FYI
Hap
---------------------- Forwarded by Hap Boyd/EWC/Enron on 05/23/2001 04:20 AM 
---------------------------


"Sara Myers" <ssmyers@worldnet.att.net> on 05/22/2001 05:15:44 PM
To: "Ross Ain" <ain@worldnet.att.net>, "Brian T. Cragg" <bcragg@gmssr.com>, 
"Tom Hartman" <tom_hartman@fpl.com>, "Ken Hoffman" 
<khoffman@caithnessenergy.com>, "Steve Ponder" <steve_ponder@fpl.com>, 
"Jonathan M. Weisgall" <jweisgall@aol.com>, "Hap Boyd" <hap.boyd@enron.com>
cc: "Fairly Spillman" <fspillman@akingump.com>, "John White" <vjw@ceert.org>, 
"Carrie H. Allen" <callen@akingump.com> 

Subject: Update on I01-04-027 (QF OII) Prehearing Conference


Dear All:

    Today the CPUC held the first prehearing conference (PHC) in
I.01-04-027, which is focused on QF "performance obligations", but which I
will call, for quick reference, the QF OII.  Because the purpose of this OII
remains chillingly vague, Brian and I chose to be "non-parties" for now,
submitting "information only" status for our firms, rather than becoming
"parties" or "appearances" for any particular company.  I believe that this
practice was followed by most individual QFs and IEP, although the CCC may
have actually ask to be an "appearance" from the get-go.

    The vagueness that has surrounded this proceeding played itself out in
the following way:

    1.    ALJ Barnett was left to man this ship by himself since Comm'r Wood
was unavoidably absent (you can fill in your own subliminals on that).  This
left Barnett with a difficult task:  trying to make something useful out of
something on paper that he could clearly see would likely not result in
hearing anyone's opinion but SCE's.  I felt he did the best he could under
the circumstances.

    2.    Those explicit circumstances were as follows:

(a) The ALJ had to start the PHC by having to ask the utilities to provide
him with the information that they had supplied pursuant to the OII to the
Energy Division.

(b) ORA attorney Chamberlin told Barnett that ORA was "unclear" on the
sustance of the OII, that they had formed no position in response, and that
they were taking a "wait and see" approach to the OII.

(c) SDG&E (Ted ?) echoed the "unclear" and "wait and see" positions,
informing the ALJ that the CPUC should not be treating all utilities alike
with respect to QF issues; that SDG&E had not been in default on any payment
to QFs; that for any QF non-performance issue, SDG&E felt that these issues
involved contract disputes enforceable in court; and that, as a result,
SDG&E had filed a complaint against a QF in court , for which an answer had
not yet been filed.

(d) PG&E (Alice Reed), also a "no position yet" party, said that they would
have no comment until a Scoping Memo was issued.  Later, PG&E also informed
the ALJ that back payment issues or "pre-petition" debt was before the
bankruptcy judge.

(e) SCE (Russ Swartz), making clear who had written the OII, said that the
OII was clear on its face as to its scope and intent; that the CPUC intended
to "broadly sweep into this proceeding" all QF-related issues; that the CPUC
should act swiftly to address how, why, and whether QFs are not performing;
and that that issue involved the impact of past due payments on QFs and the
Wood 3/27 decision and future payments to QFs.  SCE stated that the
Governor's and AG's statements about generator behavior and their
involvement in QF civil litigation clearly indicated an interest in ending
that litigation and having power deliveries pursuant to QF contracts
resumed.  In response to the ALJ's request for a schedule, SCE stated that
they did not have one, but that this matter should proceed "as rapidly as
possible."

(f)  At that point, a QF rep, I believe from Alcantar's office, indicated
that they were making a "special appearance" to challenge the CPUC's
jurisdiction to undertake this investigation.  The attorney proceeded to
recite limitations on that jurisdiction from PURPA to FERC to the contracts
themselves.

(g)  CCC (Joe Karp) followed by stating that the CPUC should not do anyting
in this OII and that the CPUC could not modify QF contracts, could not
regulate QFs, could not intrude on contract disputes properly being heard in
court, and could not tread on PURPA or FERC jurisdictional issues.  From the
CCC's perspective, Karp stated that the best thing that the CPUC could do
was to get rid of the OII and stop the proceeding today to avoid further
chilling QF power production and development.

    At this point, Barnett, in an attempt to bring in the QF parties, stated
that he believed an issue before the CPUC was to ensure that QFs do get
paid.  He understood that non-payment could and would be an impediment to
supply.
    The SDG&E attorney, however, commented that he shared the view that the
court was the proper place for resolving contract disputes.

    SCE, in contrast, responded to Karp's comments by stating that Karp's
statements were just a clear indication that QF development was not being
chilled, but that QFs were really trying to break out of their contracts and
transform themselves to wholesale generators able to take advantage of high
market prices.  (And this was when I knew I would not be leaving the hearing
room without speaking....)  He also pointed to two CPUC decisions giving the
CPUC "concurrent jurisdiction" with the courts. (D.91-06-048 was one of
those decisions cited).

    Barnett responded, both to SCE and a lone QF (Pacific Lumber/biomass)
who emphasized that, even with just an S0 1 contract they had never switched
into the market and that Pacific Lumber was fearful of the effects of a
proceeding that lumped all QFs "into one ball":   Barnett warned the QFs
that, while the CPUC may not have jurisdiction, it may have jurisdiction,
and a QF that did not participate might find itself at the "wrong end" of a
CPUC decision and wished that it had participated.

