e
`T L UNITED STATES OF AMERICA
`T BEFORE THE
`@\ «Eis® FEDERAL ENERGY REGULATORY COMMISSION
`BT e
`o
`- AR
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`ron Power Marketing, Inc. Docket No. EL03-180-000
`
`Al
`** and Enron Energy Services, Inc.
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`Enron Power Marketing, Inc. Docket No. EL03-154-000
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`and Enron Energy Services, Inc.
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`Portland General Electric Company Docket No. EL02-114-007
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`Enron Power Marketing, Inc. Docket No. EL02-115-008
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`El Paso Electric Company Docket No. EL02-113-000
`Enron Power Marketing, Inc., and
`Enrcn Capital & Trade Resources Corp.
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`T N Nl gl il Tt T S S e S S S
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`ERRATA TO THE PREPARED REBUTTAL TESTIMONY OF
`JAN PAUL ACTON
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`ON BEHALF OF
`ENRON POWER MARKETING, INC., ENRON ENERGY SERVICES, INC.,
`AND ENRON NORTH AMERICA CORP.
`(F/KIA ENRON CAPITAL & TRADE RESOURCES CORP.)
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`July 14, 2005
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`EGULATORY SRS g 2o of Conforming Changes to
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`List of Conforming Changes to Exhibit No. ENR-13%
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`Efl:lg Page and Line Number kw From |Chln To
`No. ENR-139, Page 11 '$1,543,014" 51,226 550"
`MNo. ENR-139, Page 7, line 17 §4.491.112" ['$3,570,008"
`E. No. ENR-139, Page 7, line 21 "$1,543,014" "$1,226,550"
`. Mo, ENR-139, Page 8, Table 2,
`lumn [2] "$531,808" "$422,737"
`. Mo. ENR-139, Page 8, Table 2,
`olumn [2] ["$2,086,996" "$1,658,964"
`xh. Mo, ENR-139, Page 8, Table 2,
`lummn [2] "$1,872 308" ["$1,488,307"
`h. No. ENR-139, Page 8, Table 2,
`lumn [2] "$4.491,112" ["%3 5700087
`. Mo, ENR-139, Page &, Table 2,
`lumn [2] ["$824 565" "$655451"
`No. ENR-139, Page 8, Table 2,
`lumn [2] ["$569.019" "$452,316"
`Mo. ENR-139, Page 8, Table 2,
`tumn [2] "$120,337" "$95,657"
`xh. No. ENR-139, Page &, Table 2,
`lumn [2] "$29,093" "$23,126"
`xh. No. ENR-139, Page 8, Table 2, L
`Fy | 51,543.014" "$1,226, 550"
`MNo. ENR-139, Page 8, Table 2,
`lumn [2] $6,034,126" "$4,796, 558"
`Mo. ENR-139, Page B, Table 2,
`lumn 3] "$824,565" "$655. 451"
`xh. Mo. ENR-139, Page 8, Table 2,
`lumn [3] "$5609,019" ['$452,316"
`. No. ENR-139, Page &, Table 2,
`lumn [3] '$120,337" "$95.657"
`. No. ENR-139, Page 8, Table 2,
`[3] "$29,003" I"s23,126"
`. No. ENR-139, Page 8, Table 2,
`] "51.543.014" "$1,226,550"
`. No. ENR-139, Page &, Table 2,
`[3] "§1,543,014" "$1,226,550"
`%_ No. ENR-139, Page 115, line 2 ["§1,872,308" "$1,488,307"
`. No. ENR-139, Page 148 line6 ['$1,872,308" "5 07"
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`List of Conforming Changes to Exhibit Wo. ENR-139
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`"In Dr. Bohi's Rebuttal
`h. Mo. ENR-139, Page 151, lines 12- [Testimony, Exhibit No. ["Exhibit No. ENR-
`13 [EMR-56, he" 351"
`{Exh. No. ENR-139, Page 151, line 14 "53.5" L#I.i“
`Exh. No. ENR-139, Page 151, linc 16 ["$1,872 308" "$1,488307"
`, based on the analysis [Referenced text
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`Exh. No, ENR-139, Page 272, line 19 Dr. Bohi," deleted
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`"his Rebuttal
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`Testimony, Dr. Bohi ["Exhibit No. ENR-
`Exh. Mo. ENR-139, Page 272, line 20-21 that™ 351"
`Exh. No. ENR-139, Page 272, line 22 ['53.5" Ir42.5"
`Exh. No. ENR-139, Page 273, line 23 ['§1,543,014" "$1,226.550"
`Exh. No. ENR-139, Page 274, line 18 ["§531,808" "§422.737"
`Exh. No. ENR-139, Page 275, line 7 5824, 565" CS655 451"
`Exh. No. ENR-139, Page 275, line 15 ["$1,980,065" "51,658,964"
`Exh. No. ENR-139, Page 276, line 8 "$569,019" "$452,316"
`Exh. No. ENR-139, Page 276, line 16 "$120,337" "$95,657"
`Exh. No. ENR-139, Page 277, line 1 ["$29,093" "£23 126"
`Exh. No. ENR-139, Page 277, line 15 |"$1,872,308" "$1,488,307"
