Here's Jeanne's assessment.  Thanks, Jeanne

-----Original Message-----
From: JBennett [mailto:JBennett@GMSSR.com]
Sent: Tuesday, August 28, 2001 11:59 AM
To: Mara, Susan
Subject: RE: Retroactive Suspension - SDG&E's message


Sue --  I believe a legitimate contract clause argument can be made.
However, the chances for ultimate success are probably not real high.  Once
we have made the showing that there has been a substantial interference with
contracts (based on the elements listed in Dan's e-mail), which I think we
can, then the burden shifts to the government to show there was a legitimate
public purpose in passing the law. The law we are dealing with is AB X1, and
in particular the suspension of direct access provision. The passage of the
law and the suspension of direct access can probably meet the legitimate
public purpose test. The question then comes down to whether the
Commission's implementation of that law so as to suspend direct access
retroactively is necessary to meet that legitimate public purpose.  Given
the nature of the legislation and its purview in the regulatory arena, the
court is likely to defer to the PUC.     

-----Original Message-----
From: Mara, Susan [mailto:Susan.J.Mara@ENRON.com]
Sent: Tuesday, August 28, 2001 11:09 AM
To: jbennett@gmssr.com
Subject: FW: Retroactive Suspension - SDG&E's message


Here is Dan's e-mail
-----Original Message-----
From: Norman Plotkin [mailto:nplotkin@rcsis.com]
Sent: Tuesday, August 28, 2001 9:46A M
To: arem@electric.com
Subject: FW: Retroactive Suspension - SDG&E's message


 
-----Original Message-----
From: Dan Douglass [mailto:douglass@energyattorney.com]
Sent: Wednesday, August 22, 2001 8:03 PM
To: Weller, Andrea; arem@electric.com; 'Norman Plotkin'
Subject: Re: Retroactive Suspension - SDG&E's message


It would be surprising if the Commission did what SDG&E is suggesting.  From
a strictly legal perspective, it is unlikely that the Commission would vote
to suspend direct access retroactively.  Although an argument could be put
forward that the Commission has the authority to do so, such an act could be
challenged on U.S. Constitutional grounds as being violative of the
Contracts Clause.  Moreover, from a practical perspective, retroactive
suspension would be politically unpalatable and cause a good deal of protest
from affected parties.  However, the Commission might choose to so
regardless of these factors, due to political pressure from Sacramento to
ensure the saleability of the power revenue bonds.
 
The Commission has frequently reserved to itself the power to modifye
xisting contracts, particularly those entered into by utilities subject to
its jurisdiction.  It has exercised this right often, using as justification
wording contained in utility contracts that make the agreements subject to
the Commission's continuing jurisdiction, including such modifications as it
may direct.  For example, the standard ESP Service Agreement used by all
three of the state's electric utilities provides that, "This Agreement may
be subject to such changes or modifications as the CPUC may from time to
time direct or necessitate in the exercise of its jurisdiction, and the
Parties may amend the Agreement to conform to changes directed or
necessitated by the CPUC."  This phraseology is typically referred to by the
state's utilities as a "regulatory out" clause.  
 
However, this sort of wording has not been required to be included in the
contracts entered into by ESPs, as the Commission does not regulate thesee
ntities.  ESPs that plan to offer electric services to residential and small
commercial customers must fulfill certain registration requirements, as
adopted by the Commission in Decisions (D.) 99-05-034 and D.98-03-072 in
accordance with Public Utilities Code Section 394(b).  However, ESPs who
serve larger customers are not even subject to this registration
requirement.  Most importantly, ESP terms and conditions of service are not
subject to regulation by the Commission.  Therefore, the regulatory out
language cited above is not customarily included in standard contracts
signed between ESPs and their customers.
 
The absence of a regulatory out clause would make Commission efforts to
modify retroactively contracts entered into between ESPs and their customers
extremely suspect.  This is due to the fact that such action could be seen
as violative of Section 10 of Article I of the United States Constitution.
It provides in part that, "No State shall . . .  pass any Bill of Attainder,
ex post facto Law, or Law impairing the Obligation ofC ontracts . . ."
[Emphasis added] 
 
Under the Supreme Court's Contracts Clause jurisprudence, the threshold
inquiry is, "whether the state law has, in fact, operated as a substantial
impairment of a contractual relationship."  Allied Structural Steel Co. v.
Spannaus, 438 U.S. 234, 244 (1978).  "This inquiry has three components:
whether there is a contractual relationship, whether a change in law impairs
that contractual relationship, and whether the impairment iss ubstantial."
General Motors Corporation v. Romein, 503 U.S. 181, 186 (1992).
 
The Contracts Clause only applies to contracts that exist at the time of the
law's passage.  Also, the Contracts Clause has been deemed to apply both to
legislation or other government action, but not to court decisions.  The
judiciary has the power to invalidate a contract without violating the
Contracts Clause.  See Tidal Oil v. Flanagan, 263 U.S. 444 (1924).  In a
case involving a private contract, the law or governmental action must
substantially impair a pre-existing contractual relationship.  Once this
hurdle is met, the government must demonstrate that the law imposes
reasonable conditions appropriate to achieving a significant and legitimatep
ublic purpose.  Often, when faced with such an issue, the courts defer to
the legislative judgment.  However, this does not prevent an independent
investigation of the relevant factual situation.

This is probably far more than you wanted to know.....just wanted to give a
quick overview on the subject.  Bottom line:  CPUC would be dumb to suspend
retroactively, at least from a legal perspective.  On the other hand, when
has brilliance been a hallmark of recent decisions from this Commission?
 
Dan

Law Offices of Daniel W. Douglass
5959 Topanga Canyon Blvd.  Suite 244
Woodland Hills, CA 91367
Tel:   (818) 596-2201
Fax:  (818) 346-6502
douglass@energyattorney.com <mailto:douglass@energyattorney.com> 
----- Original Message ----- 
From: "Weller, Andrea" < AWeller@sel.com <mailto:AWeller@sel.com> >
To: < arem@electric.com <mailto:arem@electric.com> >; "'Norman Plotkin'" <
nplotkin@rcsis.com <mailto:nplotkin@rcsis.com> >; "'Dan Douglass'" <
douglass@energyattorney.com <mailto:douglass@energyattorney.com> >
Sent: Wednesday, August 22, 2001 12:23 PM
Subject: Retroactive Suspension - SDG&E's message

> All - 
> 
> SDG&E is sending the following message to customers...
> "The California Public Utilities Commission is now expected to make a
> decision at their September 6 meeting regarding suspension of direct
access.
> This decision could be retroactive toS eptember 1, 2001.
> Based on this information, if you are considering a contract with an
energy
> service provider for your electric commodity, the contract would need to
be
> signed by August 31, 2001. "
> What do you all think about this?  What SDG&E is saying is inconsistentw
ith
> the intent of the statement made in the most recent ALJ Barnett Resolution
> which states, "In the interest of fairness, written contracts for direct
> access signed before Sept. 1, 2001 are exempt from suspension".  The
intent
> here being that the CPUC will make ap rospective ruling in the interest of
> fairness.
> I would appreciate any thoughts on this.  Thank you!
> 
> 
>A ndrea Weller
> Market Strategist
> Strategic Energy, LLC
> 949.230.3404
> aweller@sel.com <mailto:aweller@sel.com> < CODE>

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