REPORT 

Submitted to the 

United States Congress 

Federal Energy Regulatory Commission 

The Commission’s Response to the California Electricity Crisis 

and Timeline for Distribution of Refunds 

 

December 27, 2005 
2

Table of Contents 

Executive Summary..................................................................................3 

Introduction............................................................................................6 

Structure of California Markets.....................................................................6 

The Commission’s Response to the California Electricity Crisis................................7 

a. California Refund Proceeding..........................................................9 

b. Market Manipulation Proceedings (Disgorgement Proceedings).................11 

c. Settlements..............................................................................13 

1. Settlement Resolving Solely Market Manipulation-Related Claims....14 

2. Global Settlements: California Refund Proceeding and Market 

Manipulation Issues............................................................17 

Estimated Timeline for Completion of Distribution of Refunds..............................20 

Conclusion..............................................................................................26 

Executive Summary
3

This report was prepared by the Staff of the Federal Energy Regulatory 

Commission (Commission) in response to section 1824 of the Energy Policy Act of 2005, 

(EPAct 2005),1

 which requires the Commission to seek to conclude its investigation of 

unreasonable charges during the California electricity crisis as soon as possible, ensure 

that refunds owed to California are paid, and submit to the United States Congress by 

December 31, 2005 a report describing actions taken and timetables for further action. 

The report describes the actions the Commission has taken to remedy, through refunds 

and settlements, unjust and unreasonable prices charged during the California electricity 

crisis, and the timeline for conclusion of remaining outstanding matters. 

To date, the Commission staff has facilitated settlements resulting in over $6.3 

billion. This includes amounts related to the settlement of issues regarding allegations of 

market manipulation in the West during the period January 2, 2000 to June 20, 2001 

(herein referred to as the “Market Manipulation Proceeding”) as well as settlements 

involving the investigation of the justness and reasonableness of wholesale electric rates 

for sales into the California Independent System Operator Corporation (California ISO) 

and California Power Exchange (Cal PX or PX) markets for the period October 2, 2000 

through June 20, 2001 (referred to herein as the “California Refund Proceeding”). Thus, 

a sizeable portion of refunds have been returned via settlements; and the Commission has 

completed all but one of the 60 investigations regarding market manipulation. No one 

can dispute that the California Refund Proceeding has gone on far too long. The lack of 

closure contributes to the uncertainty in California - - some refunds are still owed and 

owing; investment, and recovery of that investment, is unclear; and the state of the 

transmission grid and electricity markets remains vulnerable.2

The Commission and its Staff have worked diligently with the California parties 

(and others) to address the many issues in the California Refund Proceeding, to reach 

settlements, and to address flawed rules that were in place in the California ISO electric 

energy markets during the California energy crisis; and we remain committed to doing so 

to help ensure that there is not a repeat of the California crisis. 

 

1

 Pub. L. No. 109-58, 119 Stat. 594, § 1824 (2005). 

2

 Since June 2001 (the end of the California electricity crisis), the California ISO 

has experienced 12 system emergencies where load had to be interrupted and customers 

were without electricity. On August 25, 2005, for example, the loss of a major western 

transmission line caused a power outage in Southern California. The more recent system 

emergency occurred on September 12 at 12:32 p.m. when the Los Angeles area 

experienced a power outage that affected approximately 2,000,000 people (2,200 MW) 

because of a maintenance error at a substation that is a major source of power to the city. 

 
4

Congress recently provided the Commission with tools not previously available to 

it. The Federal Power Act (FPA)3

 did not address market manipulation and there was 

little in the way of penalty authority. The Commission’s civil penalty authority was 

available only in very limited circumstances under Part II of the FPA and not at all for 

violation of the Natural Gas Act (NGA).4

 For violations not subject to civil penalties, the 

only available civil remedies were refunds, disgorgement of unjust profits or revocation 

of market-based rate authority in the electric wholesale markets. The Commission used 

these very tools to remedy the abuses in the California markets. However, EPAct 2005 

added a prohibition on market manipulation and provided the Commission enhanced civil 

penalty authority with regard to instances of market manipulation. If the express 

prohibition of market manipulation had been in place then, it is very possible that it 

would have deterred market participants from manipulating the market because they 

would have known the serious consequences of their actions. Although this would not 

have eliminated all the price increases due to the shortages that existed in California at 

that time, it certainly could have lessened the severity of the crisis. Regardless of the 

past, upon implementation of these new authorities, the Commission is better poised to 

address market abuses should they occur in the future.5

Bringing closure to the California Refund and the Market Manipulation 

Proceedings is a priority. While the Market Manipulation Proceedings are coming to a 

close, work remains on the California Refund Proceeding, despite the efforts of the 

Commission and many others to resolve this proceeding. Final action on the issuance of 

orders depends on actions by parties other than the Commission, such as the California 

Independent System Operator (California ISO) and the federal courts. For that reason, it 

is not possible to provide a date certain at this time for the conclusion of the California 

Refund Proceeding. The California Refund Proceeding is a contentious proceeding with 

over 100 active parties and many factual elements that are disputed time and again. The 

evidentiary hearing took 18 months to complete and the hearing record consists of 5,945 

pages. The supporting exhibits encompass over 20 shelf feet with more than a yard of 

briefs addressing the stipulated issues. In August 2005, the Commission issued an order 

 

3

 16 U.S.C. §§796, et seq. (2004). 

4

 15 U.S.C. §§ 717, et seq. (2004). 

5

 On October 20, 2005, the Commission, in order to implement the antimanipulation provisions of FPA section 222, issued a Notice of Proposed Rulemaking to 

adopt new rules. See Prohibition of Energy Market Manipulation, 113 FERC ¶ 61,067 

(2005). On October 20, 2005, the Commission issued an Enforcement Policy Statement 

to provide guidance to the industry on the approach it will take to future enforcement. 

See Enforcement of Statutes, Orders, Rules, and Regulations, 113 FERC ¶ 61,068 (2005). 
5

that revised the procedural schedule for the California Refund Proceeding to accelerate 

the issuance of refunds.6

 As we continue to work through the final stages of the 

California Refund Proceeding, we must balance the need for quick resolution against the 

rights of parties to due process. It is very important that the Commission-adopted 

procedures for addressing refund issues strictly adhere to the due process principles, to 

ensure that the Commission’s determinations withstand judicial scrutiny on due process 

grounds. Otherwise, we may have to revisit decisions already made, which could delay 

issuance of refunds by years. We are committed to progressing as quickly as the law will 

allow. 

 

6 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 112 FERC ¶ 61,176 (2005). 
6

INTRODUCTION 

 Section 1824 of the Energy Policy Act of 2005 (EPAct 2005) requires the 

Commission to conclude its investigation of unreasonable charges during the California 

electricity crisis as soon as possible, to ensure that refunds owed to California are paid, 

and to submit to the United States Congress by December 31, 2005 a report describing 

actions taken and timetables for further action. This Report provides a brief background 

of the structure of the California markets at the time of the crisis, explains the actions 

taken by the Commission, and reports on the status of the Commission’s proceedings. 