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`, and the profit from
`transactions is ferenced text
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`Exh. No, ENR-139, Page 278, lines 4-5 447.560" leted
`{Exh. No. ENR-139, Page 280, line 18 ['§1,543,014" "$1,226,550"
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`"the Rebuttal
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`{Exh. No. ENR-139, Page 280, line 18-19
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`Testimony of Dr. Bohi,
`[Exhibit No. ENR-56"
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`"Exhibit No. ENR-
`351"
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`[Exh. No. ENR-139, Page 281, line 2
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`"$676,473,136"
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`"$675,444, 108"
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`appropriate, he finds that these five practices yielded $1,226,550 in profits. Dr. Acton
`finds that alleged "gaming in concert® with the ten Identified Entities did not produce any
`incremental profit to EPMI or EES and, thus, no additional disgorgement of profits is
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`appropriate.
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`Second Corrected Exhibit No. ENR-138
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`Please summarize your findings with respect to Partnership Issues.
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`| find some evidence that EPMI may have exercised control over some
`aspects of Valley Electric Association through an unsigned agreeamaent,
`and | find conflicting evidence with respect to possible control over Las
`Vegas Cogeneration, LP. For the other eight ldentified Entities, there is
`no evidence of EFMI control over significant aspects of their operation. |
`found no evidence of "gaming in concert” with any of the ten ldentified
`Entities that would lead to any profits to EPMI that are not already counted
`in the analysis of EPMI's aclivities and praclices. Thus, there are no
`incremental profits from EPMI's interactions with these entities,
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`Please summarize your findings with respect to the remedy of
`monetary disgorgement of unjust profits.
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`The Commission's Order stated that profits from alleged Gaming Practices
`are subject to possible disgorgement. In Table 2, | present the profit
`amounts associated with the four practices that do nal meet the
`Commission’s definition of a Gaming Practice. Those four practices have
`a combined profit of $3,570,008 not subject to price mitigation.
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`Because these practices do not meet the definition of
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`Gaming, the disgorgeable amount is $0.
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`Profit for the five practices that appears to meet the Commission's
`definition of a Gaming Practice totals $1,226,550.
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`This amount appears to be subject to
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`possible disgorgement under the Commission’s Order.
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`Table 2
`SUMMARY OF PROFIT (NOT SUBJECT TO PRICE MITIGATION)
`ASSOCIATED WITH ALLEGED GAMING PRACTICES
`
`[1] [2] [3]
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`PRACTICE Profit Disgorgeable
`Profit Amount
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`Practices that do not meet the
`Commission’s definition of Gaming
`False Imports $0 50
`Circular Scheduling $422,737 $0
`Paper Trading $1,658,964 $0
`Overscheduling Load $1,488,307 50
`Subtotal $3,570,008 _§0
`Practices that appear to meet the
`Commisslon's definition of Gaming
`Load Shift 655,451 $655,451
`Selling NF as Firm $452,316 : $452,316
`Scheduling Counterflows
`on Out-of-Service Lines $05,657 $95,657
`Cutting Non-Firm $23,126 $23,126
`Double Selling $0 £0
`Subtotal $1.226.550 $1.236.550
`GRAND TOTAL $4,796,558 $1,226,550
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`Source: Sea Chapler 4.
