came back picked october second just shows january and during emergencies most of the high priced sales were out of markets so if you look at what they passed for eliminating out of market eliminating everything but emergencies eliminating the first month you're left with virtually nothing and then of course there's and a court ruled the math case that they didn't have to deal with the burdens of proof determination till it became parents and applied to the evidence of the party at issue there here the refund effect of date was sacked in november first two thousand and these parties  so it really doesn't matter all that much if you move us if you accept arguments relating to the to the fact that the complaints in compas a section two of five and three on one relief i want to note in that regard that  undermines the functioning of the whole so our market and our reliance on that market to ensure that rates are just and reasonable did you hear that this undermines the functioning of the wholesale power markets and our reliance on and you get relief from that period after just a reasonable rate the first call to milly determines i just want to know for the record that's sixty days after the complaint was filed is october first two thousand you might ask why aren't we x markets or in transactions or transactions in the i s o in p s markets i think it's abundantly clear to everyone that all those transactions are governed by that you don't need to look at just the fact that they mentioned transactions in one paragraph the they did that comparison for each hour only if that transaction prices were higher than the benchmark price were there any refunds and then there was a calculation of refunds and if someone didn't like the result they could raise the issue at the hearing and that was   so the first question that we have to ask is should there be refunds for the transaction at all that's it that's what is the most important question because the answer is obviously yes if the prices were over the to provide incentives to the sellers to actually follow the rules and i think that in that light i would i would like to give you a quote from a natural trader transgressed that i think ten person two hey guys you know when we might follow rules if there's some sort of penalty person one that's right we think that is right they might follow the rules if they have to pay and we think that if they're going to be told in the future if in the future we hope sellers the follow the rules they're going to have to pay  can split your five minutes anyway to follow the statute and the statute very clear requisite of when the commission can order refunds and other relief the commission misstates our argument with respect to the refund effect if they are argument to show what that finding is high prices alone are not a finding of on just an unreasonable in light of the market conditions that were going on with scarcity and and high demand what the just and reasonable rate is going to be going forward now what they're saying is it's three to determine going backward what was an unjust and on reasonable rate as a matter of  unjust that is not what the commission said in its orders it was intending to do they never set forth what a finding for out of market transactions as to what would be covered under the out of market out of market transaction especially further goes on to say the commission or the complaining party has the burden of proof by mr wayne statements here that we're going to we haven't figured out yet what is unjust and unreasonable we haven't applied the m c p is a concession that they have not carried the burden of proof thank you argument or orders we understand that they've imposed a refund obligation with respect to sleeping parties and this is what this means and it's the reason why the ice show itself opposed a refund remedy as applied to sleeping part the issue whether they could reach sweden transactions were governmental entities whether it made sense to impose a refund obligation the equities have been doing so as i mentioned the commission offered no response to that argument at all and we burst the court to