Subject: Re: gouging
From: [email-masked]
To: [email-masked]
Cc: [email-masked]
Date: Wed, 22 Nov 2000 04:14:00 -0800 (PST)

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