VI. ALLEGATIONS OF UNLAWFUL AND UNREASONABLE TERMS AND CONDITIONS COMMON TO MULTIPLE CONTRACTS WHICH ILLUSTRATE THE ABUSE OF MARKET POWER

In addition to unjust and unreasonable pricing, the challenged contracts include unjust and unreasonable non-price terms and conditions providing, inter alia, for: (1) priority over bond repayment; (2) attempted evasion of FERC review; (3) asymmetrical credit treatment; (4) "most-favored nation" treatment; and (5) mitigation and termination.84

A number of provisions in the challenged contracts other than the price and reliability terms suggest the large extent to which sellers wielded market power in the contract negotiations. For instance, § 3.6 of the GWF Agreement provides that payments under the Agreement shall be "payable prior to all Bonds, notes or other indebtedness secured by a pledge or assignment of the Trust Estate." Virtually all the other contracts provide for a similar priority for payments under the contracts over repayment of the Bonds needed to secure financing for the contracts.85 While the Edison Electric Institute ("EEI") Master Power Purchase & Sale Agreement, which was used as the basis of the Agreement, provides a number of alternatives for credit protection, including some specifically designed for use with governmental entities, it contains no option like the potentially onerous one in the Agreement. This clause is potentially onerous because it might restrict the kind (and therefore the cost) of financing that the state could issue to pay for its power procurement program. Moreover, the need for any additional security provisions is highly questionable in light of the provisions of California Water Code §§ 80110 and 80134(a)(2), which entitle CDWR to recover as a revenue requirement "[t]he amounts necessary to pay for power purchased by it."

A number of contracts include provisions by which the seller attempts to insulate the contract from review by FERC. Different contracts use different methods to accomplish this goal. The common features of each are efforts either to prevent challenges to the contracts, prevent review of the contracts, or both. Also common to each such clause is that it is unlawful, unenforceable, and must be stricken from each challenged contract in which it appears.

For instance, § 12.02 of the CalPeak Agreements purports to make a determination that the rates, terms and conditions of the Agreements are just and reasonable under § 205 of the FPA, and that changes in market conditions will not render the Agreements unjust or unreasonable for purposes of § 206 of the FPA. Similarly, § 12.20 of the CalPeak Agreements appears to purport to provide that the rates under the Agreement "shall not be subject to change through application to FERC pursuant to the provisions of Section 205 or 206" of the FPA."

The GWF Agreement contains similar provisions. Section 5.7(b) of the Agreement purports to provide that in the event that, as a result of the action of "any person or entity at the direction of the State of California or any agency thereof," FERC finds that the prices charged under the Agreement are unlawful (e.g. because the prices are not just and reasonable pursuant to §§ 205 and/or 206 of the FPA), "Seller shall be entitled to collect from Buyer as liquidated damages for such action, payment in an amount equal to the difference between the original Contract Price contained herein and the Contract Price resulting from such reduction and/or refund." That is, GWF purports to have contracted away the CPUC's ability to challenge the lawfulness of the contract. In the event that the CPUC challenges the Agreement, and FERC finds the contract pricing to be unlawful, GWF purports to have a contractual right in any case to collect from CDWR the difference between the contract price and the FERC-determined lawful price. But GWF was not satisfied even with this provision. Section 5.7(c) of the Agreement purports to provide that if FERC determines the Agreement to be unlawful as a result of the action of a party other than a state entity-e.g. any third party-then GWF shall have the "right" to demand from CDWR the difference between the unjust and unreasonable contract price and the FERC-determined lawful price, thereby neutering any determination by FERC that the contracts are unjust and unreasonable due to their excessive costs. The Duke Agreement similarly provides that if FERC finds the rates under the contract to be unlawful, CDWR must pay the rates nonetheless (confirmation letter Exhibit B), and Duke may terminate the Agreement without penalty (Section 3, "Term").