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`How s the balance of this chapter organized?
`| summarize my findings with respect to Gaming Practices (Subsection
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`1.1), my findings with respect to Partnership Issues (Subsection 1.2}, and
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`my findings with respect to the Monetary Remedy of Disgorgement
`(Subsection 1.3).
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`found to be $3,501,899 during the period he analyzed. EPMI's
`profit from Overscheduling is $1,488,307.'
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`+ Because Overscheduling increased Real Time supply and helped
`lower prices, there is no basis for disgorging EPMI's profits from
`Overscheduling as being unjust or unreasonable.
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`Q179. What did California Parties Witness Pater Fox-Penner conclude with
`respect to Overscheduling?
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`A179. He made a number of incorrect claims about the economic impact of
`Overscheduling, and he contends thal EPMI received $422,239,000 in
`gross revenue and $84,623,000 in nel revenue from the practice of
`Overschaduling. (See Exhibit No. CP-164, p. 18, Il 3-5, and Exhibit No.
`CP-170."9)
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`Q180. What were the main findings presented in Dr. Fox-Penner's
`supplemental testimony?
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`A180. He presented several incorrect findings, the most important of which were:
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`M "Net revenue® is defined as revenues from energy sales less purchase costs of
`energy (and transmission, where relevant). MNet revenue exceeds profit because
`direct and allocated costs, interast and taxes, and other expenses are subtracted
`from net revenue to obtain profit. See the testimony of Dr. Douglas Bohi, Exhibit
`No. ENR-58, for more complete discussion of this issue.
`
`¥ Dr. Fox-Penner states that this “represents my estimate of the gross and net
`incremental revenues that Enron realized on the transactions during the period
`April 1, 1898 to December 1, 2001." The summary of his testimony quotes the
`numbers $430 million and $87 million, which are drawn from Exhibit No. CP-171
`without explanation of the reason for selecting one set of numbers over the other.
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`Overscheduling mitigated the economic impact of underscheduling); and
`{3) ha includes periods that are coverad by other FERC proceedings, thus
`resulting in double counting.™ When | comect for these errors, the proper
`value of the net revenues associated with EFMI's Overscheduling is
`£3,501,888. EPMI's profits associated with this net revenue value are
`$1,488,307, although, as | discussed in detail above, | do not believe
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`these profit amounts should be subject to disgorgement.
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`Q230. First, why was it incorrect for Dr. Fox-Penner to use metered load
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`data rather than forecasted load?
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`A230. The IS0 tariff defines Overscheduling as scheduling an amount that is
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`greater than forecasted load. Dr. Fox-Penner acknowledged that the ISO
`tariff (at section 2.2.7.2) requires that schedules be based on forecasted
`load.™ Dr. Fox-Penner had access to EPMI's forecasted load in the
`CAPS data that he used, bul he does not report any attempt to compare
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`®¥1 Other errors of lesser consequence include the fact that Dr. Fox-FPenner
`assigned a portion of PG&E's loads to the incomect congeslion zone, thus
`overstating Enron’s apparent net revenues by approximately $225,000. In
`addition, ha relied upon erroneous meterad load data for the period July 2001
`through December 2001. Enron discovered an error in the meter values reportad
`to the 150 during that period and notified the ISO of that ermror in December 2002.
`Corracting for this meter-reading error papers to account for Dr. Fox-Penner’s
`ermoneous conclusion that EPMI resumed the practice of Overscheduling Load in
`the second half of 2001. It appears that there is no meaningful difference
`between EPMI's scheduled and metered loads (and between EPMI's scheduled
`and forecast loads) during the second half of 2001. Correcting this emor reduces
`his estimate of EPMI's Overscheduling by 973,489 MWh. Thus, the comecled
`value of Underscheduling Dr. Fox-Penner would attribute to EPMI is 3,138,211
`MWh rather than 4,111,700 MWh.