STRUCTURE OF CALIFORNIA MARKETS 

Electric restructuring in California was initiated by the California Public Utilities 

Commission (CPUC) and followed by legislative enactment of Restructuring Legislation, 

under Assembly Bill 1890 (AB1890).7

 California’s restructuring provided for the 

establishment of two new entities – the Power Exchange (PX) and the California 

Independent System Operator (California ISO). The California ISO is responsible for 

operating and maintaining the grid, which includes resolving congestion, purchasing 

power to maintain reliability, and determining the need for transmission upgrades. The 

PX was created to function as the principal power market. The PX acted as a clearing 

house for daily and hourly markets; established prices for a day-head market based on 

demand quantities and prices it received from parties trading through the PX; and 

submitted balanced schedules to the California ISO.8

 It remained in this role until 

January 2001 when it ceased operations.9

To participate in the California ISO market, an entity had to be approved as a 

Scheduling Coordinator. A Scheduling Coordinator is responsible for submitting a 

balanced schedule to the California ISO on behalf of itself or the market participants for 

which it serves as Scheduling Coordinator. The PX was a Scheduling Coordinator on 

behalf of many market participants. Thus, the California ISO and PX were central figures 

in the California markets - providing the vehicle through which energy was bought and 

sold, holding collateral for market participants, and settling accounts. As such, the 

California ISO and PX are intricately involved in the resolution of the proceedings before 

 7

 The legislation was unanimously approved by the California Legislature. 

8

 The Commission found the PX to be jurisdictional because it exerted active 

control over the sales of electric energy at wholesale in interstate commerce and was 

engaged in sales for resale. See Pacific Gas and Electric Company, 77 FERC ¶ 61,204 

(1996). 

9 See PX’s Notice of Suspension of Trading, Docket No. EL00-95-000, January 

30, 2001. 
7

the Commission. 

THE COMMISSION’S RESPONSE TO THE CALIFORNIA 

ELECTRICITY CRISIS 

On August 23, 2000, the Commission initiated a formal investigation (referred to 

herein as the “California Refund Proceeding”) to determine the justness and 

reasonableness of rates for sales into the California ISO and PX markets. That 

investigation also examined whether the tariffs and institutional structures and bylaws of 

the California ISO and PX were adversely affecting the efficient operation of 

competitive wholesale electric power markets in California and needed to be modified.10 

This proceeding arose as a result of price spikes in the California ISO and PX markets 

during the summer of 2000. The Commission set a “refund effective date,” i.e., the first 

day for which refunds could be allowed, of October 2, 2000,11 the earliest day permitted 

under the Federal Power Act (FPA) at that time. The Commission may also be able to 

order disgorgement of unjust profits for the period between January 1, 2000 and October 

2, 2000.12 

In November 2000, the Commission issued an order13 in the California 

Refund Proceeding based on the results of a Commission Staff fact-finding 

investigation of the California power markets14 which had begun in July 2000 and 

 10 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 92 FERC ¶ 61,172 (2000). 

11 See San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services 

into Markets Operated by the California Independent System Operator and the 

California Power Exchange, 93 FERC ¶ 61,121 at 61,370 (2000).

12 The Court of Appeals for the Ninth Circuit ruled in Lockyer v. FERC, 383 F.3d 

1006 (2004), that the FPA allows market-based rates for public utilities lacking market 

power and that the Commission has authority under the FPA to order retroactive 

remedies for sellers that failed to comply with the Commission’s reporting requirements. 

The Ninth Circuit interpreted the FPA to provide the Commission with broader authority 

than the Commission believed the Act provided. Parties have sought rehearing of the 

court’s opinion, but the court has not acted; the Commission is still awaiting the issuance 

of a court mandate returning the record to the Commission. 

13 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 93 FERC ¶ 61,122 (2000). 

14 Staff Report to the Federal Energy Regulatory Commission on Western Markets 
8

which concluded that a number of factors contributed to the California electricity 

crisis of 2000 and 2001. These included: flawed market rules; inadequate 

addition of generating facilities in the preceding years; a drop in available 

hydropower due to drought conditions; a rupture of a major pipeline supplying 

natural gas into California; strong growth in the economy and in electricity 

demand; unusually high temperatures; an increase in unplanned outages of 

extremely old generating facilities; and market manipulation by some sellers. 

The Commission took a number of significant steps in an effort to end the 

crisis: correcting market rules that were contributing to the crisis, mitigating 

prices, adopting prospective mitigation rules, and providing for an after-the-fact 

determination of refunds attributable to prices above just and reasonable levels. 

By way of example, in December 2000 the Commission eliminated the AB 1890 

legislative requirement that the investor-owned utilities in California sell all of 

their generation into and buy all of their generation from the PX.15 The 

Commission also required sellers to report and justify sales above certain prices,16

as well as to offer for sale to California markets all power available from their 

facilities (referred to as the “must offer” requirement).17 Because of the regional 

impact of the 2000-2001 crises, the Commission extended the “must offer” 

requirement to generators throughout the West in June 2001.18 Similarly, it 

imposed price mitigation throughout the West.19 

In February 2002, the Commission established a fact-finding investigation of 

potential market manipulation of electric and natural gas prices in the West. The 

investigation was time- and resource-intensive involving extensive data gathering and 

 

and the Causes of the Summer 2000 Price Abnormalities, Docket No. EL00-95-000 

(November 1, 2000). The Staff investigation was directed by the Commission in 

Investigation of Electric Bulk Power Markets, 92 FERC ¶ 61,160 (2000). 

15 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 93 FERC ¶ 61,294 (2000). 

16Id. 

17 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 95 FERC ¶ 61,115 (2001). 

18 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 95 FERC ¶ 61,418 (2001). 