Other contracts include similar provisions. The Allegheny 1 Agreement, at section 10.13, provides that if "any Governmental entity" institutes an action which results in reductions in the pricing terms of the Agreement, the seller may terminate the Agreement without penalty. If the challenging party is an "affiliate" of CDWR, then the contract purports to provide Allegheny with rights to a termination payment equivalent to the anticipated profits across the life of the contract. The Calpine 1 and Calpine 2 Agreements, at section 10.14, similarly provides that FERC may not change the rates, terms or conditions of the Agreement pursuant to application under section 205 or 206 by "the State of California and any of its agencies." The Mirant Agreement includes a nearly-identical provision, Section 6. See also Pacificorp Agreement, section 11.1.5; Sempra Agreement, section 10.03; Wellhead-Gates and Wellhead-Panoche Agreements, Sections 10.13 and 5.5(e); Williams Agreement, section 10.14

These provisions are an unenforceable nullity. No party can contract away FERC's right and obligation to determine whether particular rates, terms, and conditions are just and reasonable. See e.g. Connolly v. Pension Benefits Guarantee Corp., 475 U.S. 211, 223-24 (1986) ("If [a] regulatory statute is otherwise within the powers of Congress, therefore, its application may not be defeated by private contractual provisions"); U.S. v. Northrop Corp., 59 F.3d 953, 962 (9th Cir. 1995) ("a promise is unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement") (quoting Town of Newton v. Rumery, 480 U.S. 386, 392 (1987)); Restatement of the Law, Second, Contracts, §§ 178, 181.86 Making such determinations is FERC's core mission under the FPA. And any promise to pay rates determined by FERC to be unjust and unlawful pursuant to §§ 205 and/or 206 of the FPA is unenforceable because it would defeat the central feature of the Federal Power Act, that is, to ensure that rates charged are just and reasonable.

Such provisions are not only indicative of the high degree of market power exercised by these sellers at the time that these Agreements were entered into, because such provisions are highly unusual and grossly tilted in favor of sellers, but also of the extreme lengths to which the sellers were willing to go to avoid even the barest of scrutiny of these massive agreements. These provisions were intended to cast a "chilling effect" on non-parties to the agreements, with tremendous consequences for California consumers-- if the literal word of the contracts were enforceable -- merely because a non-party sought to determine its legal rights at the FERC, or even if FERC exercised its legal responsibility and modified the contracts on its own. The FERC should provide heightened scrutiny to the contracts which attempted to evade FERC review.

One glaring example of the asymmetrical burdens that many contracts impose on DWR but not on sellers has to do with creditworthiness, an issue that is receiving much attention recently due to the spectacular and unprecedented bankruptcy of Enron. As recently noted in the January 29, 2002 testimony of FERC Chairman Pat Wood, III before the United States Senate Committee on Natural Resources, "[creditworthiness] provisions may be subject to Commission review for justness and reasonableness."87 The Master EEI agreement (Article 8)88 and WSPP agreement (§ 27)89 contain symmetrical creditworthiness requirements that impose burdens on both parties to maintain creditworthy status, but virtually none of the standard contracts entered into by CDWR remained unchanged with respect to creditworthiness. The CPUC submits that the asymmetrical creditworthiness provisions in many CDWR contracts require a FERC review finding such terms to be unjust and unreasonable, and at the very least the FERC should order modifications to the contracts providing for creditworthiness requirements to be imposed on sellers where contracts only impose such requirements on CDWR.

