Message-ID: <12791208.1075842556518.JavaMail.evans@thyme> Date: Wed, 24 Jan 2001 23:47:00 -0800 (PST) From: drew.fossum@enron.com To: martha.benner@enron.com Subject: Termination of PG&E agreements Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Drew Fossum X-To: Martha Benner X-cc: X-bcc: X-Folder: \Drew_Fossum_Dec2000_June2001_2\Notes Folders\Sent X-Origin: FOSSUM-D X-FileName: dfossum.nsf pls print for me. ---------------------- Forwarded by Drew Fossum/ET&S/Enron on 01/25/2001 07:47 AM --------------------------- Susan Scott 01/22/2001 04:07 PM To: Drew Fossum@ENRON, Lee Huber/ET&S/Enron@ENRON cc: Subject: Termination of PG&E agreements After doing some looking, I've reached the same conclusion as you, Lee: if PG&E fails to comply with our request for assurance of creditworthiness, the "Termination" provisions of Section 16.1(b) of our General Terms and Conditions will be triggered. The wording is convoluted, but basically it means: If PG&E fails to perform any obligation under a service agreement, TW may terminate the agreement under the following procedure: 1) TW serves written notice on PG&E that it is in default, and that TW intends to terminate the agreement, 2) PG&E gets 30 days to remedy the default, 3) if PG&E does not remedy the default within 30 days, the agreement shall become null and void. 3 issues + my answers: 1. Is failure to provide assurance of creditworthiness a breach of the service agreement? I think so -- our Form M Service Agreement expressly incorporates the General Terms and Conditions of the tariff, and one of those terms and conditions is that shipper must provide satisfactory assurance of creditworthiness or TW can terminate service. 2. How should Section 16 be read in conjunction with the creditworthiness provisions of Section 13? Section 13 provides that shipper must provide satisfactory assurance of creditworthiness within a reasonable periodor TW does not have to continue service. I see nothing in the tariff that would prevent us from suspending service to PG&E immediately if they fail to comply with our request for assurance of payment within a reasonable time. Simultaneously with our suspending service, we should send the letter of notice pursuant to Section 16. 3. Is termination of service under Section 13 the equivalent of termination of the agreement under Section 16? I do not believe our suspension of service pursuant to Section 13 would result in automatic termination of the contract, nor would it allow PG&E to just walk from the contract; it appears that either party would have to follow the procedure under Section 16 in order to terminate the contract (the notice provisions apply to shipper as well as transporter). Section 13 does not talk about termination of the contract, only termination of service. While I am not satisfied that this is crystal clear under our tariff, since it is not expressly stated, I do think it is the best answer given the fact that the tariff has, in Section 16, a specific procedure for terminating a service agreement. While there is some Texas contract law on implied rescission based on mutual repudiation of the contract, I believe our tariff is controlling here because the tariff provisions I've cited amount to express contractual provisions between the parties governing termination, so there is no reason to go to common law. Drew, in answer to your question, our termination of service is not anticipatory breach because by definition anticipatory breach is repudiation without an excuse. Now for the interesting part. The Bankruptcy Code provides that a utility may not alter, refuse or discontinue service to a debtor solely because of commencement of a bankruptcy action or because a debt owed by the debtor was not paid when due. However, the utility may alter, refuse or discontinue service if neither the trustee nor the debtor, within 20 days after the date of the order for relief, furnished adequate assurance of payment for service after such date. I'm no bankruptcy expert, but my point is simply that our rights may change once a bankruptcy action is filed. The Commission has held that termination of service cannot be inconsistent with federal bankruptcy law: see El Paso Natural Gas Company, 61 FERC P61,302 (1992) (involving El Paso Electric bankruptcy). If you need anything else, let me know. Under ordinary contract law, we would probably have the right to terminate the contract if PG&E is in breach.