Exhibit 99.1
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
Public Service Company of New Mexico's Responses to
Fact-Finding Investigation of Potential Manipulation of
Electric and Natural Gas Prices
May 22, 2002
A. 1. Admit or Deny: The company engaged in activity referred to in
the Enron memoranda as "Export of California Power" during the
period 2001-2002, in which the company buys energy at the Cal
PX to export outside of California in order to take advantage
of the price spread between California markets (which were
capped) and uncapped markets outside California.
PNM admits that it purchased 5,635 MWh (or
approximately 0.003 percent of its purchases during the
period) of energy from the Cal PX at capped prices. All of
PNM's purchases of energy from the Cal PX for transactions in
the U.S. portion of the WSCC occurred at the Palo Verde
Nuclear Generating Station Switchyard or the Four Corners
Switchyard, which are outside of the state of California. PNM
cannot verify how much of the energy that it purchased from
the Cal PX was used to meet its firm retail and wholesale
native customer load and how much was sold in wholesale
transactions in the secondary market. PNM admits that it
attempts to sell energy not needed to meet load at a price in
excess of cost, as is appropriate for any business
transaction. PNM provides its further explanation of this
response below.
As a vertically integrated electric utility which
provides bundled retail service under the regulatory authority
of the New Mexico Public Regulation Commission and full and
partial requirements wholesale service under the regulatory
authority of FERC, PNM has a primary and overriding public
utility obligation to provide safe, reliable, and economic
electric service to its firm customers. PNM's trading
practices are consistent with satisfying this obligation while
managing volatile earnings risks in the immature and emerging
wholesale market. PNM engages in forward purchases (day ahead
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purchases and longer term purchases) of capacity and energy
products primarily to ensure the availability of resources
across its expected peak hour and to ensure that should a
contingency such as a loss of generation or transmission
occur, PNM can satisfy its utility obligation without having
to resort to spot market purchases. PNM's policy relevant to
the inquiry was to have an intra-day reserve margin of
approximately 300 MW above firm system load. The size of the
intra-day reserve margin would vary, depending upon the
season, expected system conditions, and expected market
conditions. After PNM has ensured that its firm service
obligation is satisfied, PNM participates in other marketing
and trading activities to increase the value of the resources
that it owns or purchases.
PNM's installed generation resources at year-end 2001
consisted of 1,521 MW of capacity from nuclear, coal, and
gas/oil-fired generation owned in whole or in part by PNM and
located in New Mexico and Arizona. PNM owns no generation in
California, is not a Cal ISO scheduling coordinator, and did
not transact directly in the Cal ISO markets. PNM therefore is
not subject to the ISO's rules applicable to California
generators or Cal ISO scheduling coordinators. PNM also has
contractual rights to 70 MW of contingent capacity from El
Paso Electric Company from that company's Rio Grande Units 7
and 8 in an exchange of transmission services for generation
resources. At year-end 2001, PNM had long-term purchase
contracts for 382 MW. PNM also is a member of the Southwest
Reserve Sharing Group, which involves a generation hazard
sharing arrangement among PNM and other southwestern
utilities. PNM's 2001 peak load (retail plus firm wholesale
requirements) was 1,397 MW.
PNM purchased energy from the PX on 74 days during
2000 and 2001, purchasing a total of 23,106 MWh, for which it
paid approximately $4.6 million. This energy represented 0.12
percent of PNM's energy purchases during the 2000-2001 period.
PNM's purchases from the Cal PX at capped prices amounted to
approximately 5,635 MWh, or less than 25 percent of PNM's
purchases from the Cal PX and approximately 0.003 (three one
thousandths) percent of its total purchases during the period.
The price of purchases from the Cal PX was uncertain and
subject to volatile price risk at the time a transaction was
scheduled. The price would not be known until final accounting
for transactions, which occurred well after the transaction
was completed. The availability of energy from the Cal PX also
was uncertain and the energy was subject to interruption in
the event of system emergency. As with all energy in forward
markets, the price on a forward basis could be higher or lower
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than the price available in real time markets. For this
reason, PNM's purchases from the Cal PX were limited. However,
Cal PX energy was offered for time blocks different than the
typical 16-hour time blocks for other products available in
the market, and could be used to shape resources available to
meet peak demands and to sell into the market. PNM did, on
occasion, purchase energy from the Cal PX and some of that
energy may have been resold for a price higher than the
purchase price. PNM traders made every effort to resell energy
for more than its cost, whether generated from PNM-owned
resources, purchased from the Cal PX, or purchased from other
sellers.