The asymmetrical requirements impose a burden on CDWR that an Event of Default will occur if the Bonds issued by the State to pay off the contracts fall below a certain credit rating by the bond agencies, but often do not impose a concomitant responsibility on the sellers to maintain long-term credit ratings above a certain level. For example, the Mirant agreement exempts both parties from the creditworthiness requirements embodied in Section 27 of the WSPP Agreement, but then grants Mirant the right to terminate the agreement if DWR fails to obtain a rating of "BBB- or better by S&P or Baa3 or better by Moody's" on the Bonds or the Special Fund established to pay sellers, without granting CDWR a similar right if Mirant is downgraded to junk bond status, as has indeed occurred.90 The Allegheny 1 agreement declares on the Cover Sheet that Credit Assurances of Article Eight are "not applicable" to either party, but then grants Allegheny an additional, conditional termination right if CDWR fails by March 31, 2002 (the first anniversary of the effective date of the agreement) to issue bonds "of no less than three (3) billion dollars, whose long-term unsecured senior debt is rated BBB or better by S&P, and Baa2 or better by Moody's."91 CDWR possesses no similar right under the agreement with Allegheny. The Williams agreement similarly stated that credit assurances were not applicable, but granted Williams a termination right for failure of CDWR to issue bonds at a certain bond rating, but no similar right to CDWR for any downgrade of Williams' credit.92 The Constellation, High Desert and Morgan Stanley contracts also declare on the respective Cover Sheets that Credit Assurances of Article Eight are "not applicable" to either party, but each have additional termination provisions if the CDWR Bonds fall below creditworthy status, without imposing any such rights for CDWR if sellers are downgraded.93 The Calpine 2 agreement declares credit assurances as not applicable, but the agreement has a condition precedent requiring a high bond rating for CDWR's financing or else Calpine can terminate the agreement (albeit without receiving a termination payment).94 The Pacificorp agreement similarly imposes creditworthiness requirements on the Bonds maintained by CDWR, the failure of which accelerates payments by CDWR to Pacificorp, but no such creditworthiness requirements are imposed upon Pacificorp.95 The Sunrise cover sheet checks off "not applicable" for both parties for creditworthiness requirements under Article 8, but states that a "downgrade event" is applicable against CDWR, and establishes specific downgrade events against CDWR including downgrading of the bond rating, the violation of which gives Sunrise the ability to declare an Event of Default.96 The Fresno Cover Sheet states that it has no creditworthiness protections against CDWR under Article Eight, but adds an additional termination provision if CDWR bonds are not maintained at a certain credit level, while only granting CDWR a subordinated lien on Fresno's property in return.97

There is no legitimate reason why CDWR should be required to maintain creditworthiness for bonds to repay sellers if those sellers are not required to be creditworthy themselves. Lack of creditworthiness amongst sellers threatens the viability of the projects, particularly where sellers are planning construction of new generation units, and CDWR thus ought to be able to terminate agreements when the creditworthiness of generators is lacking. Moreover, the uneven bargaining power of the sellers compared to CDWR is apparent from contracts which impose creditworthiness requirements on CDWR but not on sellers, for as a practical matter, the creditworthiness of the State of California is far more likely to be stable over time than the creditworthiness of a business in the volatile energy sector, such that the sellers had very little need to insist upon the State maintaining bonds at a certain credit level, whereas CDWR had a great need to ensure that generating companies engaging in all forms of speculative and risky business propositions maintained creditworthiness. If the FERC does not abrogate the contracts completely, it must modify those contracts with asymmetrical credit provisions currently in favor of sellers so that the symmetrical creditworthiness requirements are imposed upon both sellers and CDWR.

Virtually all of the contracts include a "most-favored nations" clause with respect to credit and security provisions, and thus may be unjust and unreasonable.98 The Supreme Court long ago declared such clauses to be "incompatible with the public interest." Permian Basin Area Rate Cases, 390 U.S. 747, 782-83 (1968). These provisions must be stricken from each challenged contract in which they appear.

REQUEST FOR RELIEF

For the foregoing reasons, the CPUC submits that each of the contracts challenged herein must be abrogated. Each challenged contract is unjust and unreasonable. In addition to unreasonable pricing, the non-price terms and conditions of each contract is unjust and unreasonable, and warrants abrogation of the contract. Abrogation of the contracts should be implemented in an orderly fashion which will enable California to obtain such replacement contracts as are necessary at reasonable prices. In the alternative, FERC must reform the challenged contracts to provide for just and reasonable pricing, reduce the duration of the contracts, and strike from the contracts the specific non-price contract terms and conditions found to be unjust and unreasonable, including each of the provisions discussed herein.

ADDITIONAL REQUIREMENTS OF RULE 206

18 C.F.R. § 383.206(b)(1)-(2)

The price and non-price terms and conditions of the contracts challenged herein are unjust and unreasonable in violation of § 206 of the FPA, and to the extent applicable, are not in the public interest pursuant to § 206.

18 C.F.R. § 383.206(b)(3)(5)

Collectively the challenged contracts impose a financial burden on California ratepayers on the order of fourteen billion dollars ($14 billion). Non-financial consequences include threats to reliability, as detailed supra.