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`** See Exhibit Mo. CP-164, p. 7: 6-8.
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`Q233. Please summarize your corrections to Dr. Fox-Penner's calculation
`of EPMI profits associated with Overscheduling.
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`A233. Dr. Fox-Penner calculated EPMI's net revenues as $84,623,000 for the
`entire period April 1998 to December 2001, and as $62,100,000 outside of
`the period October 2, 2000 through June 18, 2001 (sic). When | comrect
`the calculation by (a) using forecasted load rather than metered load and
`(b) excluding hours of system Underscheduling, EPMI's net revenues are
`$16,433,272 for the April 1998 to December 2001 period, and $3,501,888
`excluding the period Oclober 2, 2000 to June 18, 2001 (sic).
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`Q234. In your opinion, what is the proper measure of EPMI's profits from
`Overscheduling that is relevant to this Proceeding?
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`A234. EPMI's profit is less than the net revenue value of $3,501,899,
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`Exhibit No. ENR-351 reports that EPMI's
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`profits average about 42.5 percent of net revenues for the period January
`16, 1997 through June 25, 2003.""" Applying Dr, Bohi's percentage to the
`corrected value of Dr. Fox-Penner's net revenue value yields $1,488,307.
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`' The more exact value is 42.500003 perc ent. For the purposes of this testimony,
`however, | round this value to 42.5 percent.
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`Q443. Which of the practices is already subject to price mitigation for
`transactions after October 1, 20007
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`Ad443, The prices of any Overscheduling Load, Selling Non-Firm as Firm, and
`False Imporis transactions in the Price Mitigation Period were either
`mitigated or are subject to mitigation in the Refund Proceeding. All three
`of these types of energy sales to the Califoria IS0 are subject to
`mitigation in Docket EL00-95.
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`Q444. How do you adjust the estimate of net revenue related to
`Overscheduling Load and Selling Mon-Firm as Firm to account for
`price mitigation after October 1, 20007
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`Addd, | have removed net revenue associated with these practices in the Price
`Mitigation Period from my calculation of profits subject to disgorgement, in
`line with the Commission’s decision not to seek disgorgement of profits for
`False Imports after October 1, 2000. The effect of these adjustments is
`shown In column [3] of Exhibit No. ENR-183 A,
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`Q445. How do you calculate profits from net revenue?
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`A445. The net revenue shown in column [3] is reduced to account for direct and
`allocated costs, interest, and taxes in order to produce a profit value. A
`uniform reduction was applied to these
`nel revenue amounts. As discussed in Exhibit No. ENR-351,
`on average over the neary 6-1/2 year period covered by this
`Proceeding, profil was aboul 42.5 percent of net revenue. The resulting
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`prafit by Gaming Practice is shown in column [4] of Exhibit Mo. ENR-183
`A,
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`Q4486. In your opinion, should all of the profit amounts in column [4] be
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`subject to disgorgement?
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`Add6. No. In my opinion, disgorgement of all profit amounts in column [4] of
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`Exhibit Mo. ENR-183 A would not be an appropriate monetary remedy. As
`| have explained at length in both my Direct Testimony and Rebuttal
`Testimony, several of these practices did not cause harm either to
`consumers or to the efficiency of the California markets, nor did they have
`an adverse impact on reliability. Thus, they do not represent a violation of
`the PX or IS0 tariffs, as required by the Commission. For these reasons, |
`have concluded that the profit amounts associated with Circular
`Scheduling, Paper Trading, and Overschaduling Load should not be
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`disgorged.
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`Q447. How did you adjust your estimate of profit amounts to account for
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`the fact that Circular Schaduling, Paper Trading, and Overscheduling
`Load did not cause harm to consumars or the efficiency of the
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`California markets?