Finally, PNM points out that when it purchased energy
from the Cal PX for transactions in the U.S. portion of the
WSCC, it did so at the Palo Verde Nuclear Generating Station
Switchyard and at the Four Corners kV Switchyard. For such
transactions in the U.S. portion of the WSCC, PNM did not, so
far as it can determine, purchase energy from the Cal PX at
points within California and therefore did not "export"
California power to points outside California.
2. If you so admit, provide complete details as to all
transactions your company engaged in as part of this activity,
including the dates of all purchases and sales of energy
and/or ancillary services, counter-parties to the
transactions, prices and volumes, delivery points, and
corresponding Cal ISO schedules. Also, provide all documents
that refer or relate to the activity described immediately
above.
PNM provides in Exhibit I.A the additional
information requested as to the transactions described and
documents related to its response to this Request for
Admissions. PNM's April 2, 2002 response in this docket
already provided sales data as previously requested. The
Commission should be aware that, because PNM purchases energy
to include in its portfolio, outside of attempting to match
the highest priced purchases to the highest priced sale, there
is no unambiguous commercial or accounting convention employed
by PNM that matches every source of energy with every sale of
energy. All such purchases are combined into a portfolio with
installed generation which portfolio is available first for
native load needs. Only after those needs are met at the
lowest price is energy that PNM purchases available for sale.
Such sales in real time markets are usually on an economy
basis and are recallable for contingencies. PNM's reports
submitted to FERC in conjunction with various investigations
into transactions in California markets attempt to match its
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highest priced purchase with its highest priced sales,
although that outcome necessarily is based upon assumptions
and not on a tracing of individual MWh. For scheduling
purposes, there also is no unambiguous convention, and
schedules often are arbitrary and established or recorded for
ease of administration of complex and dynamic transactions.
B. 1. Admit or Deny: The company engaged in activity described in
the Enron memoranda as "Non-Firm Export" during the period
2000-2001, in which the company gets a counterflow (scheduling
energy in the opposite direction of a constraint) congestion
payment from the Cal ISO by scheduling non-firm energy from a
point in California to a control area outside of California,
and cutting the non-firm energy after it receives such
payment.
PNM denies that it engaged in this activity.
2. If you so admit, provide complete details as to all
transactions that your company engaged in as part of this
activity, including the dates of all transactions, congestion
payments received, corresponding Cal ISO schedules, counter
parties, and delivery points. Also, provide all documents that
refer or relate to the activity described immediately above.
N/A.
C. 1. Admit or Deny: The company engaged in activity described in
the Enron memoranda as "Death Star" during the period
2000-2001, in which the company schedules energy in the
opposite direction of congestion (counterflow), but no energy
is actually put onto the grid or taken off of the grid. This
allows the company to receive congestion payments from the Cal
ISO.
PNM denies that it engaged in this activity.
2. If you so admit, provide complete details as to all
transactions that your company engaged in as part of this
activity, including the dates of all transactions, all
transmission and energy schedules, the counter parties, all
congestion payments received. Also provide all documents that
refer or relate to the activity described immediately above.
N/A.
D. 1. Admit or Deny: The company engaged in activity described in
the Enron memoranda as "Load Shift" during the period
2000-2001. This variant of "relieving congestion" involves
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submitting artificial schedules in order to receive
inter-zonal congestion payments. The appearance of congestion
is created by deliberately over-scheduling load in one zone
(e.g., NP-15), and under-scheduling load in another,
connecting zone (e.g., SP-15); and shifting load from a
congested zone to the less congested zone, thereby earning
congestion payments for reducing congestion.
PNM denies that it engaged in this activity.
2. If you so admit, provide complete details as to all
transactions that your company engaged in as part of this
activity, including the dates of all transactions, all
schedules of load by zone, and congestion payments received.
Also, provide all documents that refer or relate to the
activity described immediately above.
N/A.