18 C.F.R. § 383.206(b)(6)

While some of the facts and legal arguments relevant to the instant Complaint have been brought to FERC's attention in other pending proceedings, no pending proceeding provides an adequate opportunity for FERC to address the totality of Respondents' misconduct and fully address the injuries complained of herein. Certain respondents have filed their long term contracts with FERC. The CPUC has protested certain such contracts, identifying some potentially unjust and unreasonable prices, terms, and conditions, and requesting that FERC set the matters for hearing in order to make a determination of whether and the extent to which the particular contracts protested are just and reasonable, or to the extent applicable, in the public interest. However, certain power marketer sellers are not required by FERC's current rules to file their contracts, and there is thus no forum other than the instant Complaint in which to address such contracts. Moreover, in Pacificorp Power Marketing, 97 FERC ¶ 61,105 (2001), FERC stated that "because PPM's long-term agreement was entered into pursuant to market-based rate authority already granted by this Commission under section 205 of the Federal Power Act (FPA) and pursuant to a market-based rate tariff on file in accordance with section 205, the appropriate procedural vehicle for the California Commission to raise its concerns is in a complaint filed under section 206 of the FPA." Thus, even as to sellers who have filed their contracts, and whether or not the filing has been protested, FERC has made it clear that in its view the instant complaint is the appropriate procedural vehicle for addressing the issues herein.

18 C.F.R. § 383.206(b)(7)

The CPUC submits that each of the contracts challenged herein must be abrogated. Each challenged contract is unjust and unreasonable. In addition to unreasonable pricing, the non-price terms and conditions of each contract is unjust and unreasonable, and warrants abrogation of the contract. Abrogation of the contracts should be implemented in an orderly fashion which will enable California to obtain such replacement contracts as are necessary at reasonable prices. In the alternative, FERC must reform the challenged contracts to provide for just and reasonable pricing, reduce the duration of the contracts, and strike from the contracts the specific non-price contract terms and conditions found to be unjust and unreasonable, including each of the provisions discussed herein.

18 C.F.R. § 383.206(b)(8)

In support of the facts in this Complaint, the CPUC has included Exhibits 1-39, listed in Appendix B to this Complaint.

18 C.F.R. § 383.206(b)(9)

The CPUC has not attempted to use any of FERC's alternative dispute resolution procedures, and does not believe that any such procedures could successfully resolve the Complaint.

18 C.F.R. § 383.206(b)(10)

A Form of Notice suitable for publication in the Federal Register is attached hereto as Exhibit 41 and on a 3½ diskette.

CONCLUSION

For the foregoing reasons, the CPUC respectfully requests that FERC grant the relief requested herein.

February __, 2002 Commission of the State of California

CERTIFICATE OF SERVICE

I hereby certify that I have this day caused the foregoing document to be served upon all known parties in this proceeding by mailing by first-class a copy (without Exhibits 1-34) properly addressed to each respondent listed on the attached appendix A.

Dated at San Francisco, California, this __th day of February, 2002.

Appendix A

List of Respondents

Allegheny Energy Supply Company, LLC

2 World Financial Center

South Tower - 36th Floor

New York, New York 10080

Attn: Contract Administration (Yair Yaish, Office of General Counsel)

Alliance Colton LLC

7950 South Lincoln Street

Littleton, Colorado 80122

Attn: President

With a copy to:

Donald W. Scholl

Colton Power L.P.

100 Clinton Square, Suite 403

126 North Salina Street

Syracuse, N.Y. 13202

CalPeak Power

7365 Mission Gorge Road

Building B, Suite C

San Diego, CA 92120

Attn: Charles H. Hinckley

Calpine Energy Services, L.P.

50 West San Fernando Street

San Jose, CA 95113

Attn: General Counsel

With a duplicate copy to:

700 Louisiana Avenue, Suite 2700

Houston, Texas 77002

Attn: Contract Administration

Clearwood Electric Company, LLC

c/o The Wood Family Trust

21859 Angeli Place

Grass Valley, CA 95949

Constellation Power Sources, Inc.

111 Market Place, Suite 500

Baltimore, MD 21202

Attn: Contract Administration

Coral Power, L.L.C.