19 Id. 
9

analysis. Staff received in excess of 70 boxes of written materials and an equivalent of 

more than 900 compact discs of electronic data.20 In March 2003, the Commission Staff 

released a Final Report,21 finding evidence of significant market manipulation in Western 

energy markets during 2000 and 2001. The Final Report also concluded that published 

indices of natural gas prices in or near California were not reliable. This spawned 

additional formal investigations of sellers, and the Commission pursued disgorgements of 

unjust profits of sellers that engaged in market manipulation (referred to herein as the 

“Market Manipulation Proceedings”). As part of the Market Manipulation Proceedings, 

Commission Staff conducted an investigation of potential anomalous bidding behavior 

and practices in the PX and California ISO markets, and instances of illegal gaming and 

physical withholding.

a. California Refund Proceeding 

Having found that electricity spot prices in the California ISO and PX markets 

were unjust and unreasonable, the Commission in July 2001 ordered refunds based upon 

a mitigated market price.22 The Commission set forth a formula to use in calculating the 

mitigated market price and established an evidentiary hearing proceeding before an 

Administrative Law Judge (ALJ) to, among other things, compile the data needed for the 

formula which relied on heat rates of generating units and natural gas prices as published 

by indices. The evidentiary hearing took 18 months to complete and involved more than 

100 parties. The complete hearing record spans 5,945 pages. The supporting exhibits 

sponsored by more than 100 active parties and Staff takes up more than 20 shelf feet and 

there is more than a yard of briefs which address the stipulated issues. In December 

2002, the ALJ issued an initial decision on the formula and found that power suppliers 

owed an estimated $1.8 billion in refunds and that the California ISO and PX owed 

suppliers cash payments of $3 billion.23 

Three months later, in March 2003, the Commission issued an order largely 

 20 This number is an approximation derived from 1200 gigabytes of data 

submitted, as reported in Final Report on Price Manipulation in Western Energy 

Markets: Fact Finding Investigation of Potential Manipulation of Electric and Natural 

Gas Prices, Docket No. PA02-2-000 (March 26, 2003) (Final Report). 

21 See id. 

22 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 96 FERC ¶ 61,120 (2001). 

23 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 101 FERC ¶ 63,026 (2002). 
10

adopting many of the ALJ's findings.24 However, based on the finding in the Final 

Report that, because of manipulation, the published fuel price indices were not reliable, 

the Commission revised the formula for determining the mitigated market prices and 

required the use of marginal fuel costs (i.e., reported natural gas prices in production 

fields plus pipeline transportation costs) instead of fuel price indices. This had the 

overall effect of increasing refund liabilities and potentially causing certain individual 

sellers to under-recover their costs of providing electricity for sale to California spot 

markets. 

The FPA mandates that the Commission cannot set rates at confiscatory levels. 

Suppliers of energy or service must be allowed to recover legitimate and verifiable costs 

incurred in providing the energy or service, plus a reasonable rate of return. If the refund 

liabilities exceed the costs incurred by sellers in producing and/or delivering energy, the 

refund amounts may be challenged in courts. If refunds are found to be confiscatory, the 

Commission would have to revisit the refund issues, which would delay issuance of 

refunds by years. For these reasons, in accordance with its statutory obligation to prevent 

setting confiscatory rates, the Commission stated it would allow sellers the opportunity to 

recover their actual costs in excess of revenues received as a result of the mitigated 

market price. The Commission will permit sellers who are able to demonstrate such 

legitimate costs to offset these costs against their refund liability. The Commission: (1) 

established a separate expense category for demonstrable emissions costs, including NOX

costs and other environmental mitigation fees, which sellers may subtract from their 

respective refund obligations;25 (2) provided generators the opportunity to claim an 

allowance for demonstrated fuel costs in excess of the amount allowed under the 

mitigated market price formula;26 and (3) provided an opportunity for all sellers to submit 

evidence demonstrating that the refund methodology creates an overall revenue shortfall 

for their transactions made during the refund period.27 The purpose of this has been to 

ensure that no seller’s mitigated revenues fall below the cost the seller incurred to serve 

 24 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 102 FERC ¶ 61,317 (2003). 

25 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 96 FERC ¶ 61,120 at 61,519 (2001). 

26 See supra n. 24. 

27 See San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services 

into Markets Operated by the California Independent System Operator and the 

California Power Exchange, 97 FERC ¶ 61,275 (2001). 
11

California markets.28 Each of these opportunities spawned additional proceedings. 

The California ISO, in addition to rectifying settlement data, has also calculated 

the mitigated market clearing prices based on Commission orders. The California ISO 

and PX will both be required to resettle obligations with market participants as a result of 

the Commission’s proceedings. 

Accordingly, the refund calculation and resolution process consists generally of 

four stages: (1) settling past accounts in order to have an accurate baseline from which to 

calculate refunds; (2) establishing just and reasonable market clearing prices through use 

of a formula (mitigated market price); (3) providing opportunity for sellers to 

demonstrate under-recovery of actual costs; and (4) final accounting and payment. Each 

of these parts is data and information intensive and continues to generate controversy. 

The status of each of these is discussed further below. 

b. Market Manipulation Proceedings (Disgorgement Proceedings) 

In addition to the California Refund Proceeding described above, in February 

2002, the Commission directed its Staff to investigate whether Enron Power Marketing, 

Inc. (Enron), or any other entity participating in the wholesale energy markets in the 

West, had manipulated prices for electricity or natural gas or otherwise exercised undue 

influence over wholesale electricity or natural gas prices since January 1, 2000.29 The 

Commission Staff conducted an extensive investigation, issuing numerous data requests 

and subpoenas, and conducting depositions. 

 In March 2003, the Commission Staff released the Final Report,30 finding 

evidence of significant market manipulation in Western energy markets during 2000 and 

2001. Key findings were that markets for natural gas and electricity in California are 

inextricably linked and that the artificially inflated increases in spot gas prices 

contributed to the rise in electricity prices. The problems in the natural gas market 

appeared to stem, in part, from efforts to manipulate price indices compiled by trade 

publications. In addition, the Final Report concluded that many trading strategies used 

by Enron and other companies violated anti-gaming provisions of the Commissionapproved tariffs for the California ISO and PX. This report resulted in additional formal 

 28 See San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services 

into Markets Operated by the California Independent System Operator and the 

California Power Exchange, 105 FERC ¶ 61,065 at P 20 (2003). 

 29 Fact-Finding Investigation of Potential Manipulation of Electric and Natural Gas 

Prices, 98 FERC ¶ 61,165 (2002). 

30 See supra n. 20. 
12

investigations of sellers’ gaming activities, and the Commission, which at that time 

lacked civil penalty authority, asserted authority to order disgorgement of unjust profits 

resulting from market manipulation, in addition to the refunds at issue in the California 

Refund Proceeding. 

 In June 2003, the Commission found that Enron engaged in gaming activities in 

the form of impermissible trading strategies. The Commission revoked the market-based 

rate authorization of the Enron-affiliated electricity marketers, thereby terminating their 

ability to make any sales under market-based rates.31 

 Also in June 2003, the Commission commenced an investigation of potential 

anomalous bidding behavior and practices in the PX and California ISO markets.32 

Specifically, the Commission instructed Staff to determine whether any entities that bid 

above $250/MWh between May 1 and October 1, 2000, violated the anti-gaming 

provisions of the PX and California ISO tariffs. In these proceedings, Commission Staff 

was able to negotiate settlements worth more than $90 million, which are discussed in 

further detail below. 

 The Commission began two other cases in June 2003, challenging gaming 

strategies criticized in the Final Report.33 Together, the cases involved over 60 power 

trading companies alleged to have engaged in market manipulation either unilaterally or 

with other entities. All companies (except Enron) opted to settle the allegations and 

return the revenues they had obtained as a result of using those strategies. 