    Barnett then proceeded to describe what he thought the mission of this
OII was:  to get more electricity on line for consumers (especially for this
summer) and to get QFs paid, which could be the CPUC's first concern.

    At this point, I did speak and indicated that any reluctance by QFs to
participate had much to do with the narrowness of the OII, as written.  If
there were a broader or different scope, it was important to know that
before any QF could decide how and when to participate.  I stated that from
the wind QFs' perspective, they certainly did not intend, as Mr. Swartz had
alluded, to use this proceeding to break their contract.  Instead, they had
continued to operate in the face of non-payment, valued their contracts, and
had repeatedly asked the CPUC to address two issues that would resolve much
of their immediate economic and substantive concerns:  (1) back payments,
and (2) 5 to 10 year term fixed price contracts or contract amendments.  I
concluded that if the CPUC made clear that this proceeding was to have such
salutory effects, then Barnett was likely to see an increase in
participation.

    My comments were followed in quick order by Steve Greenwald (Calpine)
and Tom Beach (CCC).  Greenwald, agreed with my comments, and also stated
that the CPUC should look at what it could actually accomplish in this
proceeding.  Greenwald made clear that responding to QF issues did not start
with an investigation like this, but rather would be accomplished by
addressing back payments (other than PG&E's, over which the bankruptcy judge
now had jurisdiction ("pre-petition" debt)) and addressing the many
applications for rehearing of the Wood decision, reversing that order
immediately and returning to SRAC pricing to that appropriately based on
PURPA.  That action alone, according to Greenwald, would likely eliminate
many of the production/economic problems faced by QFs.  Beach offered
similar thoughts, but also indicated that incentives should also be
considered for increasing generation from existing facilities.

    Ida Passamonti, a CPUC Legal Division attorney, also spoke (but I am not
sure on whose behalf...she had been passing papers to the ALJ and is in the
appellate and advisory branch).  She indicated that the OII WAS intended to
be "fact gathering" and was NOT intended to be an enforcement proceeding.
She also stated that it was intended to provide a vehicle for Commissioners
to resolve the QF/utility impasse.  She made it sound like the OII was
supposed to be a mediation venue.

    At this point, Barnett turned to SCE and asked them again what they
wanted out of this proceeding or what they wanted the CPUC to do.  Swartz
really danced around this one and kept stating that the CPUC's first goal
should be to identify "the nature of the problem", examine why QFs went
off-line, what (or how much) QF power was not being delivered, and what QFs
could be expected to go off-line.  Only lastly should the CPUC address back
payments and SRAC pricing.

    Barnett responded that, while QFs knew their situations individually,
the utilities "knew" QFs/QF power as a "mass".  What Barnett wanted was a
proposal, which he stated (as an aside) he apparently was not going to get
from ORA, not about what individual QFs acted "badly", but rather "how to
get us electricity this summer", which was the CPUC's "primary worry".  He
agreed with Passamonti that the proceeding was fact-gathering toward that
end, and was not intended to be for enforcement purposes or to be punitive.
He thought that, in the face of no ORA proposal and concerns expressed by
the QFs, a reasonable starting point would be a proposal from the utilities
about the scope of the proceeding that others could then comment on or
respond to.

    At that point Barnett took a break.  After discussing the matter with
someone (Energy Division?) at the break, he came back to qualify his remarks
and state that, while his emphasis was on the future, the CPUC (according to
the OII) did intend on "looking back" on QF performance.  But the goal would
be for the CPUC to learn more about QF obligations and what has happened so
that those problems can be "fixed" for the future and more electric
generation can be produced.

    SCE then offered to "lay out a proposal" on scope and issues for the
proceeding.  That proposal would be followed by parties' comments, according
to a schedule that was impossibly short.

    Barnett instead ordered the following:  ANY party can file a proposal on
scope and issues (and schedule) on Friday, May 25, 2001, with the utilities
being required to file something on that date.  Comments in reponse could be
filed on Monday, June 4, 2001.  I requested, noting that many individuals
had sought "information only" status until more was known about the OII,
that SCE or whoever submitted a proposal serve it electronically on all
those on the service list (including information only).  Barnett concurred.

    Barnett also reiterated that the OII was "fact gathering", and that he
did not contemplate any enforcement or punitive action being taken.  He also
indicated that he would "immerse" himself in the applications for rehearing
of the Wood decision, especially if a decision to reverse that order might
obviate the necessity for this investigation.  However, he added, as he
always does, that the CPUC might not agree with his approach.

    Following the hearing, I talked with Doug Kerner and urged IEP to
consider submitting a proposal on May 25, a position based on a fear I share
with Joe Karp that the utility position or proposal could be the starting
point for shaping the proceeding.  For individual QFs, I think it is
worthwhile to closely examine these proposals, and, if comments are deemed
necessary, submit such comments along with a request to offer that input as
a "special appearance."  To file comments, such a special appearance or
intervenor request would likely be necessary in order to be a "party"
entitled to submit such a response.

    Finally, after the hearing, I caught up with ALJ Barnett and told him
that I thought he had done a very good job under the circumstances.  He
clearly understood my problems with the chilling effect of the OII,
especially in light of what he described as the CPUC remaining on a mission
to assign "blame."  I agreed and said that it was hard to get to the
important issues (really adopting change that encourages generation at
reasonable prices) in the presence of that attitude.

    Whew!  Any questions??

    Sara

    He then too

Barnett at this point interceded and said that, while the CPUC might