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----- Forwarded by Sarah Novosel/Corp/Enron on 07/20/2001 11:39 AM ----- "EMILY HARRIS" <eharris@bracepatt.com< 07/20/2001 11:14 AM To: <alan.comnes@enron.com<, <Christi.L.Nicolay@enron.com<, <donna.fulton@enron.com<, <ray.alvarez@enron.com<, <smara@enron.com<, <snovose@enron.com<, <sscott3@enron.com<, <thane.twiggs@enron.com< cc: "Andrea Settanni" <asettanni@bracepatt.com< Subject: Portland General Electric: Order Rejecting Tariff Amendments 96 FERC 61, 093 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: Curt H*bert, Jr., Chairman; William L. Massey, Linda Breathitt, Pat Wood, III and Nora Mead Brownell. Portland General Electric Company Docket No. ER01-2097-000 Enron Power Marketing, Inc. Docket No. ER01-2103-000 ORDER REJECTING TARIFF AMENDMENTS WITHOUT PREJUDICE (Issued July 20, 2001) In this order we reject, without prejudice, proposed amendments of Enron Power Marketing, Inc. (EPMI) and Portland General Electric (PGE) to their respective market-based rate tariffs that would allow them to make inter-affiliate sales using the EnronOnline trading platform. I. Background On May 22, 2001, in separate filings, affiliates PGE in Docket No. ER01-2097-000 and EPMI in Docket No. ER01-2103-000 (collectively Applicants) filed to amend their respective market- based rate schedules to allow for inter-affiliate sales through the EnronOnline trading platform, and to prohibit communication among affiliates regarding the contents of prices posted on EnronOnline or the times that PGE will be making trades on 1 EnronOnline. This amendment does not supplant the existing provisions of PGE's and EPMI's currently effective tariffs which allow for inter-affiliate sales subject to conditions that the Commission generally imposes on inter-affiliate sales where there are captive customers, e.g., allowing a public utility to sell to its affiliated power marketer only at a rate that is no lower than the rate it charges non-affiliates, requiring simultaneous offers to non-affiliates, or requiring use of a relevant, established index. Rather, PGE and EPMI propose to amend their respective tariffs to add a provision by which they will make 1 The EnronOnline system is administered by Enron Networks, an Enron Corp. subsidiary. EnronOnline is a free, Internet- based, transaction system which allows EPMI's customers to view real time prices from EPMI's traders and transact instantly online. EnronOnline is not an EPMI application, but rather EnronOnline is a trading platform used as a tool by EPMI in buying from and selling power to third parties. Docket Nos. ER01-2097-000 -2- and ER01-2103-000 inter-affiliate sales via EnronOnline, with restrictions different than those in place but that, they state, will still prevent affiliate abuse. Applicants state that the Commission's requirements have become outdated due to recent developments in electronic commerce and, in particular, the Commission's requirement that "PGE post on its website notice of a potential purchase or sale with EPMI prior to PGE entering into the transaction with EPMI prohibits PGE from using EnronOnline, since EnronOnline offers only instantaneous transactions that do not provide for a waiting period before consummating the 2 transaction." According to Applicants, this deprives PGE of the ability to buy or sell power "from perhaps the largest marketer 3 in its region, to the detriment of PGE and its ratepayers." II. Notice of Filing and Interventions/Protests Notices of the filings were published in the Federal Register, 66 Fed. Reg. 29,939 (2001) (Docket No. ER01-2097-000), and 66 Fed. Reg. 30,180 (2001) (Docket No. ER01-2103-000), with motions to intervene and protests for both due on or before June 12, 2001. None was filed. III. Discussion The Commission allows power marketers and their public utility affiliates to sell to one another at market-based rates when it can be assured that there is no possibility of affiliate abuse. As the Commission has explained, affiliate abuse can occur when a traditional public utility with captive customers sells power at below-market prices to, or purchases power at above-market prices from, an affiliate without captive customers (such as a power marketer affiliate). One way in which the Commission has sought to prevent this type of cross-subsidization by captive customers is to require the pricing of inter-affiliate 4 sales at an established, relevant market price or index. Another way, when there is no assurance that the affiliates are transacting at the prevailing market price, is to adopt various conditions previously established by the Commission to prevent 5 affiliate abuse. 2 EPMI Application at 3; PGE Application at 4. 3 EPMI Application at 3; PGE Application at 4. 4 See, e.g., DPL Energy, Inc. 90 FERC 61,200 (2000); accord, First Energy Trading Services, Inc., 88 FERC 61,067 at 61,156 (1999). 5 E.g., GPU Advanced Resources, Inc., 81 FERC 61,335 at (continued...) Docket Nos. ER01-2097-000 -3- and ER01-2103-000 Here, Applicants request that the Commission permit them to use EnronOnline to make inter-affiliate sales, subject to the following restrictions that they contend provide sufficient protection against affiliate abuse. PGE, when buying from EPMI using EnronOnline, will be required to "take the transaction price as posted that is generally applicable at a particular 6 location without attempting to negotiate any adjustment." In 7 addition, PGE will be prohibited from submitting Limit Orders or engaging in any other type of transaction in which the identity of the counter-party is revealed to EPMI prior to the transaction being finalized. Applicants also propose to amend their respective codes of conduct to preclude any communication regarding prices posted on EnronOnline. Applicants contend such restrictions ensure no affiliate abuse occurs since PGE will only be able to transact with EPMI at 5 (...continued) 62,539 (1997) (GPU); Detroit Edison Company, 80 FERC 61,348 at 62,197-98 (1997) (Detroit Edison). In GPU, the Commission allowed sales from a power marketer to its affiliated traditional public utility at a rate that was no higher than the lowest rate the public utility paid non-affiliates under certain standard supplier agreements. Accord, First Energy Trading & Power Marketing, Inc., 84 FERC 61,214 at 62,037-38, reh'g denied, 85 FERC 61,311 (1998). Detroit Edison provided that a traditional public utility may sell power to its affiliated power marketer only at a rate that is no lower than the rate it charges non- affiliates; that the utility simultaneously offer through its electronic bulletin board to sell to non-affiliates at the same rate offered to its affiliate; and that all prices charged to the affiliate be simultaneously posted on its electronic bulletin board. Accord, Jersey Central Power & Light Co., 82 FERC 61,023 at 61,071 (1998); Commonwealth Edison Co., 85 FERC 61,288 at 62,176-77 (1998). 