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`A447. | have removed the profits from these praclices from my estimate of total
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`profit potentially subject to disgorgement. The profit amounts from each
`practice that potentially could be disgorged as a monetary remedy are
`reported in column [5] of Exhibit No. ENR-183 A. The total for all nine
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`practices Is $1,226,550,
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`Q448. Please summarize your calculations of net revenue, total profit, and
`disgorgeable profit for each of the Gaming Practices.
`Ad48. Based on the analysis presented above and that in Dr. Riker's Rebuttal
`Testimony, | can summarize and interpret the amounts shown in Exhibit
`Mo. ENR-183 A as follows:
`1. Ealse Impors, As | discussed in Section 2.1 of Chapter 2,
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`There is no evidence that EPMI engaged in any transactions
`that meet the Commission's definition of False Imports; thus, the
`amaounts of net revenue, total profit, and disgorgeable profit
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`are all zero.
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`. Cirgular Scheduling, As | have discussed in Section 2.2 of this
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`testimony, the best estimate of EPMI's net revenue for this
`practice is $994,675. Net revenue from Circular Scheduling
`would involve revenues from congestion payments rather than
`the sale of power to the California markets. Net revenue from
`Circular Scheduling would not be affected by price mitigation, so
`columns [2] and [3] are identical in Exhibit No. ENR-183 A.
`EPMI's profit from Circular Scheduling is $422,737. Nona of
`this should be disgorged because, as flve witnesses in this
`Froceeding have agreed, the practice does relieve congestion.
`Because it reliaves congestion, it does not harm consumers or
`efficiency in California and, thus, does not constitute a Gaming
`Practice under the PX and ISO’s tariff.
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`3. Load Shift, According to Dr. Riker's Rebuttal Testimony, the
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`Commission Trial Staff and Intervenors have identified
`$1,542,237 in net revenuas that appear o fit the Commission's
`definition of Load Shift. This net revenue involves congestion
`relief payments rather than the sale of power to the California
`markels, and therefore it will not be affected by price mitigation.
`The associated profit amount is $655,451, the entire amount of
`which is potentially subject to disgorgement in my view.
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`. Paper Trading. As | have discussed in Section 2.3 of this
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`Rebuttal Testimony, EPMI's nel revenue from this practice is
`$3,703,445. This net revenue amount is not affected by price
`mitigation, since the revenue derive from the sale of Ancillary
`Services capacity rather than the sale of power to the Califomnia
`markets. Therefore, columns [2] and [3] are identical. The profit
`from Paper Trading is $1,658,064. The disgorgeable amount
`for Paper Trading is zero because, as discussed in detail
`eisewhere in this Rebutial Testimony, this practice lowered
`prices for Day Ahead Ancillary Services capacity from what they
`otherwise would have been, and thereby improved efficiency
`and benefited consumers.
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`5. Selling Nop-Firm as Firm. According to Dr. Riker's Rebuttal
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`Testimony, the Commission Trial Staff and Intervenors have
`identified $1,810,640 in net revenues over the full period that
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`appear fo fit the Commission’s definition of Selling Non-Firm as
`Firm. These transactions are potentially subject to mitigation in
`the Price Mitigation Period. Selling Non-Firm as Firm involves
`sales of firm energy to the California IS0, either as
`supplemental energy, as energy related to awarded Ancillary
`Services capacity, or as Out-of-Market energy. The net revenue
`prior to the Price Mitigation Period is $1,064,274. The
`associated profit is $452,316. In my opinion, the full amount of
`profits is potentially disgorgeable under the terms of reference in
`this Proceeding.
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`. Scheduling Counterflows on Out-of-Service Lines. EPMI
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`realized $225,075 in net revenue in the full period associated
`with this practice. This amount is not affected by price
`mitigation, because the revenue amounts are payments for
`congestion relief rather than the sale of power into the California
`markets. The associated profit is $85,657. In my opinion, the
`full amount of this profit is subject to possible disgorgement
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`under the tarms of reference for this Proceeding.
