ML041670630

Modesto Irrigation District'S Response to Debtor'S Objection to Claim

ML041670630
Person / Time
Site:	Diablo Canyon
Issue date:	06/07/2004
From:	Ray K Goldberg, Stinnett, Meyers & Davis, Modesto Irrigation District
To:	Office of Nuclear Reactor Regulation
References
01-30923
Download: ML041670630 (12)

Text

LAW OFFICES LAWRENCE GOLDBERG GOLDBERG, STINNETTr MEYERS & DAVIS TELEPHONE A PROFESSIONAL CORPORATION (415) 362-5045 TERRANCE L. STINNETT MERLE C. MEYERS 44 MONTGOMERY STREET, SUITE 2900 FACSIMILE DENNIS D. DAVIS DANIEL M. LINCHEY SAN FRANCISCO, CALIFORNIA 94104 (415) 362-2392 KATHERINE D. RAY MIRIAM KHATIBLOU KATHY L. QUON HAE)I HONG YOSHIE VALADEZ ANN E. SOTER krayggsmdlaw.com June 7, 2004 Re: Pacific Gas & Electric Company, Debtor, Case No. 01-30923 TO PARTIES WHO HAVE REQUESTED SPECIAL NOTICE:

You are being served herewith with a copy of Modesto Irrigation District's Response To Debtor's Objection To Claim (the "Response") in the above-referenced case. Due to the large number of parties who have requested special notice in the debtor's case and due to the voluminous exhibits which have been filed in support of the Response, copies of the following documents filed in support of the Response will be provided upon written request to the undersigned (email address: kray~gsmdlaw.com):

1. Declaration of Roger Vanhoy

2. Declaration of Christopher J. Mayer

3. Declaration of Scott T. Steffen.

Very truly yours, GOLDBERG, STINNETT, MEYERS & DAVIS A Professional Corporation By Katherine KDR:kdr 9678 Enclosure I

76030.doc

k I 1 MERLE C. MEYERS (STATE BAR NO. 66849) TABLE OF CONTENTS KATHERINE D. RAY (STATE BAR NO. 121002) 2 GOLDBERG, STINNETT, MEYERS & DAVIS I. r~taKROI JND .l A Professional Corporation 3 44 Montgomery Street, Suite 2900 II. RESPONSES TO PG&E'S OBJECTIONS ....................... 2..................

San Francisco, CA 94104 4 Telephone: (415) 362-5045 A. M sWholesale Electric Pow Sales er ............................................. 2 Facsimile (415) 362-2392 I. MID's Claim Already Reflects PG&E's Pre-petition Payment; SCOTT T. STEFFEN (STATE BAR NO. 078937) 6 JOEL S. MOSKOWITZ (STATE BAR NO. 048374) Therefore, MID's Claim Should Not Be Reduced .2 JOY A. WARREN (STATE BAR NO. 135844)

.7 MODESTO IRRIGATION DISTRICT 87

2. PG&E's Argument That Energy Delivered To PG&E Outside The 1231 1t Street Modesto, California 95354 "Deviation Band" Is "Lost" Misinterprets the IA, and Does Not Apply Telephone: (209) 526-7388

.9 Facsimile (209) 526-7383 to Sales of Energy In Any Case ................... 2 10 Attorneys for B. Sales from New Hogan Power Plant. . ........................ 4 MODESTO IRRIGATION DISTRICT 11 C MID's Antitrust Claim .. ........................ 4.

