Regulatory Racketeering

Racketeering.  n. the federal crime of conspiring to organize to commit crimes, particularly as a regular business ("organized crime" or "the Mafia").

It was in the national public interest that the Public Utility Holding Company Act of 1935 (PUHCA) was passed by Congress.  It provided regulatory oversight of utilities to prevent them from fleecing investors and ratepayers through a variety of schemes and scams involving subsidiaries, sham transactions, etc.  Public Utilities Commissions were established to provide the oversight called for in the legislation.  

 

Last evening when I was reading Idaho Public Utilities Commission Orders, I came across the following in Order No. 28722, dated May 1, 2001.  Idaho Power requested an increase in rates under its annual Power Cost Adjustment mechanism.  The Company was "seeking to recover $161 million that represented the amount of off-system power purchases over the preceding 10 months".   Farther down in the Order was this section:

 

 

A. Trading Practices

1.  Background .        The Commission received many comments regarding the relationship and the transactions that have occurred between the regulated entity (Idaho Power Company) and another subsidiary called IDACORP Energy Solutions (IES). Idaho Power and IES are both wholly-owned subsidiaries of IDACORP, Inc. IDACORP desired that IES engage in the marketing of electricity and natural gas on the wholesale level. In other words, IES will trade" (actually purchasing and selling) natural gas and electricity as commodities.

a. The IES Agreement. On September 1 , 2000, Idaho Power filed an Application
requesting that the Commission approve a proposed Electric Supply and Management Services Agreement (Agreement) between Idaho Power and IES. This Agreement was
reached after approximately two years of negotiation, after which Staff recommended approval of the Agreement. Under the Agreement, Idaho Power sought authority to transfer its operating transactions (e.g., purchasing and selling power for itself to meet the utility' s Idaho system load) to IES. Agreement 1 , Atch. 1   3. 1. Such transactions or trades for Idaho Power are referred to as "operating or system transactions." IES would also engage in transactions in the wholesale power market that do not involve sales from Idaho Power resources and are not related to the Idaho Power system. For example, IES would purchase gas and electricity from third parties and resell these commodities to parties other than Idaho Power. Such electric transactions are referred to as "non-operating or non-system transactions.

In addition to the pricing mechanism, Idaho Power would compensate IES for its services in the amount of $300,696.30 per month.  Id. 6.1.  In addition to purchasing and trading for Idaho Power, IES proposed to provide other management services such as executing hedges intended to "minimize the risk of financial loss from an adverse price change in a commodity market.  Atch. 1, 2.1.3.   Other services include real-time power marketing, (trades that supply power from one day to one month), and risk management activities intended to reduce risk of losses "that would cause Idaho Power to incur higher costs for supplying Native Load." Id., 2.1.1 through 2.1.7.

b. The IPC-E-00-13 Case.  In Order No. 28596 issued December 19, 2000, the Commission approved the Agreement between IES and Idaho Power....

 
 

The splitting off of a function of Idaho Power's regulated business into a separate subsidiary that is unregulated with both Idaho Power and the new subsidiary being subsidiaries of IDACORP Holding Company is exactly the situation that the Congress was correcting with the PUHCA of 1935.   But this time around, they are doing it with the full knowledge and permission of the supposed regulators, Idaho Public Utilities Commission (IPUC).

With the approval of the Idaho Public Utilities Commission, Idaho Power was setting up to play the Enron computer trading game of "Screw the Customer".  Note that the diagram says "ostensibly to replace income lost due to forced demand reduction".   The reason for the qualification is that the profits from the utility don't go down despite demand reduction.  The price per kilowatt hour keeps going up as the cost to buy the electricity from the artificial market increases. 

Electricity Trading Market

 

 

The above diagram is one implementation of "market-based environmentalism" and it's classic both in the sense of intellectual fraud, and institutionalized fraud in the form of "public-private partnership" with IPUC and Idaho Power working together to rob the public. 
 

Vicky Davis
December 19, 2011