 To address the possibility of additional manipulation on a generic basis, soon after 

issuance of the Final Report, the Commission proposed new restrictions and reporting 

requirements (the Market Behavior Rules) on all blanket certificates for wholesale sales 

of natural gas and market-based rate authorizations for sales of wholesale power. After 

receiving public comment, the Commission adopted the Market Behavior Rules in 

November 2003.34 These rules set guidelines for the conduct of sellers with marketbased rate authority, and provide remedies for anticompetitive behavior or market abuses. 

For example, the Market Behavior Rules prohibit actions and transactions that lack a 

legitimate business purpose and that are intended to, or foreseeably could, manipulate 

 31 Enron Power Marketing, Inc., 103 FERC ¶ 61,343 (2003). 

32 Investigation of Anomalous Bidding Behavior and Practices in the Western 

Markets, 103 FERC ¶ 61,347 (2003). 

33 Enron Power Marketing, Inc., 103 FERC ¶ 61,346 (2003); American Electric 

Power Service Corp., 103 FERC ¶ 61,345 (2003). 

34 Investigation of Terms and Conditions of Public Utility Market-Based Rate 

Authorizations, 105 FERC ¶ 61,218 (2003). 
13

prices or markets. Certain types of conduct, such as transactions based on false 

information, transactions to create and relieve artificial congestion, and collusive 

transactions, are specifically prohibited. Sellers may not submit false or misleading 

information nor omit material information in any communication with the Commission, 

market monitors, regional transmission organizations or independent system operators. A 

seller found to have engaged in prohibited behavior under the Market Behavior Rules is 

subject to disgorgement of unjust profits and revocation of the seller’s market-based rate 

authority or blanket certificate authority. 

The Commission’s response to the instances of market manipulation was limited 

by the enforcement authority it possessed at the time. The Commission sought from 

Congress additional regulatory tools to deter market power abuse, comparable to those 

possessed by other economic regulatory bodies. Congress agreed with the Commission 

on the importance of preventing and sanctioning market manipulation and provided in 

EPAct 2005 for enhanced enforcement authorities for the Commission. This legislation 

provided the Commission with new enforcement authorities that will help ensure that we 

do not have a repeat of the California energy crisis. 

Specifically, EPAct 2005 added to the FPA an explicit prohibition on the use of 

manipulative or deceptive devices in connection with the purchase or sale of electric 

energy or transmission service subject to the jurisdiction of the Commission, in 

contravention of the Commission’s rules and regulations,35 and increased criminal and 

civil penalties for violations of Part II of the FPA or any rules or orders thereunder. 

EPAct 2005 added similar provisions to the Natural Gas Act.36 The Commission 

recently issued proposed rules to implement these new anti-manipulation provisions and 

to repeal or modify its existing behavioral rules in light of the new provisions.37 

Contemporaneously with the proposed anti-manipulation rules, the Commission issued an 

Enforcement Policy Statement38 to provide guidance to the industry on how the 

Commission intends to apply its new and expanded civil penalty authority. 

c. Settlements 

The Commission has always encouraged parties involved in contentious 

proceedings to work toward settlements instead of litigating, because the Commission 

 35 EPAct 2005 § 1283. 

36 Id. § 315. 

37 See Prohibition of Energy Market Manipulation, 113 FERC ¶ 61,067 (2005). 

38 Enforcement of Statutes, Orders, Rules, and Regulations, 113 FERC ¶ 61,068 

(2005). 
14

believes that settlements can be the best way to resolve disputes fairly, efficiently and 

cost-effectively. With respect to the California Refund Proceeding, the Commission 

Staff has diligently worked with parties to reach settlements in order to expedite 

closure of the proceeding and restore confidence in the California markets. In the 

Commission’s view, restoring confidence in California markets is critical to motivating 

future investment in transmission and generation facilities necessary to the long-term 

health and competitiveness of the wholesale electricity market. Commission Staff’s 

active involvement in settlement negotiations has facilitated a significant number of 

settlements. Currently, the total amount obtained through settlements with Western 

energy providers exceeds $6.3 billion. These settlements resolve claims relating to 

both market manipulation as well as refund obligations. Settlements include: 

1. Settlements Resolving Solely Market Manipulation-Related Claims 

(1) April 2001 - the Commission approved a settlement between its Market 

Oversight Staff and Williams Energy Marketing & Trading Company 

(Williams) and AES Southland, Inc., in which Williams agreed to pay 

refunds in the amount of $8 million.

39 

(2) November 2002 - the State of California, with the assistance of 

Commission’s Chief ALJ, reached a settlement with Williams to restructure 

certain energy contracts. The settlement resulted in an estimated $1.64 

billion in savings and payment.40 

(3) January 2003 - the Commission approved a settlement with Reliant 

Companies41 and its affiliates, obligating Reliant to pay $13.8 million.

42

 39 AES Southland, Inc., 95 FERC ¶ 61,167 (2001). 

40 See San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services 

into Markets Operated by the California Independent System Operator and the 

California Power Exchange, 105 FERC ¶ 61,066 at P 182 (2003) (October 23 Order) 

(requiring Williams to file Settlement with the Commission); Williams Settlement filed 

in compliance with October 23 Order, Docket No. EL00-95-081 (November 4, 2003). 

See also San Diego Gas and Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 108 FERC ¶ 61,002 at P 5 (2004) (payment of $10.5 million reflects 

the fact that Williams previously settled 95 percent of its potential refund liability 

through the November 2002 Settlement). See also Office of Attorney General of the 

State of California Press Release, Attorney General Lockyer Announces Settlement with 

Williams, November 11, 2002. 

41 Reliant Resources, Inc.; Reliant Energy Coolwater, Inc.; Reliant Energy 

Ellwood, Inc.; Reliant Energy Etiwanda, Inc.; Reliant Energy Mandalay, Inc. and Reliant 
15

These settlements resolved allegations that the generators acted improperly in 

the market during the period. 

(4) July 2003 - the Commission approved a settlement under which Enron 

agreed to reduce the prices it charged Southern California Edison Company 

for power from a number of Enron-owned Qualifying Facilities.43 The 

settlement provided an immediate benefit to California ratepayers of 

approximately $11 million, and future rate reductions worth $41 to $47 

million on a net present value basis.44 

(5) July 2003 - the Commission approved a settlement of El Paso Electric 

Company’s (El Paso Electric) involvement with Enron in activities that 

affected prices and markets in the West. The settlement required El Paso to 

refund $15.5 million to the California Department of Water Resources for 

ultimate distribution to consumers, and suspended the company’s marketbased rate authority for two years.45

(6) July 2003 - the Commission approved a settlement between the 

Commission Staff and BP Energy Company (BP Energy), which resolved all 

issues arising from a preliminary, non-public investigation conducted as part 

of the Market Manipulation Proceedings. The settlement required BP Energy 

to pay $3 million to fund low-income home energy assistance programs for 

customers in California and Arizona.46

(7) October 2003 - the Commission approved a settlement between Reliant47

and the Market Oversight Staff of the Commission. The settlement resolves 

 

Energy Ormond Beach, Inc. 

