You might be interested in this discussion.

 -----Original Message-----
From: 	Hall, Steve C.  
Sent:	Friday, July 27, 2001 9:16 AM
To:	Perrino, Dave
Cc:	Comnes, Alan
Subject:	RE: Two Major Inconsistencies in FERC's Most Recent Refund Order and the Nov 1 and Dec 15 Orders

Hi Dave,

Of course the decision is politically motivated.  But aren't they all?  It's just that now it's our ox being gored.

In general, review of agency decisions by courts is very deferential, i.e., court's give agencies a lot of discretion---which is why it is often difficult to overturn an agency decision.  But if a court concludes that the agency's action was "arbitrary and capricious" it may overturn the decision.  Our argument would be that FERC is acting arbitrarily in its most recent order because it has disregarded---without explanation---its earlier rulings in this case.  It's no slam dunk, but it's the best argument we have.  We will never win an argument in any court that FERC "could have" or "should have" crafted its order a certain way; a court will almost always say, "the agency can fix the energy crisis in any way it deems fit."  However, courts take a dim view of inconsistent agency decisions because it demonstrates a lack of Constitutional Due Process.

As for the public's opinion of Enron as a profiteer---for better or worse it's already established.  And no matter what action we take, Davis will cast a negative spin on it.  So why not fight for our interests?  The stakes in this order are worth it.  This recent order sets a bad precedent for the future viability of our business model (power marketing); it's hard to run a business when the government can reach back in time and recalculate your selling price with complete disregard of your costs.  The generators get to offset refunds with input costs, we should be able to use our purchased power costs.  I don't see much downside for us to argue that FERC should keep its word that (1) refunds can only be ordered within 60 days, and (2) all sellers are entitled to marginal costs.  We are just holding the Commission to its promise.  At a minimum, the Commission needs to explain why it ignored and reversed itself on its earlier holdings.

These are good questions.  Have a good weekend. 

(I copied Alan on this because I thought he might be interested in our colloquoy.)

Steve

 -----Original Message-----
From: 	Perrino, Dave  
Sent:	Thursday, July 26, 2001 9:18 PM
To:	Hall, Steve C.
Subject:	Re: Two Major Inconsistencies in FERC's Most Recent Refund Order and the Nov 1 and Dec 15 Orders

Steve,

Aside from the fact that the entire play by the FERC in the last 3 months has been purely politically motivated, are we going to challenge the latest rulings in court?  Can we challenge this apparent lack of consistency (memory loss)?

If we were to challenge do you think the general "public" opinion and impression of Enron as a henious profiteer from Houston would negate any potential gains made from making such a challenge?

Just curious about what your thoughts/planned recommendation are.

Thanks for the information,

Dave


From:	Steve C Hall/ENRON@enronXgate on 07/26/2001 07:32 PM CDT
To:	Ray Alvarez/NA/Enron@ENRON, Alan Comnes/ENRON@enronXgate, Susan J Mara/NA/Enron@ENRON, James D Steffes/ENRON@enronXgate, Richard B Sanders/Enron@enronXgate, gfergus@brobeck.com@SMTP@enronXgate, Christian Yoder/ENRON@enronXgate, Dave Perrino/SF/ECT@ECT, Steve Walton/ENRON@enronXgate, Paul Kaufman/ENRON@enronXgate, Tim Belden/ENRON@enronXgate, Jeff Richter/ENRON@enronXgate, Bill Williams III/ENRON@enronXgate
cc:	 

Subject:	Two Major Inconsistencies in FERC's Most Recent Refund Order and the Nov 1 and Dec 15 Orders

The FERC apparently has a very short memory:


1.	In its Dec. 15, 2000 Order, FERC clarified that liability for refunds would only last for 60 days after the transaction was filed with FERC.   How can FERC now say that transactions from Nov. 1 through April 26 are subject to refund?  The Dec. 15 Order said that only transactions that were identified by Commission staff for further review would be subject to continued refund liability.  Otherwise, refund potential for transactions over $150/MWh would close after 60 days.  Presumably, liability for transactions under $150/MWh would close after 60 days, too.

Here is the excerpt from the Dec. 15 Order:

"We clarify that, unless the Commission issues some form of notification to a seller that its transaction is still under review, refund potential on a particular transaction will close 60 days after the initial report is filed with the Commission.  The institution of a 60-day period for the review of the transactions will provide sellers with the certainty they request and allows a reasonable period for analysis by staff."  Dec. 15 Order at 58.


2.  	In its Nov. 1 Order, FERC said that it would limit refund liability to seller's marginal costs or legitimate and verifiable opportunity costs.  FERC now says that marketers cannot use their purchased power costs---much less opportunity costs---to offset potential refunds.

From the Nov. 1 Order:  "However, should we find it necessary to order refunds, we will limit refund liability to no lower than the seller's marginal costs or legitimate and verifiable opportunity costs."  Nov. 1 Order at 39.


FERC's July 25 Order makes no attempt to explain its departure from its earlier holdings on refunds in this same proceeding.  Arbitrary and capricious, anyone?


Steve


Alan:  Please forward to Dan Watkiss and Ron Carroll.