FW: Retroactive Suspension - SDG&E's message ,
 For 10 am PDT call
-----Original Message-----
From: Norman Plotkin [mailto:nplotkin@rcsis.com]
Sent: Tuesday, August 28, 2001 9:46 AM
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 modify existing 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 these entities.  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 of Contracts . . ." [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 is substantial."  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 legitimate public 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 to September 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 inconsistent with
> 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 a prospective ruling in the interest of
> fairness.
> I would appreciate any thoughts on this.  Thank you!
> 
> 
> Andrea Weller
> Market Strategist
> Strategic Energy, LLC
> 949.230.3404
> aweller@sel.com <mailto:aweller@sel.com>
d..steffes@enron.com, jeff.dasovich@enron.com, richard.shapiro@enron.com