 42 Fact-Finding Investigation into Possible Manipulation of Electric and Natural 

Gas Prices, 102 FERC ¶ 61,108 (2003). 

43 The Commission’s regulations provide in detail the technical and ownership 

criteria for Qualifying Facility status. See 18 C.F.R. §§ 292.203-206 (2005). 

44 Investigation of Certain Enron-Affiliated Qualifying Facilities, 104 FERC ¶ 

61,126 (2003). 

45 El Paso Electric Co., 104 FERC ¶ 61,115 (2003). 

46 Fact-Finding Investigation into Possible Manipulation of Electric and Natural 

Gas Prices, 104 FERC ¶ 61,089 (2003). 

47 Reliant Energy Services, Inc., Reliant Energy Coolwater, Inc., Reliant Energy 

Ellwood, Inc., Reliant Energy Etiwanda, Inc., Reliant Energy Mandalay, Inc., and Reliant 

Energy Ormond Beach, Inc. 
16

all outstanding issues with respect to Reliant arising from the market 

manipulation investigation, physical withholding investigation, and 

anomalous bidding investigation. The settlement provided $50 million for the 

benefit of California and Western electricity customers.48

(8) December 2003 - the Commission approved a settlement with Duke 

Energy, requiring Duke Energy to pay $2.5 million into a deposit fund 

account established by the United States Treasury on behalf of the 

Commission for ultimate distribution for the benefit of California and Western 

electricity consumers. The settlement resolved allegations that Duke Energy 

had engaged in anomalous bidding and improperly withheld its power supply 

during the energy crisis.49 

(9) 2003-2004 - the Commission approved settlements in which Portland 

General Electric Company (Portland General) and Avista Corporation 

(Avista) each settled with Commission Trial Staff, agreeing to pay $8.5 

million and $75,000, respectively.50 The settlement resolved issues in the 

Commission’s August 13, 2002 investigation into whether any Commission 

rules were violated by Enron’s dealings with Portland General and Avista.51 

(10) 2003-2004 - the Commission approved settlements which resolved issues 

in the gaming investigations against 19 sellers. These settlements resulted in 

the total payment of over $22 million.

52 

 48 Reliant Energy Services, Inc., 105 FERC ¶ 61,008 (2003). 

49 Duke Energy North America, LLC, 105 FERC ¶ 61,307 (2003). 

50 Portland General Electric Company, 105 FERC ¶ 61,302 (2003); Avista 

Corporation, 107 FERC ¶ 61,055 (2004). 

51 Portland General Electric Co., 100 FERC ¶ 61,186 (2002); and Avista Corp., 

100 FERC ¶ 61,187 (2002). 

52 American Electric Power Service Corporation, 106 FERC ¶ 61,025 (2004); 

Aquila Merchant Services, Inc., 106 FERC ¶ 61,234 (2004); City of Redding, 

California,106 FERC ¶ 61,023 (2004); Colorado River Commission of Nevada, 109 

FERC ¶ 61,081 (2004); Coral Power, L.L.C., 108 FERC ¶ 61,115 (2004); Dynegy Power 

Marketing, Inc., 108 FERC ¶ 61,145, (2004); City of Glendale, California, 108 FERC ¶ 

61,111 (2004); Idaho Power Company, 106 FERC ¶ 61,208 (2003); Modesto Irrigation 

District, 108 FERC ¶ 61,260 (2004); Modesto Irrigation District, 107 FERC ¶ 61,116 

(2004); Morgan Stanley Capital Group Inc., 106 FERC ¶ 61,237 (2004); Northern 

California Power Agency, 108 FERC ¶ 61,112 (2004); PacifiCorp, 106 FERC ¶ 61,235 
17

2. Global Settlements: California Refund Proceeding and Market 

Manipulation Issues 

The Commission has approved nine global settlements resulting in 

approximately $4.5 billion in refunds or other benefits to California and others, which 

constitute approximately more than half of the estimated refund liability owed by 

jurisdictional entities. Despite the magnitude and encompassing nature of these 

settlements (several address pre-October 2000 issues), not all parties have chosen to 

join the settlements. Settlements include: 

(1) November 2003 - the Commission approved a settlement with El Paso 

Natural Gas Company53 that benefited California ratepayers by 

approximately $1.45 billion.

54 

(2) July 2004 - the Commission approved a settlement with Williams 

Companies, Inc. and Williams Power Company, Inc. (Williams) that 

benefited California ratepayers by approximately $140 million.

55

(3) October 2004 - the Commission approved a settlement with Dynegy, 

Inc. (Dynegy) that benefited ratepayers by approximately $281 million.

56

(4) December 2004 - the Commission approved a settlement with the Duke 

 

(2004); PacifiCorp, 106 FERC ¶ 61,235 (2004); Portland General Electric Company, 

106 FERC ¶ 61,236 (2004); Powerex Corporation, 106 FERC ¶ 61,304 (2004); Puget 

Sound Energy, Inc., 106 FERC ¶ 61,026 (2004); Reliant Resources, Inc., 106 FERC ¶ 

61,207 (2004); San Diego Gas & Electric Company, 106 FERC ¶ 61,028 (2004); 

Sempra Energy Trading Corporation, 108 FERC ¶ 61,114 (2004); Williams Energy 

Services Corporation, 106 FERC ¶ 61,027 (2004). 

53 This settlement was a joint settlement with El Paso Merchant Energy-Gas, L.P. 

and El Paso Merchant Energy Company. 

54 Public Utilities Commission of the State of California v. El Paso Natural Gas 

Company, 105 FERC ¶ 61,201 (2003). See also El Paso Corporation’s Press Release, El 

Paso Corporation’s Master Settlement Agreement Takes Effect, June 14, 2004. 

55 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 108 FERC ¶ 61,002 (2004). 

56 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 109 FERC ¶ 61,071 (2004). 
18

Companies57 that benefited ratepayers by approximately $207.5 million.

58 

(5) April 2005 - the Commission approved a multi-party settlement 

involving Mirant Companies59 (Mirant) and others resolving all issues 

involving Mirant arising from the energy crisis. If approved by the 

bankruptcy court, the settlement will transfer approximately $495 million

to the State of California and others.60

(6) November 2005 - the Commission approved the Enron settlement 

agreement with the California Public Utilities Commission, California 

Attorney General, California investor-owned utilities, the California 

Department of Water Resources, and the California Electricity Oversight 

Board and the Attorneys General of Oregon and Washington.61 The major 

terms of the settlement with Enron are: (1) Enron’s payment of $47 

million in cash or its equivalent; (2) an allowed unsecured claim in 

bankruptcy of $875 million; and (3) a $600 million civil penalty in favor 

of the Attorneys General of California, Oregon, and Washington. 

