Message-ID: <33294247.1075840890792.JavaMail.evans@thyme> Date: Mon, 9 Apr 2001 12:52:00 -0700 (PDT) From: tim.belden@enron.com To: john.lavorato@enron.com, louise.kitchen@enron.com Subject: Good News From FERC Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: Tim Belden X-To: John J Lavorato , Louise Kitchen X-cc: X-bcc: X-Folder: \ExMerge - Kitchen, Louise\'Americas\Portland X-Origin: KITCHEN-L X-FileName: louise kitchen 2-7-02.pst No action needed by either of you. You can ignore this if you like. The i= ssue is really complicated and I've tried to summarize it. I'm not sure ho= w closely the two of you have been tracking activities at FERC. We had an = interim victory late last week on the chargeback issue. =20 As Edison and Pacific Gas were defaulting on PX and ISO payments in January= and February, the PX attempted to invoke the charge back section of its ta= riff. This had several strange outcomes. First, the PX attempted to recov= er the short payments by Edison for December activity by charging PX market= participants based on a three month rolling average of gross sales. If th= e PX owed a supplier money, they simply short-payed by the prorata amount. = If the market participant owed the PX money, the PX added it to the partic= ipants bill. This created a series of short pays and chargebacks. If a ma= rket participant who received a chargeback bill didn't pay (e.g., PG&E for = SCE's December PX activity), the PX would then allocate that amount (via sh= ort pays and chargebacks) to other participants. This iterative process wo= uld continue until credit-worthy participants shouldered the burden. The P= X attempted to us an equally bizarre method to allocate defaults by the uti= lities on their ISO RT energy bill (the PX is the Schedule Coordinator for = the utilities and handles payments to the ISO for RT energy on behalf of th= e utilities). Rather than shortpaying suppliers to the ISO for defaults by= the utilities on RT energy charges, the PX attempted to collect this money= from its participants in order to pay the ISO -- that is sellers into the = PX Day Ahead market were supposed to pay SCE's and PG&E's RT ISO bill. Thi= s was done via a chargeback. This led to our "last man standing" theory, w= hereby the PX would iteritively chargebacks until a few credit-worthy entit= ies were stuck with PG&E and SCE's defaults in both the PX and ISO markets. FERC granted market participants some relief on Friday. They directed the = PX to (1) rescind all chargebacks and (2) refrain from taking any future ch= argebacks. They found "the chargeback provision in the PX tariff was not d= esigned to address default of this magnitude and, thus, its application in = these circumstances is unjust and unreasonable." This is not the last word= on this matter. There are a variety of state court cases that impact this= , and, of course the bankruptcy judge will weigh in as well. However, this= is a solid victory for us as FERC has sided with us rather than the PX wit= h respect to interpreting the PX tariff for defaults.