909 Fannin, Suite 700

Houston, Texas 77010

Attn: Contract Administration

Dynegy

1000 Louisiana, Suite 5800

Houston, TX 77002-5050

Attn: Contract Administration

El Paso Merchant Energy, L.P.

P.O. Box 2511

Houston, Texas 77252-2511

Attn: Contract Services - Power

Fresno Cogeneration Partners, L.P.

650 Bercut Drive, Suite C

Sacramento, CA 95814

Attn: Controller

GWF Energy LLC

4300 Railroad Avenue

Pittsburg, CA 94565

Attn: Controller

High Desert Power Project, LLC

111 Market Place, Suite 500

Baltimore, MD 21202

Attn: Contract Administration

Mirant Americas Energy Marketing, L.P.

1155 Perimeter Center West, Suite 130

Atlanta, GA 30338

Morgan Stanley Capital Group, Inc.

1585 Broadway, 4th Floor

New York, NY 10036

Attn: Deborah Hart

Pacificorp Power Marketing, Inc.

830 NE Holladay, Suite 250

Portland, Oregon 97232

PG&E Energy Trading -Power, L.P.

7500 Old Georgetown Road

Bethesda, Maryland 20814

Attn: Senior Vice President

Primary Power International (agent for Imperial Valley Resource Recovery Company, L.L.C.)

168 East Center Street

Ithaca, Michigan 48847

Attn: Roger Silverthorn

With a copy to:

Ufer & Spaniola, P.C.

39577 Woodward Avenue

Suite 210

Bloomfield Hills, Michigan 48304

Attn: Anthony M. Spaniola, Esquire

Sempra Energy Resources

101 Ash Street

San Diego, CA 92101-3017

Soledad Energy, LLC

P.O. Box 5405

4414 South Gekeler Lane

Boise, Idaho 83705

Attn: Richard Heaton

Sunrise Power Company, LLC

1801 Von Karman Avenue, Suite 1700

Irvine, CA 92612-1046

Attn: Executive Director

Wellhead Power, L.L.C. - Gates & Panoche

650 Bercut Drive, Suite C

Sacramento, CA 95814

Attn: Controller

Williams Energy Marketing & Trading Company

One Williams Center

Tulsa, Oklahoma 74172

Attn: Contract Administration

Additional Interested Parties Served

California Department of Water Resources

Office of the Chief Counsel

1416 Ninth Street

Sacramento, California 95814

Erik Saltmarsh, Chief Counsel

Electricity Oversight Board

770 L Street, Suite 1250

Sacramento, CA 95814

Elisa Grammer

Law Offices of GKRSE

1500 K St, NW, Suite 330

Washington, DC 20005

Charles Robinson, General Counsel

California ISO

P.O. Box 639014

Folsom, California 95630-9014

Appendix B

Supporting Documents

Exhibit Number


Document Description

1

Master Power Purchase and Sale Agreement between CDWR and Allegheny Energy Supply Company, LLC ("Allegheny 1 Contract")

2

Confirmation Letter99 between CDWR and Allegheny Energy Supply, LLC ("Allegheny 2 Contract")

3

Master Power Purchase and Sale Agreement between CDWR and Alliance Colton LLC ("Alliance Contract")

4

Power Purchase Agreement between CDWR and CalPeak Power - Border LLC ("CalPeak-Border Contract")

5

Power Purchase Agreement between CDWR and CalPeak Power - El Cajon LLC ("CalPeak-El Cajon Contract")

6

Power Purchase Agreement between CDWR and CalPeak Power - Enterprise LLC ("CalPeak-Enterprise Contract")

7

Power Purchase Agreement between CDWR and CalPeak Power - Midway LLC ("CalPeak-Midway Contract")

8

Power Purchase Agreement between CDWR and CalPeak Power - Mission LLC ("CalPeak-Mission Contract")

9

Power Purchase Agreement between CDWR and CalPeak Power - Panoche LLC ("CalPeak-Panoche Contract")

10

Power Purchase Agreement between CDWR and CalPeak Power - Vaca-Dixon LLC ("CalPeak-Vaca-Dixon Contract")

11

Master Power Purchase and Sale Agreement between CDWR and Calpine Energy Services, L.P. ("Calpine 1 Contract")