 57 Duke Energy Corporation; Duke Capital LLC; Duke Energy Americas, LLC; 

Duke Energy Merchants, LLC; Duke Energy Trading and Marketing, L.L.C. (DETM); 

Duke Energy North America, LLC; Duke Energy Morro Bay LLC; Duke Energy Moss 

Landing LLC; Duke Energy Oakland LLC; Duke Energy South Bay, LLC; DETMI 

Management, Inc.; DE Power Generating, LLC; Duke Energy California, LLC; Duke 

Energy Generation Services, LLC; Duke Energy Fossil-Hydro, LLC; Duke Energy 

Fossil-Hydro California, Inc.; Catawba River Investments II, LLC; and DE Power 

Generating Holdings, LLC. 

58 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 109 FERC ¶ 61,257 (2004). 

59 Mirant Corporation, Mirant Americas, Inc., Mirant Americas Energy Marketing, 

LP, Mirant Americas Energy Marketing Investments, Inc., Mirant Americas Generation, 

LLC, Mirant California Investments, Inc., Mirant California, LLC, Mirant Delta, LLC, 

Mirant Potrero, LLC, Mirant Special Procurement, Inc., Mirant Services, LLC, and 

Mirant Americas Development, Inc. 

60 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 111 FERC ¶ 61,017 (2005). See also FERC Press Release, 

Commission Approves Settlement Valued At $500 Million between Mirant, California 

Parties and FERC Staff, Docket No. EL00-95-000, April 13, 2005. 

61Enron Power Marketing, Inc., 113 FERC ¶ 63,002 (2005). 
19

(7) November 2005 - the Commission approved the Enron settlement 

agreement with New West Energy Corporation and the Salt River 

Agricultural Improvement and Power District.62 The terms of the 

settlement with Enron include a cash payment totaling $884,000 and nonmonetary considerations. 

(8) December 2005 - the Commission approved the settlement of the 

Public Service Company of Colorado (Colorado PSC) with the California 

Parties63 and Commission Market Oversight Staff.64 The Settlement 

resolves all issues in the California Refund Proceeding and market 

manipulation Proceedings, including the investigation of gaming and 

physical withholding. The terms of the settlement with Colorado PSC 

include payment of monetary considerations totaling over $7 million. 

(9) December 2005 - the Commission approved the settlement among 

Reliant, the California Parties,65 and Commission Market Oversight Staff. 

Under the terms of this settlement, Reliant is to make cash payment in the 

amount of $460 million.

66 

 62 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 113 FERC ¶ 61,226 (2005). 

63 The California Parties, for purposes of the settlement with the Colorado PSC, 

are: Pacific Gas & Electric Company (PG&E), Southern California Edison Company 

(SCE), San Diego Gas & Electric Company (SDG&E), the People of the State of 

California, ex rel. Bill Lockyer, Attorney General, and the California Department of 

Water Resources. 

64 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 113 FERC ¶ 61,235 (2005). 

65 The California Parties, for purposes of the Reliant Settlement, are: PG&E, SCE, 

SDG&E, the People of the State of California, ex rel. Bill Lockyer, Attorney General, the 

California Electricity Oversight Board (CEOB), and the CPUC. 

66 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 113 FERC ¶ 61,308 (2005). 
20

ESTIMATED TIMELINE FOR COMPLETION OF 

DISTRIBUTION OF REFUNDS 

As mentioned, there are four stages to the California Refund Proceeding. These 

consist generally of: (1) settling past accounts in order to have an accurate baseline from 

which to calculate refunds, which has been completed; (2) establishing just and 

reasonable market clearing prices through use of a formula, which has been completed; 

(3) adjusting the refund obligations to account for emissions, fuel and general cost 

recovery offsets; and (4) final accounting and payment. In an effort to ensure due process 

but yet efficiently close the proceeding, the Commission is allowing as short a time frame 

as possible for filings, comments and responses in its administrative procedures. Further, 

the Commission is adjudicating the disputes through an administrative process as 

opposed to lengthy protracted litigation procedures. However, it is very important that 

the Commission-adopted procedures for addressing refund issues strictly adhere to the 

due process principles. The Commission is committed to treating parties with fairness in 

all stages of the California Refund Proceeding and ensuring that its determinations 

withstand judicial scrutiny on due process grounds; otherwise, refunds could be delayed 

for years. 

The Commission and parties have been working on the calculation of the baseline 

amounts, the mitigated market price and the three offset amounts. Significant progress 

has occurred on all stages. However, refunds solely through the California Refund 

Proceeding (as compared to settlements in which refunds are more quickly returned to 

California) cannot be completed as long as there remain open and disputed issues. To 

date, as mentioned above, approximately $4 billion have been returned as a result of 

global settlements; thus, the total obligation in the California Refund Proceeding would 

be reduced to reflect the portion of the $4 billion settlement amount associated with 

refunds.67 

Stage 1. Settling Baseline Amounts: The lengthy process of establishing a 

baseline from which to compute refunds has been completed. The Commission issued 

orders on the baseline calculations; and there are no outstanding issues pending 

rehearing. Importantly, the California ISO has been working with parties to resolve any 

outstanding issues; and according to the California ISO, it has resolved most if not all of 

the disputes arising from the baseline calculations, which at one time numbered in the 

thousands.68 In order to facilitate closure of this proceeding, the Commission directed 

 67 Note that many sellers were not paid for the energy sold into the California ISO 

and PX markets. 

68 The California ISO’s Twenty-Second Status Report on Settlement Re-Run 

Activity, Docket No. ER03-746-000, at 13-15, November 10, 2005. 
21

parties to inform the Commission of any outstanding disputes by December 1, 2005.69 

On December 1, seven parties made the Commission aware of such disputes.70 The 

Commission will determine whether these disputes are best handled as billing disputes 

under the California ISO tariff or whether the Commission should intervene to resolve 

any disputes. 

Stage 2. Mitigated Market Clearing Prices: Since July 2004, market participants 

have had access to the 37,728 ten-minute interval price increments that form the 

mitigated market clearing prices for the entire refund period October 2, 2000 through 

June 20, 2001. The mitigated market clearing prices have been calculated by the 

California ISO and posted for market participant review since July 2004; and parties were 

provided an opportunity to comment on and dispute the California ISO’s determinations. 

