A letter sent to FERC commissioners by a couple of high-paid economic consultants starts innocently enough:
In light of two recent decisions of the United States Court of Appeals for the Ninth Circuit, we write to identify concerns regarding the analysis presented in the Federal Energy Regulatory Commission (“FERC” or the “Commission”) Staff’s Final Report on Price Manipulation in Western Markets: Fact-Finding Investigation of Potential Investigation of Electric and Natural Gas Prices, Docket No. PA02-2-000 (Mar. 2003) (the “Staff Report”).
I’m sure the Commission receives similar letters all the time from attorneys, consultants, and other interested parties, seeking to draw the Commission’s attention to various “concerns regarding the analysis” in some matter under debate.
This letter is different. The two economists — LECG’s Scott Harvey and Harvard’s William Hogan — are not just well paid, they are highly respected. The court decisions referenced threatened to thoroughly undermine use of long-term contracts in the electric power industry (at least when those contracts must be filed with FERC or otherwise affect rates under FERC jurisdiction), so the stakes are substantial. And the “concerns regarding the analysis” are substantial as well, and laid out in great detail in the ten page letter.
The staff report, popularly referred to as the “Gelinas Report,” stands at the center of the Commission’s analysis of problems in California and Western energy markets in 2000-2001. Numerous parties to contract disputes in the West have relied upon findings in that report to seek damages in various lawsuits or to justify after-the-fact changes to contractual terms.
Harvey and Hogan explain:
Until recently, questions concerning the empirical foundations of the [report’s] Chapter V analysis might have been viewed as technical matters without import, expecially since the Commission never adopted it or any of the conclusions drawn from it by the Staff. However, the recent decisions in PUD and CPUC concerning billions of dollars in long-term contracts concluded that this analysis is the “most important evidence” ….
In their letter to Commissioners, Harvey and Hogan detail their extensive efforts to replicate the key analysis of the report’s Chapter V (aka, the “most important evidence” in a pair of billion-dollar court cases). Despite extensive, well-funded efforts to replicate the result (including acquiring data identified in the report, contacting FERC to discuss methods, and even resorting to FOIA requests in an effort to obtain FERC records concerning the analysis), they conclude that the analysis in the report — now a matter with billion-dollar consequences — cannot be reproduced. In fact, they believe that the data “that were stated to have provided the basis for the Chapter V analysis do not exist, and have never existed.” (Emphasis added.)
There’s more – ambiguities, anomalies, and so on – but read it yourself: Here is a link to the letter on FERC’s website.