E. 1. Admit or Deny: The company engaged in activity described in
the Enron memoranda as "Get Shorty" during the period
2000-2001, also known as "paper trading" of ancillary services
in which it: (i) sells ancillary services in the Day-ahead
market; and (ii) the next day, in the real-time market, the
company "zeros out" the ancillary services by canceling the
commitment to sell and buying ancillary services in the
real-time market to cover its position. The phrase "paper
trading" is used because the seller does not actually have the
ancillary services to sell.
PNM denies that it engaged in this activity.
2. If you so admit, provide complete details as to all
transactions that your company engaged in as part of this
trading strategy, including the dates of all transactions;
prices and volumes for sales of ancillary services in the
Day-ahead market; the cancellation of such sales, prices and
volumes for the purchase of ancillary services in the
real-time market to cover the company's position; and
corresponding schedules. Also, provide all documents that
refer or relate to the activity described immediately above.
N/A.
F. 1. Admit or Deny: The company engaged in activity described in
the Enron memoranda as "Wheel Out" during the period
2000-2001. Knowing that an intertie is completely constrained
(i.e., its capacity is set at zero), or that a line is out of
service, the company schedules a transmission flow over the
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facility. The company also knows that the schedule will be cut
and it will receive a congestion payment without actually
having to send energy over the facility.
PNM denies that it engaged in this activity.
2. If you so admit, provide complete details as to all
transactions that your company engaged in as part of this
activity, including the dates of all transactions,
corresponding schedules, counter parties, and congestion
payments received. Also, provide all documents that refer or
relate to the activity described immediately above.
N/A.
G. 1. Admit or Deny: The company engaged in activity described in
the Enron memoranda as "Fat Boy" during the period 2000-2001
in which the company artificially increases load on the
schedule it submits to the Cal ISO with a corresponding amount
of generation. The company then dispatches the generation its
[sic] schedules, which is in excess of its actual load. This
results in the Cal ISO paying the company for the excess
generation. Scheduling coordinators that serve load in
California may be able to use this activity to include the
generation of other sellers.
PNM denies that it engaged in this activity.
2. If you so admit, provide complete details as to all
transactions that your company engaged in as part of this
activity, including the dates of all transactions,
corresponding schedules, and payments from the Cal ISO for
excess generation (including both price and volumes). Also,
provide all documents that refer or relate to the activity
described immediately above.
N/A.
H. 1. Admit or Deny: The company engaged in activity described in
the Enron memoranda as "Ricochet," also known as "megawatt
laundering," during the period 2000-2001, in which the
company: (i) buys energy from the Cal PX and exports to
another entity, which charges a small fee; and (ii) the first
company resells the energy back to the Cal ISO in the
real-time market.
PNM denies that it engaged in activity described in
the Enron memoranda as "Ricochet," also known as "megawatt
laundering," during the period 2000-2001. PNM engaged in other
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transactions in which PNM provided services to others that
would permit counter parties to engage in transactions in real
time markets in California or elsewhere, as explained below.
Since 1997, PNM has been providing a service to
numerous utilities, generators, and marketers known as Parking
Service. PNM provides such service pursuant to the WSPP
agreement on a long-term and a short-term basis, with
transactions for a period of a month or longer subject to a
written Confirmation Agreement or other written documentation.
Parking service involved a purchase of energy by PNM in
forward markets and did not involve energy purchased in Day Of
markets, as in the "Ricochet" strategy. In real time, PNM
would resell energy to the party from which PNM purchased the
energy. This service is similar to, if not identical to,
parking services provided in natural gas markets, some of
which may be certificated by FERC under the Natural Gas Act.
The purpose of such service was for PNM to obtain compensation
for enabling sellers (typically but not always those that were
not control areas) to execute arbitrage strategies between day
ahead prices and anticipated real time prices. This service
also allowed PNM to have access to energy in real time, if it
were to need such energy to serve its paramount utility
obligations and if it were able to reach agreement that the
counter party would sell the parked energy to PNM.
For longer-term transactions, the product that PNM
sold was the availability of the service during a future
period, and neither the source of energy nor the load to be
served would be specified in advance. When PNM purchased
energy in the day ahead market as part of a parking
transaction, the destination of the energy for the real time
market for the next day would be unknown. For scheduling
purposes, such energy could have a tag as originating in the
Cal ISO control area, but that would not necessarily identify
the source of the seller's energy as being "from the Cal PX."
