Steve Smith and I spoke today.

1.  He stressed repeatedly that the agreement re a schedule is an amendment
to the contract, therefore is "contractual" and binding on the parties; and
that we must have a schedule that will allow the arbs to make their award by
April 16.  I told him we had no opposition to moving quickly, especially if
the arbs agreed with us as to their extremely limited authority and
jurisdiction, which was even more contractual.  That said, said I, the arbs
will set the schedule, not us.  How does Smith propose to enforce Duke's
"right" to an award by April 16?  No response other than to repeat himself.

2.  He said he thought this was largely a case to be decided by expert
testimony.  I said it seemed just the opposite: do they have a "the cap is
not a cap" expert and a "making a profit can still be an economic hardship"
expert?  No answer.

3.  He wanted to agree on a date for swapping witness statements, expert
reports, etc.  He said he wanted to be able to give the arbs an agreed
schedule by the time we have our first call.  I told him there was no way we
could do that, because until the arbs resolved the dispute over the scope of
the proceeding, I had no way of knowing what kind of discovery I would need.
He said he saw my point.

4.  He plainly hopes to present evidence by witness statement rather than
just depos or live testimony.  I told him we would want to depose most
witnesses from whom he planned to offer a statement.  That said, I said I
saw no problem with witness statements (thinking that this may be the
easiest way to get testimony from Rebecca McDonald, among others).

5.  He asked me if we would agree to have the hearing in San Francisco.  I
told him I thought the contract specified Houston.  He said that it
specified Houston for "the arbitration," but that it didn't say the
"hearing" had to be here.  I told him that sounded like an argument by a
company that says a cap is not a cap.  He did not laugh.  I then tried a
different approach:  I told him it sounded like the agreement to arbitrate
in Houston was "contractual."

6.  He told me he envisioned the hearing lasting 1 or 2 days.  I told him
that I thought that was right if the issues were (a) is the cap a cap, and
(b) is the cap an economic hardship.

7.  He returned to topic #1 and implored me to move things ahead quickly.  I
told him that, to my knowledge, we had not been asked by Morris for an
initial conference, but that we were ready, willing and able to have one
whenever asked.

8.  I did NOT ask him whether Duke had let all of the California utilities
it has been fleecing get out of their contracts with Duke because they posed
some sort of economic hardship....

9.  I did learn some interesting trivia about him:  he has triplet 4 year
old sons.  Maybe that's why he always sounds so worn out.
Neal S. Manne
(713) 653-7827
nmanne@susmangodfrey.com


 - C.DTF