12 UNITED STATES BANKRUPTCY COURT D. Neeative CTC Claim ....................... 4 13 NORTHERN DISTRICT OF CALIFORNIA

1. AB 1890 Allows Departing Load Negative Competition Transition ...............................

14 SAN FRANCISCO DIVISION Charges (CTC) .......... .  ;  ;.. i;4 4;

15

2. Commission Has Approved, And PG&E Has Provided, CTC 16 IN RE: Case No. 01-30923 DM Credits/Refunds to Customers ............................................... 6 17 PACIFIC GAS & ELECTRIC COMPANY, a Chapter II Case California corporation, 3. PG&E And Its Bundled Customers Received An Overall Benefit 18 Date: June 21, 2004 Time: 1:30 p.m. From MID's Service to Departing Load Customers During The 19 Debtor, Place: 235 Pine Street, 22nd Floor San Francisco, CA Period In Which Negative CTC Accrued .............................................. 17 20 Federal I.D. No. 94 0742640.

4. PG&E's Reliance On The August 24, 2000, Letter From The 21 Commission's Energy Division Is Misplaced.8 ............................. :

22

5. PG&E's Past Practice Estops It From Arguing The Invalidity Of 23 Negative CTCs..................................9................. 9 24 MODESTO IRRIGATION DISTRICT'S

6. Public Policy Supports Departing Load Negative CTC ....................................... 10 RESPONSE TO DEBTOR'S OBJECTION TO CLAIM 25

7. MI Has Standing To Claim Negative CTC............................... 10 26

8. MID Is Entitled To $6,652,288 From PG&E For Unpaid Negative 27 CTC.  :  :  ; I 1 28

-ii-MID'S RESPONSE TO DEBTOR'S OBJECTION TO CLAIM MID'S RESPONSE TO DEBTOR'S OBJECnON TO CLAIM CaseNo.01 .30923 DM Case No. 01.30923 DM

9. PG&B's Claim For Damages Is Not Determinative Of MID's Claim 1 TABLE OF AUTHORITIES 2 To Negative CTCs;....................................... , 1I .2 Bads arian v. Graorn-, 31 Cal. 2d 744.(1948) .............................................. 12 3 E MID's Sate to the CAISO . ;11 3 Boll v.Walsh 7 Cal. 84,(1857) ....................  ; .,  ; ....12 4

F. PG&E is Not Entitled to Setoff of the State Court Action ........................................ ,.,.,; .12 Crest Ce Assn. v. Dieden, 54 Cal.2d 744 (1960) ................................................

4 9 S 1. PG&E's State Court Claims Are Without Merit .......................................... i. 14 s D u.uesne iieht Co. v, Barasch. 488 U.S. 299 (19881). , ......

6 2. PG&B Is Not Entitled To Unspecified Offsets................................. 15 6 *Fox v. C 15 F;2d 1507, (9th Cr. 1994). .. 13 7 mH.CONCLUSION ............ .......... , , 16 ,Q;ssman l~ioprson 146 Cal.Rptr. 741 (1978) ...............................12 8

8 a 5 ,, 86 D.R. 280 (Bkrtcy.,M.D. Fl ,........ .1988 13 9 In re Clark Retail Enterrises. IcJ. 3,0SB.R, 869 (Blrtcy,, E.DI111. 2004), ,... . 12

,10 In re E1virodyne kdustcs. Inc., 183.R. 8 12 (Bktrcy., N.P. Il-.1995) ....... 13 1.........................

11 In re Hardy. 97F.3d 1384 (I1 th Cir..,1996) ................................. 15 12 12 Inre Holm 931 F.2d 620 (9th Cir. 1991) ..........................

13,15 13 13 InreJoveEneineergiaLe jn., 92F.3d 1539(llthCir..1996) ... . ............................ 15 14 14 In reLumdell 223 F3d 1035 (9th Cir. 2000) . . ......................... 13.15 15 15 ,.nre Luz Interrnationa. Ltd.p , 219 B.R. 837(9th Cir. BAP 1998) .... ............................ 13 16 16 In re Marriaze of William 20,3 Cal.App. 909(Cal.App.5 1984) ....... ,........,.....,....,...,.

Dist. 12 17 17 In re PSA 277 B.R. 51 (Bkrtcy;.D., Del. 2002). ...............................