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`. Cutting Non-Firm, This practice yields a net revenue value of
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`54 414 in the full period associated with this practice. This
`amount is not affected by price mitigation, because the revenue
`amounts are payments for congestion relief rather than the sale
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`of power into the California markets. The associated profit is
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`$23,126. In my opinion, the full amount of this profit is subject
`1o possible disgorgement under the terms of reference for this
`Proceeding.
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`. Double Selling, There is no evidence in this Proceeding that
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`EPMI engaged in the practice of Double Selling and there are
`no estimates of net revenue, or profit associated with the
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`practice. There is no profit to disgorge for this practice.
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`. Dverscheduling Load. The commected value of Dr. Fox Penner's
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`estimate of EPMI's net revenue for this practice is $16,433,272
`for the full period. Overscheduling Load involves uninstructed
`energy sales to the California IS0, and uninstrucled anargy
`sales are subject to price mitigation in the Price Mitigation
`Period. The amount of EPMI's net revenues excluding the Price
`Mitigation Period is $3,501,889. The associated profit value is
`$1,488,307. As discussed in detail in Section 2.7 of this
`Rebuttal Testimony, the practice was underiaken in response 1o
`Underscheduling by the utilities, it benefited efficiency in the
`market, and it represented an increase in supply to the Real
`Time market at the equivalent of a price-taker bid. For these
`reasons, the Commission has already determined that it would
`not seek disgorgement of profits from Overscheduling Load, and
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`thus the disgorgeable amount is zero.
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`Q449. What amount of net revenue and profit did EPMI receive in
`connection with it's transactions with the ten Ildentified Entities?
`
`A449. Dr. Bohi Reports that EPMI’s net revenue associated with dealing with the
`ten ldentified Entities iz $161,688,470.
`
`See his Rebuttal Testimony, Exhibit No.
`ENR-56.
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`Q450. What other types of monetary remedies have been proposed by the
`Intervenors?
`
`A450. Two types of more sweeping monelary remedies have been proposed by
`California Parlles and other witnesses. (1) Dr. Gary Stern proposes that
`the Mitigated Market Clearing Price ("MMCP") ba applied to EPMI sales.
`{2) Dr. Stern and other witnesses also propose that all profits received by
`EFMI be disgorged. | believe that both of these monetary remedies are
`inappropriate for reasons discussed below.
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`Q451. What is Dr. Stern’s proposal using MMCP values?
`
`A451. California Parties Wilness Stem proposes a monetary remedy that he
`describes as an MMCP approach. Specifically, he quantifies EPMI's
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`MMCPF liabilllity for its transactions in the 150 and PX markets for the
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`period May 1, 2000 through October 1, 2000,
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`“* Direct Testimony of Gary Stern, Exhibit No, CP-74, 4:26-27 (February 27,
`2004).
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`Have you compared the MMCP values that Dr. Stern calculates with
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`EPMI's actual cost of purchasing?
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`Ad54. Yes. | examined purchase cost information found in the Enpower
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`database. While Enpower itself does not contain pricing information for
`every purchase and sale made by EPMI, for those transactions for which
`price is recorded in EPMI, those data nonetheless indicale that prices that
`EPMI paid for energy exceedad the MMCPs calculated by Dr. Stem for
`75% of the hours between May 1, 2000 and October 1, 2000.**
`Therefore, Dr. Stem's use of MMCPs does not produce an accurate
`calculation of EPMI's profits from its transactions because his
`methodology does not appropriately measure EPMI's purchase costs.
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`. The second proposal is to disgorge all of EPMI's profit. Would
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`disgorgement of all of EPMI's profit from the sale of wholesale power
`in the Western Interconnect between January 16, 1997 and June 25,
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`2003 be a reasonable monetary remedy?
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`. No. As | have shown in Exhibit No. ENR-183 A, the total profits subject to
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`disgorgement for the nine practices identified in the Gaming Show Cause
`Order is $1,226,550. In contrast, according to
`Exhibit No. ENR-351, EFMI's total profit from the sale of
`
`*% The purchase price series from Enpower that | used is a weighted average
`over purchases that occurred on the day of or day ahead of delivery and that had
`non-zero and non-missing prices. Exhibit No. ENR-183 B provides the details of
`these calculations. In Exhibit No. ENR-183 C | present hourly values of purchase
`and sales prices for EPMI's entire portfolio for the period January 16, 1987
`through June 25, 2003.
