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.