To the Commission’s knowledge there are no remaining disputes concerning the 

California ISO’s calculation of the mitigated market clearing prices. The California ISO 

used the services of independent auditor, PricewaterhouseCoopers LLP, to evaluate its 

calculation of the mitigated market clearing prices; and, on October 18, 2004 the auditor 

submitted its report to the California ISO Board of Governors stating that the California 

ISO calculated the mitigated market clearing prices in accordance with guidance 

provided in Commission orders. 

 Stage 3. Offsets: As described in more detail below, the determination of the 

offset amounts is nearing completion. Before the California ISO can proceed with the 

financial adjustment stage, in which it will make adjustment to its refund settlement data 

to account for offsets, the offset amounts must be determined and made available to the 

California ISO. As mentioned above, the cost offsets were limited to a fuel cost 

allowance, an emissions adder, and a cost-and-revenue study for marketers and loadserving entities. 

(1) Fuel Cost Allowance: Despite the Commission’s directive that only a 

generator’s actual gas costs that exceeded the baseline price of natural gas 

production plus transportation were eligible for offset from the refund 

liability, the fuel cost allowance developed into a highly contested issue. 

 69 Had the Commission not directed this, there is the possibility under the 

California ISO’s tariff that disputes could remain outstanding and unknown. 

70 The following parties filed disputes concerning the refund calculations 

performed by the California ISO: PG&E; the City of Santa Clara; the California Parties 

(comprising the People of the State of California, ex rel. Bill Lockyer, Attorney General, 

CEOB, CPUC, SCE, and PG&E); Merrill Lynch Capital Services., Commerce Energy, 

Inc., and Morgan Stanley Capital Group Inc.; the Northern California Power Agency; 

Powerex Corp.; and Puget Sound Energy, Inc. 
22

The fuel cost proceeding started in March 2003 and initially involved 22 

claims exceeding $0.5 billion. In September 2004, the Commission 

appointed an independent auditor to verify that the source data used in fuel 

cost calculations were accurate and conformed to the Commissionestablished methodology.71 After a series of conferences, comments and 

numerous Commission orders72 setting forth both the format and 

methodology, sellers eventually filed their fuel cost claims with the 

California ISO. These claims were submitted in October 2005. Any 

outstanding disputes involving these claims had to be submitted to the 

Commission by December 1, 2005. To the extent global settlements do not 

include all parties, then sellers may still have a claim for a fuel allowance, 

which has the effect of reducing refunds due. 

(2) Emissions Costs: Seven sellers submitted emissions costs claims, which 

were examined by an ALJ in an evidentiary hearing73 and subsequently 

addressed in three Commission orders.74 The most recent compliance filing 

 71 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 108 FERC ¶ 61,219 (2004). 

72 See, e.g., San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary 

Services into Markets Operated by the California Independent System Operator and the 

California Power Exchange, 111 F.ERC ¶ 61,434 (2005); San Diego Gas & Electric Co. 

v. Sellers of Energy and Ancillary Services into Markets Operated by the California 

Independent System Operator and the California Power Exchange, 111 FERC ¶ 61,475 

(2005); San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 110 FERC ¶ 61,293 (2005); San Diego Gas & Electric Co. v. Sellers 

of Energy and Ancillary Services into Markets Operated by the California Independent 

System Operator and the California Power Exchange, 109 FERC ¶ 61,297 (2004); San 

Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into Markets 

Operated by the California Independent System Operator and the California Power 

Exchange, 109 FERC ¶ 61,074 (2004); San Diego Gas & Electric Co. v. Sellers of 

Energy and Ancillary Services into Markets Operated by the California Independent 

System Operator and the California Power Exchange, 108 FERC ¶ 61,311 (2004). 

73 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 101 FERC ¶ 63,026 (2002). 

74 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 
23

in this proceeding was filed on June 21, 2005. Currently, the allowed 

emissions costs claims exceed $50 million. However, these claimed amounts 

include claims by non-public utilities, which were found by the Ninth Circuit 

to not be subject to refund liability.75 There is a pending request for 

rehearing, which involves an emissions costs claim submitted by a nonpublic utility. To the extent issues arise now, they will concern particular 

disputes over particular cost amounts claimed. 

(3) Cost-and-Revenue Study: Early on in the refund proceeding, the 

Commission stated that it would provide an opportunity at the end of the 

California Refund Proceeding for sellers to submit evidence demonstrating 

that the refund methodology creates an overall revenue shortfall for their 

transactions made during the refund period October 2, 2000 through June 20, 

2001. As of December 2004, no parties had filed a claim so the Commission 

in a December 10, 2004 order76 solicited comments and reply comments on a 

limited number of specific issues pertaining to the format of future cost 

filings. In response, the Commission received 23 comments and 12 reply 

comments. After reviewing the parties’ comments, the Commission issued 

an order establishing the framework for the evidence sellers must submit to 

demonstrate that the refund methodology results in an overall revenue 

shortfall for their transactions in the relevant markets from October 2, 2000 

through June 20, 2001, and established the timeline for such submissions.77 

On September 14, 2005, 23 sellers filed a demonstration of their actual cost 

data from the refund period, claiming $4.2 billion in cost recovery. These 

cost submissions provide an opportunity for sellers to demonstrate that the 

mitigated market clearing price and other allowances do not provide an 

opportunity for recovery of costs associated with mitigated sales. The 

 

Power Exchange, 112 FERC ¶ 61,323 (2005); San Diego Gas and Electric Co. v. Sellers 

of Energy and Ancillary Services into Markets Operated by the California Independent 

System Operator and the California Power Exchange, 102 FERC ¶ 61,317, order on 

reh'g, 105 FERC ¶ 61,066 (2003). 

75 Bonneville Power Administration v. FERC, 422 F.3d 908 (9th Cir. 2005). 

76 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 109 FERC ¶ 61,264 (2004) 

77 San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into 

Markets Operated by the California Independent System Operator and the California 

Power Exchange, 112 FERC ¶ 61,176 (2005) (August 2005 Order). 
24

information contained in these submissions is substantial. The Commission 

will act on these submissions as expeditiously as possible. 

The Commission, in the August 2005 Order, revised the procedural schedule for 

the California Refund Proceeding to accelerate the issuance of refunds. Specifically, the 

August 2005 Order condensed several previously-established deadlines, altered the 

compliance phase, and strongly encouraged parties to settle by early November 2005. 

The Commission also directed that parties inform the Commission of any outstanding 

disputes no later than December 1, 2005. In response, the California Parties made a 

filing addressing disputes in regard to offsets claimed by sellers in fuel cost allowance, 

emissions costs, and cost filing submissions and other stages of the California Refund 

Proceeding. In general, the California Parties do not question the need to allow offsets 

but rather challenge the process the Commission has employed to determine offsets, 

largely claiming that insufficient opportunity for discovery was provided.78 If the 

Commission finds that there is merit in the California Parties’ challenge, the completion 

of the California Refund Proceeding would be further delayed. 