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`1 wholesale power in the Westemn Interconnect between January 16, 1997
`2 and June 25, 2003 is $875,444,108. Total profits is more than 400 times
`3 greater than the disgorgeable profit associated with the nine Gaming
`4 Practices, and therefore disgorgement of total profit would be grossly
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`5 disproportional to the profit from gaming.
`6 Q456. Has the Commission Trial Staff's review of EPMI trader tapes
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`7 provided any justification for disgorging all of EPMI's total profit
`2] from the sale of wholesale power in the Western Interconnect
`g between January 16, 1997 and June 25, 20037
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`10 A458. No. Tha testimony of Commission Trial Staff Witness Savitski
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`11 demonstrates that such a monetary remedy would be grossly
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`12 disproportional 1o the profits from gaming.
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`13 Q457. Please explain.
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`14 AA457. In Exhibit No. S-82, Dr. Savitski testifies about the sampling methodology
`
`15 behind Commission Trial Staff's review of the EPMI trader tapes and the
`16 statistical inference that he draws from the 25 hours of frader tapes that
`17 the Commission Trial Staff reviewers have labeled as “suspicious trader
`18 behavior.”" He testifies that the Commission Trial Staff will not review
`19 87.3 percent of the contents of the trader tapes.*® However, Dr. Savilski
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`=" Testimony of David Savitski, 4:12 (March 1, 2005).
`*® The sampling rate is 2.7 percent; see Testimony of David Savitski, 11:6-11
`(March 1, 2005).
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`appropriate, he finds that these five practices yielded $4-843,6441,226 550 in profits.
`Dr. Acton finds that alleged "gaming in concert® with the ten [dentified Entities did not
`produce any incremental profit to EFPMI or EES and, thus, no additional disgorgement of
`profits is appropriate.
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`Please summarize your findings with respect to Partnership Issues.
`| find some evidence that EPMI may have exercised control over some
`aspects of Valley Electric Association through an unsigned agreement,
`and | find conflicting evidence with respect to possible control over Las
`Vegas Cogeneration, LP. For the other sight ldentified Entities, there is
`no evidence of EPMI contrel over significant aspects of their operation. |
`found no evidence of "gaming in concert” with any of the ten |dentified
`Entities that would lead to any profits to EPMI that are not already counted
`in the analysis of EPMI's activities and practices. Thus, there are no
`incremental profits from EPMI's interactions with these entities.
`
`Please summarize your findings with respect to the remedy of
`monetary disgorgement of unjust profits.
`
`The Commission's Order stated that profits from alleged Gaming Practices
`are subject to possible disgorgement. In Table 2, | present the profit
`amounts associated with the four practices that do nol meet the
`Commission’s definition of a Gaming Practice. Those four practices have
`a combined profit of $4-484:434:23,570,008 not subject to price mitigation.
`Because these practices do not meat the definition of
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`Gaming, the disgorgeable amount is $0.
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`Profit for the five practices that appears to meet the Commission's
`definition of a Gaming Practice totals $4-643,0441, 2268 550,
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`This amount appears to be subject to
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`possible disgorgement under the Commission's Order.
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`Table 2
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`SUMMARY OF PROFIT (NOT SUBJECT TO PRICE MITIGATION)
`ASSOCIATED WITH ALLEGED GAMING PRACTICES
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`1] (2] (31
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`PRACTICE Profit Disgorgeable
`Profit Amount
`
`Practices that do not meet the
`Commission’s definition of Gaming
`False Imports $0 $0
`Circular Scheduling $531.808422.737 ko
`Paper Trading ; 1,658,964 |50
`Overscheduling Load $1.872.3081,488,307 B0
`Subtotal $4:481,1123,570.008 [0
`Practices that appear to meet the
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`Commission's definition of Gaming
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`Load Shift $824,666655,451 $655,451824.866
`Selling NF as Firm $660-040452 316 - $452 316660.040
`Scheduling Counterflows
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`on Out-of-Service Lines $420,33795,657 $95,857420.337
`Cutting Non-Firm $26.08323,126 $23,12620.083
`Double Selling $0 $0
`Subtotal $4:643.0441226550 $1,226,5504-643.044
`| GRAND TOTAL $6,034,264,796,558 $4,643,0441,226 850
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`Source; See Chapler 4.