12

Master Power Purchase and Sale Agreement between CDWR and Calpine Energy Services, L.P. ("Calpine 2 Contract")

13

Confirmation Letter100 between CDWR and Calpine Energy Services, L.P. ("Calpine 3 Contract")

14

Firm Energy Purchase Agreement between CDWR and Clearwood Electric Company, LLC ("Clearwood Contract")

15

Master Power Purchase and Sale Agreement between CDWR and Constellation Power Sources, Inc. ("Constellation Contract")

16

Master Power Purchase and Sale Agreement between CDWR and Coral Power L.L.C. ("Coral Contract")

17

Master Power Purchase and Sale Agreement between CDWR and Dynegy Power Marketing, Inc. ("Dynegy Contract")

18

Edison Electric Institute Master Power Purchase and Sale Agreement ("EEI Master Agreement")

19

Master Power Purchase and Sale Agreement between CDWR and El Paso Merchant Energy, L.P. ("El Paso Contract")

20

Master Power Purchase and Sale Agreement between CDWR and Fresno Cogeneration Partners, L.P. ("Fresno Contract")

21

Master Power Purchase and Sale Agreement between CDWR and GWF Energy LLC ("GWF Contract")

22

Master Power Purchase and Sale Agreement between CDWR and High Desert Power Project, L.L.C. ("High Desert Contract")

23

Firm Energy Purchase Agreement between CDWR and Imperial Valley Resource Recovery Company, L.L.C. ("Imperial Valley Contract")

24

Confirmation Agreement101 between CDWR and Mirant Americas Energy Marketing, LP ("Mirant Contract")

25

Master Power Purchase and Sale Agreement between CDWR and Morgan Stanley Capital Group, Inc. ("Morgan Stanley Contract")

26

Ten Year Power Purchase Agreement between CDWR and PacifiCorp Power Marketing, Inc. ("PacifiCorp Contract")

27

Master Power Purchase and Sale Agreement between CDWR and PG&E Energy Trading - Power, L.P. ("PGET Contract")

28

Energy Purchase Agreement between CDWR and Sempra Energy Resources ("Sempra Contract")

29

Standard Non-Firm Energy Purchase Agreement between CDWR and Soledad Energy, LLC ("Soledad Contract")

30

Master Power Purchase and Sale Agreement between CDWR and Sunrise Power Company, LLC ("Sunrise Contract")

31

Master Power Purchase and Sale Agreement between CDWR and Wellhead Power, L.L.C. for the Gates Transaction ("Wellhead-Gates Contract")

32

Master Power Purchase and Sale Agreement between CDWR and Wellhead Power, L.L.C. for the Panoche Transaction ("Wellhead-Panoche Contract")

33

Western Systems Power Pool Agreement ("WSPP Master Agreement")

34

Master Power Purchase and Sale Agreement between CDWR and Williams Energy Marketing & Trading Company ("Williams Contract")

35

Summary of ISO and PX prices, previously filed in Docket No. EL00-95 et al. as Attachment A to "Motion for Issuance of Refund Notice To Sellers, Request for Data, Request for Hearing, and Request for Expedited Action" filed by the California ISO and the California Electricity Oversight Board on March 1, 2001) in Docket No. EL00-95-000 et al.

36

Proclamation by the Governor of the State of California (January 17, 2001)

37

Summary of California Department of Water Resources Power Purchase Contract Efforts (April 18, 2001)

38

Affidavit of Raymond D. Hart (April 23, 2001)

39

California State Auditor, "California Energy Markets: Pressures Have Eased, But Cost Risks Remain"

40

Additional pages to Mirant Contract inadvertently omitted from Exhibit 24.

41

Notice of Filing of Complaint

EXHIBIT 35

EXHIBIT 36

EXHIBIT 37

EXHIBIT 38

EXHIBIT 39

EXHIBIT 40

EXHIBIT 41

BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

Public Utilities Commission of the State of California,

Complainant,

v.

Sellers of Long Term Contracts to the California Department of Water Resources,

Respondents.