Stage 4. Final Accounting and Payment: Throughout the refund proceeding, the 

California ISO has assumed the role of the administrator of market data and calculator of 

refunds and refund liabilities based on direction from the Commission. Thus, it is the 

California ISO that will be performing the calculation, and allocation of refunds. As soon 

as all the disputes are resolved on the baseline calculations, the mitigated market clearing 

prices and the three offsets, the California ISO will proceed with the financial adjustment 

stage, in which the California ISO will make adjustments to its settlement data to account 

for the settlements and offsets. At this stage, the California ISO is also required to 

determine interest on all amounts due from either sellers or buyers. The California ISO 

then must submit a refund report to the Commission showing “who owes what to whom.” 

As mentioned in the “Structure of California Markets” section of this Report, the 

PX acted as an interface with the California ISO on behalf of market participants. Thus, 

the PX will receive amounts owed and owing from the California ISO that it must then 

pass back to its participants. Once the Commission approves the California ISO’s refund 

report, the PX will have fourteen days to submit its refund report to the Commission. 

Similarly, upon Commission approval of the PX’s refund report, Automated Power 

Exchange (that served as a Scheduling Coordinator in the California ISO markets) will 

have sixty days from the time of the PX report to submit a refund report for its thirtyseven market participants. Upon Commission approval of these filings, the California 

ISO will be in a position to settle all accounts. 

 78 See California Parties’ Disputes Relating to Cost Offsets and Refund Re-Runs, 

Docket No. EL00-95-000, at 3, December 1, 2005. 
25

Completing the entirety of this proceeding depends on the continued efforts of 

many parties. The Commission has provided direction and guidance on all pending 

matters. Quick resolution of the remaining issues depends in part on whether the parties 

comply timely with the Commission’s directives. The Commission’s objective is to 

bring this proceeding to closure, including the distribution of amounts owed and owing, 

as soon as possible. Regardless of the Commission’s actions to bring this proceeding to 

closure, the entirety of it is not within the Commission’s control. Certain critical issues 

in the refund proceeding remain pending on appeal to the courts. As the courts decide 

these issues, the Commission may be required to revisit its prior determinations. 

The courts of appeals currently are considering more than 100 petitions for review 

of FERC orders, arising out of the Western energy crisis of 2000-2001, reforming 

California market institutions and mitigating prices for electricity purchased in California 

through centralized spot markets. Most are pending in the U.S. Court of Appeals for the 

Ninth Circuit. Some are pending in the U.S. Court of Appeals for the District of 

Columbia Circuit. 

Most of the pending appeals concern the dozens of orders issued by the 

Commission in the California Refund Proceeding, FERC Docket No. EL00-95, et al. 

After several years of procedural dispositions, the Ninth Circuit, on November 24, 2004, 

grouped the appeals into three broad categories. The first, captioned Public Utilities 

Commission of the State of California, et al. v. FERC, 9th Cir. No. 01-71051, et al., 

typically is referred to as the Phase One “Scope/Transactions Cases.” They concern the 

date (October 2, 2000 or earlier) that refunds for rates that are adjudged not to be just and 

reasonable commence, as well as the categories of transactions that are subject to refund. 

The second group, captioned Bonneville Power Administration, et al. v. FERC, 9th Cir. 

No. 02-70262, et al., typically is referred to as the Phase One “Jurisdictional Cases,” and 

concerns whether governmental entities that are not public utilities are subject to the 

Commission’s refund plan. The third group, Public Utilities Commission of the State of 

California, et al. v. FERC, 9th Cir. No. 01-71934, et al., consists of Phase Two appeals on 

specific refund calculation issues. 

Briefing in the Phase One appeals has been completed. Oral argument on Phase 

One issues was conducted in San Diego, California, on April 12 and 13, 2005. The Ninth 

Circuit issued its decision in the Phase One Jurisdictional Cases (finding that the 

Commission did not have refund authority over governmental entities) on September 6, 

2005. A decision in the Phase One Scope/Transactions Cases is due any day now. All 

Phase Two appeals are being held in abeyance (briefing has not yet commenced) pending 

the disposition of all the Phase One appeals. 

The Ninth Circuit also is considering appeals of the Commission’s orders issued in 

the Pacific Northwest Refund Proceeding (concerning rates charged during 2000-2001 in 

Western states outside California). Those consolidated appeals, captioned Port of Seattle, 
26

et al. v. FERC, 9th Cir. No. 03-74139, et al., have been fully briefed and are awaiting an 

oral argument date. 

A third group of appeals seek review of FERC orders initiating and resolving 

docket-specific investigations of individual energy sellers, to determine whether any of 

them had violated, at any time, the terms and conditions of filed tariffs and, if so, how to 

enforce the tariffs. Some of these appeals have been fully briefed and argued and await 

decision. See Pacific Gas & Elec. Co., et al. v. FERC, 9th Cir. No. 03-72874, et al. 

(appeals of FERC orders approving settlements with Reliant and Duke). Most of these 

appeals are being held in abeyance (i.e., briefing has not yet commenced) pending the 

outcome of the California Refund Proceeding appeals. See Pacific Gas & Elec. Co., et 

al. v. FERC, 9th Cir. No. 05-71008, et al. (appeals of gaming/collusion show cause 

orders); Nevada Power Co., et al. v. FERC, D.C. Cir. No. 04-1039, et al. (appeals of 

orders revoking Enron’s market-based rate sales authority); Pacific Gas & Elec. Co., et 

al. v. FERC, 9th Cir. No. 05-71436, et al. (appeals of orders terminating anomalous 

bidding investigations); People of the State of Cal., et al. v. FERC, 9th Cir. No. 05-

75487, et al. (appeals of orders initiating and conducting investigation of Enron 

activities). 

Finally, other appeals seek review of FERC orders addressing complaints seeking 

relief from electricity prices charged in the West during the 2000-2001 period. See 

California ex rel. Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2004) (upholding FERC 

authorization of market-based pricing, but remanding to consider refunds for violations of 

its after-the-fact reporting requirements) (rehearing pending before 9th Circuit; 

Commission cannot act on remand until court acts on rehearing and issues mandate 

returning record to the agency); Public Utility District No. 1 of Snohomish County, 

Washington, et al. v. FERC, 9th Cir. No. 03-72511, et al. (denial of complaints seeking 

reformation of long-term contracts) (briefing completed; oral argument presented Dec. 8, 

2004); Public Utilities Commission of the State of California, et al. v. FERC, 9th Cir. No. 

03-74207, et al. (same).

CONCLUSION 

 The Commission is in the process of reviewing all pending refund-related filings 

arising from the California Refund Proceeding and will take every action within its 

authority to complete the refund process in the near future. The Commission will 

continue to work with parties to resolve any unresolved disputes that were filed with the 

Commission by the December 1, 2005 deadline. The Commission is committed to 

concluding the California Refund Proceeding as expeditiously as possible.