`
`How is the balance of this chapter organized?
`
`| summarize my findings with respect to Gaming Practices (Subsection
`1.1}, my findings with respect to Parinarship Issues (Subsection 1.2), and
`my findings with respect to the Monatary Remedy of Disgorgament
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`(Subsection 1.3).
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`found to be $3,501,889 during the period he analyzed. EFPMI's
`profit from Overscheduling is $4,87.2.3081,488,307.'%
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`« Because Overscheduling increased Real Time supply and helped
`lower prices, there is no basis for disgorging EPMI's profits from
`Owverscheduling as being unjust or unreasonable.
`
`Q179. What did California Parties Witness Peter Fox-Penner conclude with
`respect to Overscheduling?
`
`A179. He made a number of incorrect claims about the economic impact of
`Overscheduling, and he contends that EPMI received $422,239,000 in
`gross revenue and $84 623,000 in net revenue from the practice of
`Overscheduling. (See Exhibit No. CP-184, p. 18, Il 3-5, and Exhibit No.
`CP-170."%)
`
`Q180. What were the main findings presented in Dr. Fox-Penner's
`supplemental testimony?
`
`A180. He presented several incorrect findings, the most important of which were:
`
`" *Net revenue” is defined as revenues from energy sales less purchase costs of
`energy (and transmission, where relevant). MNet revenue exceeds profit because
`direct and allocated costs, interest and taxes, and other expenses are subtracted
`from net revenue to obtain profil. See the testimony of Dr. Douglas Bohi, Exhibit
`MNo. ENR-568, for more complete discussion of this issue.
`
`'™ Dr. Fox-Penner states that this “represents my estimate of the gross and net
`incremental revenues that Enron realized on the transactions during the period
`April 1, 1998 to December 1, 2001." The summary of his testimony quotes the
`numbers $430 million and $87 million, which are drawn from Exhiblt No. CP-171
`without explanation of the reason for selecting one set of numbers over the other.
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`1 Overscheduling mitigated the economic impact of underscheduling); and
`2 (3) he includes periods that are covered by other FERC proceedings, thus
`resuiling In double counting.™ When | corect for these errors, the proper
`value of the net revenues associated with EPMI's Overscheduling is
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`BOW
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`$3,501,888. EPMI's profits associated with this net revenue value are
`$1:872,:3081,488,307, although, as | discussed in detail above, | do not
`believe these profit amounts should be subject to disgorgement.
`
`Q230. First, why was it incorrect for Dr. Fox-Penner to use metered load
`data rather than forecasted load?
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`m @ = @
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`10 A230. The I1SO tarff defines Overscheduling as scheduling an amount that is
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`1 greater than forecasted load. Dr. Fox-Penner acknowledged that the IS0
`12 tariff (at section 2.2.7.2) requires that schedules be based on forecasted
`13 load.™ Dr. Fox-Penner had access to EPMI's forecasted load in the
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`14 CAPS data that he used, but he does not report any attempt to compare
`
`o' Other errors of lesser consequence include the fact that Dr. Fox-Penner
`assigned a portion of PG&E's loads to the incorrect congestion zone, thus
`overstating Enron's apparent net revenues by approximately $225,000. In
`addition, he relied upon emmoneous metered load data for the period July 2001
`through December 2001. Enron discoverad an eror in the melter values reported
`to the IS0 during that period and nolified the ISO of that eror in December 2002.
`Correcting for this meter-reading emor papers to account for Dr. Fox-Penner's
`emoneous conclusion that EPMI resumed the practice of Overscheduling Load in
`the second half of 2001. It appears that there is no meaningful differe