Docket No. EL02-___-000

NOTICE OF COMPLAINT

(February __, 2002)

Take notice that on February __, 2002, the Public Utilities Commission of the State of California (Complainant) submitted a complaint against specified sellers of long term contracts to the California Department of Water Resources (Respondents) alleging that the prices, terms, and conditions of such contracts are unjust and unreasonable and, to the extent applicable, not in the public interest. Complainant alleges that Respondents obtained the prices, terms, and conditions in the contracts through the exercise of market power, in violation of the Federal Power Act, and that Respondents' actions are causing injury to the citizens and ratepayers of California on whose behalf the CPUC is statutorily entitled to act.

Copies of this filing were served upon Respondents and other interested parties.

Any person desiring to be heard or to protest this filing should file a motion to intervene or protest with the Federal Energy Regulatory Commission, 888 First Street, N.E., Washington, D.C. 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). All such motions or protests must be filed on or before _______________, 2001. Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding.

Any person wishing to become a party must file a motion to intervene. Answers to the complaint shall also be due on or before ___________, 2001. Copies of this filing are on file with the Commission and are available for public inspection. This filing may also be viewed on the web at http://www.ferc.gov using the "RIMS" link, select "Docket#" and follow the instructions (call 202-208-2222 for assistance). Comments, protests and interventions may be filed electronically via the Internet in lieu of paper. See, 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's web site under the "e-Filing" link.