In real time, PNM's sales to a counter party to a Parking
transaction would be to a delivery point and in quantities as
requested by the purchaser from hour to hour. The control area
where such sales were made thus could be the Cal ISO or
another control area. However, because all parking
transactions involved purchases in day ahead markets, the
sellers were not engaged in a "Ricochet" strategy as described
in the Enron memoranda and the Staff's question.
2. If you so admit, provide complete details as to all
transactions that your company engaged in as part of this
activity, including the dates for all transactions, names of
counter parties and whether they were affiliates, the fees
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charged, prices and volumes for energy that was bought and
then re-sold. Also, provide all documents that refer or relate
to the activity described immediately above.
PNM denies that it engaged in this activity. Subject
to a request for confidential treatament, PNM provides certain
contractual documents in Exhibit I.A.H related to its Parking
transactions described above.
I. 1. Admit or Deny: The company engaged in activity described in
the Enron memoranda as "Selling Non-firm Energy as Firm
Energy" during the period 2000-2001, in which the company
sells or resells what is actually non-firm energy to the Cal
PX but claims that it is "firm" energy. This allows the
company to receive payment from the Cal ISO for ancillary
services that it claims to be providing, but does not in fact
provide.
PNM denies that it engaged in this activity.
2. If you so admit, provide complete details as to all
transactions that your company engage in as part of this
activity, including the dates for all transactions, prices and
volumes, and corresponding schedules. Also, provide all
documents that refer or relate to the activity described
immediately above.
N/A.
J. 1. Admit or Deny: The company engaged in activity described in
the Enron memoranda as "Scheduling Energy to Collect
Congestion Charge II" during the period 2000-2001, in which
the company: (i) schedules a counterflow even though it does
not have any available generation; (ii) in real time, the Cal
ISO charges the company for each MW that it was short; and
(iii) the company collects a congestion payment associated
with the counterflow scheduled. This activity is profitable
whenever the congestion payment is greater than the charge
associated with the energy that was not delivered.
PNM denies that it engaged in this activity.
2. If you so admit, provide complete details as to all
transactions that your company engaged in as part of this
activity, including the dates for all transactions,
corresponding schedules, prices and volumes, and congestion
payments received. Also, provide all documents that refer or
relate to the activity described immediately above.
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N/A.
K. 1. Admit or Deny: The company engaged in any activity during the
period 2000-2001 that is a variant of any of the
above-described activities or that is a variant of, or uses
the activities known as "inc-ing load" or "relieving
congestion," as described above
PNM denies that it "engaged in any activity during
the period 2000-2001 that is a variant of any of the
above-described activities or that is a variant of, or uses
the activities known as "inc-ing load" or "relieving
congestion," as described above." For purposes of this denial,
PNM interprets "variant" in its usual and customary sense. PNM
has explained certain activity in its response to Requests for
Admissions I.A.1. and I.H.1 above that may be deemed to be a
"variant" and therefore incorporates its explanation here. PNM
is not aware of any activity that would be described as a
"variant" of this activity, except as explained above, and
therefore its denial is subject to amendment or
supplementation, if at any time the question is given greater
specificity.
2. If you so admit, provide a narrative description of each
specific time in which the company engaged in such activity
and provide complete details of those transactions, including
the dates of the transactions, counter parties, prices and
volumes bought or sold, corresponding schedules and any
congestion payments received. Also, provide all documents that
refer to or relate to such activities.
N/A.
II. Requests For Production Of Documents
A. Provide copies of all communications or correspondence, including
e-mail messages, instant messages, or telephone logs, between your
company and any other company (including your affiliates or
subsidiaries) with respect to all of the trading strategies discussed
in the Enron memoranda (both the ten "representative trading
strategies" as well as "inc-ing load" and "relieving congestion"). This
request encompasses all transactions conducted as part of such trading
strategies engaged in by your company and the other company in the U.S.
portion of the WSCC during the period 2000-2001.
