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
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X-From: Tim Belden <Tim Belden/HOU/ECT@ECT>
X-To: John J Lavorato <John J Lavorato/Corp/Enron@ECT>, Louise Kitchen <Louise Kitchen/HOU/ECT@ECT>
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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.