Magalie Roman Salas

Secretary

84 The CPUC reserves the right to identify additional unjust and unreasonable non-price terms and conditions. Mitigation and termination issues are discussed above at pp. 25-27. 85 E.g., Sempra, § 10.21; Calpeak (all seven), § 10.25; Constellation, § 3.14; High Desert, § 3.14; Allegheny 1, § 3.7; PacifiCorp, § 16.15; Fresno, § 10.2(b); Wellhead-Gates and Wellhead-Panoche), § 10.2(b); Mirant Confirmation Agreement Exhibit A; Morgan Stanley, § 3.8; Williams, § 3.8; Alliance, § 3.8; Coral, § 10.2; PGET, § 3.7; and Sunrise, § 6.9. 86 California law (which virtually all contracts provide is to apply to any disputes under the contract) is to the same effect. Asdourian v. Araj,38 Cal. 3d 276, 291(1985) ("Generally a contract made in violation of a regulatory statute is void"); Homami v. Iranzadi, 211 Cal. App. 3d 1104, 1109-1110 (1989) ("The general principle is well established that a contract founded on an illegal consideration . . . is void"); Keene v. Harling, 61 Cal. 2d 318, 320-321 (1964) ("When the transaction is of such a nature that the good part of the consideration can be separated from that which is bad, the Courts will make the distinction, for the . . . law . . . [divides] according to common reason; and having made that void that is against law, lets the rest stand"). 87 January 29, 2002 testimony of FERC Chairman Pat Wood, III before the United States Senate Committee on Natural Resources, p. 13. 88 §5.1(d) of the EEI Master Agreement states that if a "Party becomes bankrupt" it is an "Event of Default" under the contract against the Party declaring bankruptcy. §5.1(e) states that "the failure of such Party to satisfy the creditworthiness/collateral requirements agreed to pursuant to Article Eight hereof" is an "Event of Default." Thee relevant creditworthiness provisions in Article Eight, §§8.1(b) and 8.2(b), impose identical, symmetrical credit assurance requirements on both parties to a power purchase arrangement, with §8.1(b) protecting sellers ("§8.1(b) Credit Assurances. If Party A has reasonable grounds to believe that Party B's creditworthiness or performance under this Agreement has become unsatisfactory, Party A will provide Party B with written notice requesting Performance Assurance determined by Party A in a commercially reasonable manner. Upon receipt of such notice Party B shall have three (3) Business Days to remedy the situation by providing such Performance Assurance to Party A. In the event that Party B fails to provide such Performance Assurance, or a guaranty or other credit assurance acceptable to Party A within three (3) Business Days of receipt of notice, then an Event of Default under Article Five will be deemed to have occurred and Party A will be entitled to the remedies set forth in Article Five of this Master Agreement."), and §8.2(b) protecting purchasers ("§8.2(b) Credit Assurances. If Party B has reasonable grounds to believe that Party A's creditworthiness or performance under this Agreement has become unsatisfactory, Party B will provide Party A with written notice requesting Performance Assurance determined by Party B in a commercially reasonable manner. Upon receipt of such notice Party A shall have three (3) Business Days to remedy the situation by providing such Performance Assurance to Party B. In the event that Party A fails to provide such Performance Assurance, or a guaranty or other credit assurance acceptable to Party B within three (3) Business Days of receipt of notice, then an Event of Default under Article Five will be deemed to have occurred and Party B will be entitled to the remedies set forth in Article Five of this Master Agreement.") §1.45 states that: "'Performance Assurance' means collateral in the form of either cash, Letter(s) of Credit, or other security acceptable to the Requesting Party." 89 §22.1(c) of the WSPP Agreement, Exhibit 33, declares the institution of bankruptcy proceedings by a party to be an "Event of Default" by such party, and §22.1(d) provides that "[t]he failure by the Defaulting Party to provide adequate assurances of its ability to perform all of its outstanding material obligations to the Non-Defaulting Party under the Agreement or Confirmation Agreement pursuant to Section 27 of this Agreement or substitute or modified provision in the Confirmation Agreement." § 27 provides that: "Should a Party's creditworthiness, financial responsibility, or performance viability become unsatisfactory to the other Party in such other Party's reasonably exercised discretion with regard to any transaction pursuant to this Agreement and any Confirmation Agreement (after the transaction is agreed to or begins), the dissatisfied Party (the "First Party") may require the other Party (the "Second Party") to provide, at the Second Party's option (but subject to the First Party's acceptance based upon reasonably exercised discretion), either (1) the posting of a Letter of Credit, (2) a cash prepayment, (3) the posting of other acceptable collateral or security by the Second Party, (4) a Guarantee Agreement executed by a creditworthy entity; or (5) some other mutually agreeable method of satisfying the First Party. The Second Party's obligations under this Section 27 shall be limited to a reasonable estimate of the damages to the First Party (consistent with Section 21.3 of this Agreement) if the Second Party were to fail to perform its obligations. Events which may trigger the First Party questioning the Second Party's creditworthiness, financial responsibility or performance viability include, but are not limited to, the following: 90 Mirant Confirmation Agreement, Exhibit A, §§1(a), 1(f). 91 Allegheny, Cover Sheet Article 8, and § 10.13. 92 Williams, Cover Sheet Article 8, and § 3.16. This termination right apparently expired on July 31, 2001 without Williams exercising it. 93 Constellation, Cover Sheet Article 8, and § 3.15; High Desert, Cover Sheet Article 8, and § 3.15; and Morgan Stanley, Cover Sheet Article 8, and § 10.13. 94 Calpine 2, §3.7. 95 Pacificorp, §8.2. 96 Sunrise, Cover Sheet Article 8 and § 8.2. DWR does possess a subordinated lien on the personal property and contracts of Sunrise, but such a lien is subordinate to security interest held by Lenders to Sunrise. § 10.19. 97 Fresno, Cover Sheet Article 8 and § 5.5(b), § 8. 98 See, e.g., Allegheny § 3.9: "No More Favorable Terms/Negative Pledge. Party B shall not provide in any power purchase agreement payable from the Trust Estate for (i) collateral or other security or credit support with respect thereto, (ii) a pledge or assignment of the Trust Estate for the payment thereof, or (iii) payment priority with respect thereto superior to that of Party A, without in each case offering such arrangements to Party A." See also Calpine 1, § 8.5; Calpine 2, §, 3.11 and § 3.14; Constellation, § 3.9; El Paso, § 3.10; High Desert, § 3.9; Morgan Stanley, § 3.10; Williams, § 3.10; Alliance, § 3.10; Coral, § 3.10, GWF, § 3.8; PGET, § 3.9, Sempra, § 10.20; Calpeak (all seven), § 12.23; Fresno, § 3.8; PacifiCorp, § 16.17; and Wellhead-Gates and Wellhead-Panoche, § 3.8. 99 Confirmation letter refers to the Master Power Purchase and Sale Agreement dated March 23, 2001 in Exhibit 1. 100 Confirmation letter refers to the Master Power Purchase and Sale Agreement dated February 26, 2001 in Exhibit 12. 101 Confirmation Agreement refers to the standard WSPP contract dated May 22, 2001.

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