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Enron Mail |
Excellent reading of the legal authority issues as well as the political
winds. I think your sense of the likelihood of trouble is accurate. I also agree with your implicit premise that if FERC or anyone else wanted to make trouble regarding our negotiated rate deals, the easiest approach, and the most direct one, is to challenge the deals as unjust and unreasonable under NGA section 4/5. To challenge the deals under some state law "gouging" theory would give rise to preemption defenses on our part, etc. I'll talk to you and Kathy further tomorrow AM and then we can grab Mike to discuss. Thanks. DF Susan Scott 11/22/2000 12:14 PM To: Drew Fossum/ET&S/Enron@ENRON cc: Kathy Ringblom/ET&S/Enron@ENRON Subject: Re: gouging As to your question about what's going on in California, I've done some reading and here are my thoughts. The Nov. 1 FERC order in Docket No. EL00-95-000, in which the Commission ordered a $150/MWh price cap (among other things), was predicated on the Commission's authority under Section 206 of the Federal Power Act. Specifically, the FPA provides that if the Commission finds that "any rate, charge or classification for jurisdictional services, or any rule, regulation, practice or contract affecting such rate, charge or classification" is unjust or unreasonable, the Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice, or contract that should be in effect. The Commission recognized that certain areas of the flawed California market are not within its jurisdiction, but "fixed" the areas within its jurisdiction. Apparently the California governor agrees with me that the Commission's jurisdiction in the area of wholesale electricity prices is questionable... In any event, if the Commission wanted to open a proceeding to investigate the justness and reasonableness of negotiated gas transportation rates, its authority to do so would be much clearer. The Natural Gas Act expressly authorizes FERC to declare unlawful any transportation rate that is not just and reasonable. "Just and reasonable" has been interpreted in many different contexts and the Commission has significant discretion over what it means. As we all know too well, the Commission sometimes acts unpredictably. However, my feeling is that it will probably take more than 2 or 3 above-max-rate contracts to motivate the FERC to act to declare a negotiated rate deal, struck within a pipeline's tariff authority, to be unjust and unreasonable. The California proceeding was initiated after entire communities of individual consumers suffered 200-300% increases in their electricity bills. The prices for electricity in California were outrageous across the board and affected everyone in the state. By contrast, TW's transport rates for its short-term deals are far removed from end user prices and the practice of negotiating higher than max rate deals is probably not widespread enough for anyone to notice. It is far from being a consumer issue, and besides, the elections are over. However, as you and I have already discussed, we must be wary of parties like Dynegy that do notice just about everything and who might try to draw it to FERC's attention. We do need to watch to see whether other pipelines serving California are doing the same types of deals. Kathy, why don't you and I discuss a system of monitoring the contract information postings of El Paso, Kern, PGT/NW. Drew, obviously I've only scratched the surface here so let's talk if you want a more in-depth report. From: Drew Fossum 11/21/2000 10:36 AM To: Susan Scott/ET&S/Enron@ENRON cc: Kathy Ringblom/ET&S/Enron@ENRON Subject: Re: gouging That is by far the best line of the day!! Unconscionability may be the thing I'm remembering , but I think there is some more specific law related to market dislocations--i.e., the Hurricane example. Its sort of a twist on market power law--i.e., if the fates hand you short term market power, you better not use it. DF Susan Scott 11/21/2000 10:08 AM To: Drew Fossum/ET&S/Enron@ENRON cc: Kathy Ringblom/ET&S/Enron@ENRON Subject: Re: gouging I know there is some case law out there on contracts being voided because they are "unconscionable." There are several examples in consumer law and employment law, in which one contracting party is a corporation and the other is a West Palm Beach voter. However, if my memory serves me correctly, none of them involve contracts between 2 sophisticated business entities such as TW and Sempra or PG&E. Absent evidence of fraud, courts uphold bargains struck at arms length. Kathy, I'd be happy to take the oars on this but if you've already done some looking, please let me know if you've found anything. From: Drew Fossum 11/20/2000 04:44 PM To: Susan Scott/ET&S/Enron@ENRON, Kathy Ringblom/ET&S/Enron@ENRON cc: Subject: gouging Stuck on the phone so I thought I'd email you. Stan has asked Mike Moran if TW has any potential exposure on the high value transport deals under "anti gouging" statutes or common law. You know, the laws that say you can't charge $100 per sheet of plywood during a hurricane or $50 for a bucket of water during a drought. I think we need to research two things: 1. are there any such laws applicable to our business? (Cal. state law would probably be the best place to start) 2. could the political/regulatory fight in Cal about power and gas prices ever expand all the way to our transport pricing? I.e., if the CPUC whacks the power sellers for taking unfair advantage of their monopoly power, its not a big leap for the CPUC or FERC or even U.S. congress to whack gas sellers for jacking prices up to $14/MMBtu, as happened on Friday. If that happens, its just another small jump to whack us for charging $1 for transport, or so the logic goes. I'd like to hear preliminary views by 8:30 Monday am so I can talk to Mike before Stan's staff meeting (no written memo necessary). Based on that prelim. research, we can decide what else need s to be done. Thanks df
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