PNM is providing in Exhibit II.A. a copy of a letter and
attached document that it received from Enron by telecopy on or about
May 15, 2002. Enron's letter advises PNM that Enron is providing the
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document to FERC and other governmental authorities in response to
requests for production of documents that it has received relating to
the trading strategies in the Enron memoranda. PNM therefore believes
that this document may be responsive to this request for production,
but has no independent way of verifying that this letter and the
attachment are responsive. PNM engaged in numerous energy purchase and
sale transactions and transmission service transactions during the
period that were blind market transactions which could have been,
without PNM's knowledge, "with respect to" the Enron-described trading
strategies, if they existed and were consummated in individual
transactions.
B. Provide copies of all material, including, but not limited to,
opinion letters, memoranda, communications (including e-mails and
telephone logs), or reports, that address or discuss your company's
knowledge of, awareness of, understanding of, or employment or use of
any of the trading strategies discussed in the Enron memoranda, or
similar trading strategies, in the U.S. portion of the WSCC during the
period 2000-2001. The scope of this request encompasses all material
that address or discuss your company's knowledge or awareness of other
companies' use of the trading strategies discussed in the Enron
memoranda, or similar trading strategies, including, but not limited to:
(i) offers by such other companies to join in transactions related to
such trading strategies, regardless of whether such offers were declined
or accepted; and (ii) possible responses by your companies to other
companies' use of such trading strategies. To the extent that you wish
to make a claim of privilege with respect to any responsive material,
please provide an index of each of those materials, which includes he
date of the each individual document, its title, its recipient(s) and
its ender(s), a summary of the contents of the document, and the basis
of the claim of privilege.
PNM is providing in Exhibit II.B. copies of documents that it
has found in its possession, custody, or control that are responsive to
this question except for voluminous information contained in its files
relating to numerous proceedings pending before the Commission or
appellate courts relating to activity in California markets during the
period that may contain information responsive to this request. PNM
also is not providing copies of newspapers of general circulation or
trade press articles that may be responsive to the request. PNM is
providing a copy of a cross-complaint filed by various Duke affiliates
relating to complaints in state court in California where the original
complaint may also be responsive to this request.
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III. Requests for Other Information
A. On page 2 of the December 8, 2000, Enron memorandum, the authors allege
that traders have learned to build in under-scheduling of energy into
their models and forecasts. State whether your company built
under-scheduling into any of its models or forecasts during the period
2000-2001, and provide a narrative description of such activity.
Provide copies of all such models or forecasts prepared by or relied on
by your company during the period 2000-2001 that had under-scheduling
built into them.
PNM did not build under-scheduling into any models or
forecasts during the period 2000-2001. PNM therefore provides no
narrative description or documents responsive to this request.
B. Refer to the discussion of the trading strategy described as "Ricochet"
in the Enron memoranda. State whether your company purchased energy
from, or sold energy to, any Enron company, including Portland General
Electric company, as part of a `Ricochet" (or megawatt laundering)
transaction during the period 2000-2001. Provide complete details as to
such transactions, including the dates of the transactions; the names,
titles, and telephone numbers of the traders at you company who engaged
in such transactions; the prices at which your company bought and sold
such energy (on a per transaction basis); and all corresponding
schedules.
PNM purchased energy from and sold energy to Enron (defined
for purpose of this response as any Enron company, including Portland
General Electric Company) in numerous transactions that were part of
its Parking Service described in response to Request for Admissions
I.H. PNM has no knowledge whether any other purchases from or sales to
an Enron company were part of any such strategy, and therefore is
unable to provide any additional information or documents responsive to
this request.
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CONCLUSION
PNM's responses to these questions are based upon diligent
efforts to understand and respond to the Staff's questions. PNM's
responses also are based upon its knowledge of its transactions. PNM
cannot know, in the ordinary course of business, the activities of its
trading counter parties and therefore cannot know whether it may
indirectly be involved in or be party to any particular transactions or
strategies engaged in by trading counter parties, except when such
involvement may specifically be brought to its attention. PNM's search
for documents responsive to the questions was diligent within the time
available to respond. PNM will supplement its responses if additional
documents or information becomes available. PNM also limited its
documentary response for Request II.B. to the period ending May 5,
2002, which was the last date before the Commission made the Enron
memoranda available on its web site.
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