6 EPMI Application at 4; PGE Application at 5. 7 In the case of a Limit Order on EnronOnline, EPMI would know the identity of the customer requesting a price higher or lower than that currently available. Applications at 3. While Applicants do not define "Limit Order," the common understanding is that, unlike a market order, which instructs a broker to transact immediately at whatever price is currently available in the marketplace, a limit order instructs a broker to fill the order only if certain conditions are met. Generally, a limit order may be either a day order, in which case it expires when the market closes if unfilled, or good-until-canceled, in which case the limit order lasts until executed or canceled. Docket Nos. ER01-2097-000 -4- and ER01-2103-000 the posted price (a price that is offered to all market participants) and there will be no transactions in which EPMI knows that PGE is the counter-party before the transaction is finalized. Thus, Applicants contend that not only will PGE be unable to negotiate special terms with EPMI through EnronOnline, but EPMI will have no discretion to take actions which favor PGE. Applicants further offer that procedures are performed by computer and are not left to the discretion of any affiliate of PGE. In addition, because the EnronOnline price is posted electronically and is available to all market participants, Applicants state that PGE's customers have the opportunity to transact with EPMI on EnronOnline on the same terms and conditions that are available to PGE. Applicants have failed to demonstrate that their proposed restrictions provide the same protections afforded under the Commission's affiliate abuse requirements and conditions (e.g., protection against PGE buying too high or selling too low in its 8 transactions with its affiliate EPMI). The thrust of Applicants' argument is that the Commission's affiliate abuse concerns are satisfied by using EnronOnline, a public medium, for selling power between affiliates. We disagree. While perhaps faster and easier to use than phone calls, faxes, or letters, an Internet-based platform is just another medium for trade, and speed and ease of use do not dictate that the Commission's affiliate abuse concerns have been satisfied. There is, for example, no assurance that the posted prices on EnronOnline 9 represent prevailing market prices. Applicants contend that, since PGE can transact with EPMI via EnronOnline only at the posted price, there can be no affiliate abuse. We are not certain, however, that the posted price necessarily represents the market price. While, on the surface, Enron Online may bear some resemblance to an index or an auction, the posted prices for any product may not be the result of a competitive market of multiple buyers and sellers; in fact, for sales the posted prices represent what EPMI is willing to sell at, and for purchases the posted prices represent what EPMI 10 is willing to buy at. For other transactions through media other than EnronOnline, including other exchanges, EPMI might be 8 See supra notes 4-5 and accompanying text (citing cases that discuss Commission's underlying concerns with affiliate power sales). 9 See supra note 4 and accompanying text. 10 All transaction on EnronOnline involve EPMI as a participant. For sales, EPMI is the seller. For purchases, EPMI is the buyer. Docket Nos. ER01-2097-000 -5- and ER01-2103-000 11 willing to sell at lower prices and buy at higher prices. Moreover, Applicants provide no information about how product prices posted by EPMI are determined, or whether there would be any restrictions on what products PGE could trade via EnronOnline, or even whether there are other similar, but non- affiliated, Internet-based venues where PGE can electronically trade those products to attain similar benefits. Having failed to convince us that these affiliates will be transacting at a prevailing market price via EnronOnline, we now turn to whether the Applicants have met other conditions established by the Commission to prevent affiliate abuse. Regarding transactions in which EPMI may be purchasing from PGE through EnronOnline, there is nothing in the Applicants' proposed restrictions that would require PGE to simultaneously offer to sell to non-affiliates at the same rate offered to the affiliate. The Commission requires that, with respect to any power offered to its affiliate, PGE make the same offer to unaffiliated entities at the same time through its electronic bulletin board. But it is unclear whether PGE can or will make the same offer to non-affiliates. Applicants also offer as a protection that PGE is prohibited from submitting Limit Orders, which would prevent EPMI from knowing that PGE is the counter-party to a transaction. Again, this would not prevent EPMI from selling power to PGE at above- market prices. The Commission is not assured by the Applicants' proposal that transactions between PGE and EPMI conducted via EnronOnline will occur in a manner that is consistent with the Commission's expectations regarding transparent and reasonable prices for inter-affiliate power sales transactions. There is, for example, no provision in the proposed amendments regarding how unaffiliated customers, or other interested parties, would monitor inter-affiliate transactions. For the above reasons, we will reject the proposed amendments, without prejudice to Applicants revising their proposal to address the Commission's concerns and incorporating appropriate restrictions to protect against affiliate abuse. 11 Likewise, PGE might be willing to buy at lower prices and sell at higher prices. Docket Nos. ER01-2097-000 -6- and ER01-2103-000 The Commission orders: Applicants' proposed tariff amendments are hereby rejected, without prejudice, as discussed in the body of this order. By the Commission. ( S E A L ) David P. Boergers, Secretary. - portlandgeneralrejectingtariffsER012097_TXT.txt
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