FERC Filings
COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION ON METHOD FOR DETERMINING NATURAL GAS PRICES FOR PURPOSES OF CALCULATING REFUNDS
BACKGROUND
The Commission’s August 13 Notice seeks comment on whether it should change the method for determining the cost of natural gas in calculating the mitigated market-clearing price in the ongoing California refund proceeding. If changes are supported, the Commission requests suggested methodologies to be utilized. Accompanying the Notice is the Commission Staff’s “Initial Report on Company-Specific Separate Proceedings and Generic Reevaluations; Published Natural Gas Price Data; and Enron Trading Strategies,” the preliminary report and findings of the Fact-Finding Investigation of Potential Manipulation of Electric and Natural Gas Prices in Docket No. PA02-2-000 (Initial Report). In the Initial Report, 44 pages are devoted to an analysis of electricity and natural gas prices published by a variety of trade publications, the reliability and verifiability of those published prices, the impact of EnronOnline (EOL) on those prices and the use of these, or some alternative, natural gas prices in the rate formula for calculating refunds in the ongoing California refund proceeding.
One major conclusion included in this section of the Initial Report is that the spot prices for natural gas at the California border delivery points did not highly correlate to producing basin or Henry Hub prices during the refund period in question (October 2000 to July 2001), whereas historically the California spot prices have correlated with producing basin and Henry Hub. Finding this, the Staff attempted to independently verify the spot prices at the border, both for statistical accuracy and for possible price manipulation. Staff concludes that they are unable to verify the published natural gas spot prices at the California border which are being used as a basis for the refunds in the pending California refund proceedings, and that the publishers of electricity and natural gas price indices use reporting methodologies without statistically valid sampling or external verification procedures.
From these “preliminary indications,” Staff extrapolates that these prices may have been manipulated due to the dominance of EnronOnline as both a major trading vehicle and significant source of price discovery for publishers of energy pricing data, and because market participants had an incentive to manipulate published prices in order to impact power prices. In light of possible manipulation, the Commission requests comments on alternative methods for determining natural gas prices to be used to calculate refunds. The recommended Staff approach would base natural gas costs on the spot price for natural gas in certain producing basins plus an allowance for the regulated cost of transportation. In order to capture “some measure of scarcity,” an uplift would be permitted for unaffiliated gas costs that exceed that result of the gas price formula. In the Notice, the Commission seeks comment on Staff’s findings and proposals, the Commission asks if the refund methodology used to determine the cost of natural gas should be changed, and if so, how.