,,,.,.;.;.,.,.,,.,.,.,. 12

• 18 8 In re Tran-Aqtijqn ,Co 2002 WL 32341923 (Bank-.,

19 19 N.D. Cal. 2002) , ......... . .. ,.,.,..

_, .. 12 20 20 Kain v.lnipet P.,2 Jipmet GrOUD 114 S.Ct. 303, on remand 174 B.R. 148

'21 21 21

~ ~ D.

, BrtY,,

J M 4 s 9,1994).-

4.1 .......... ;... .. ,,....... ....................... ,,,.. }...;.., ................... 13 22 22 Raleihj . Den. oL 120U.S. Ct. 1951 (2000) ........................................ 13 23 Schenle Hated 21,Cal.App.3d 177 (1971 .... . . 9 24 24 i Maine Western. Inc .v, 14 Cal.4ti.557 (1996) .. ...................... 9.............9 25 25 td tate V. Norj; VU .5.03 U.S. 30 (1992) ....... ..................................4,15 26 26 West GasAsn. v. ArRources Bdard, 37 C4.3d 502 (1384) ...................................... 9 28 27 28

.iii- , iv-MiD'S RESPONSB TO DEBTOR'S OBJTiON TO CLAIM Cue No.01N30923 DM M'DS RSESPONSEBTC DEBTOR'S OBJECTIONTO CLAIM CasoNo. 01-30923 DM

11 U.S.C. § 106......... .......... . .  ; 14,15 1 Ia 2

IIU.S.C.§106(a)(5)........................4............. ................... ............ ............................. 2 BACKGROUND 3 .. 13 1I U.S.C. §553111111- 3 On April 6,2001, Pacific Gas and Electric Company ("PG&B") filed a voluntary petition for 4  ; . 12 I I U.S.C. § 558................... 4 relief uader Chapter ' I ofthic.BankruptcyCo-de.. OnSeptember:5, 2001, Modesto Irrigation District Cal. Code of Civ. Proc. § 399 . .................. . _ 12 ("MID"), a-California irrigation district timely filed its Proofof Claim ("MID's Claim"). MID's Claim 6 Cal. Code of Civ. Proc. § 431.70 ..................  ; 12 6 conts offive,disprete elements, as follows: (1) amounts unpaid and owing for the wholesale sales of

7. 12 Cal. Code of Civ; Proc. § 741. 7' electric power duri the period Mayl, 2000, hrough April 6, 2001 (the "Wholesale Electric Power 8 California Gov't Code § 815.6,.1 ...................... 15 s Sales Claimn'); (2) ciargesfor.powernsold by MID to PG&E at MD's New Hogan Power Plant; (3) 9.

Cal. Pub. Util. Code § 368, subd. (b)...................... ;.;.;.....,.,. 5,7,8 s antitrust damages b~ased or litigation filed by MID against PG&B (U.S. District Court, N.D.Cal. Case 10 10 Nn..998-3009 WMP) (th '"Antitrnst Claim"); (4).cpmpensati for "negative CTCs," as more particularly 11

set forth inMID's Claim, and described herein;. and (5)compensation for power sold by MID to the 12 12 [Califoraia In endent5ysaeJ Operator (the .'CAISO'.)on behalf of PG&E (the "CAISO Power Sale 13 13 ~Clairns . , . ;? -  ;

14 14 . Oprahout.Aprl,I, 2004, PQ&E filecdits Objectio s to MID's Claim (hereinafter, "PG&E's 1s 15 ObJectjons"!), and the hearing thereon wa ontiAued to June 21, 2004 by stipulation of the parties. By 16 16 its Objections; PG&E seeks entry of an order dismissing certain components of MID's Claim as well as 17 17 disallowance of MIl's Claim in its entirety,. including.those components which PG&E concedes are not la 18 ripeofor full adjudication, i.e., the Wholesale.Electric Power Sales Claim, the Antitrust Claim and 19 10 CAISO Power Sale Claims, PG&E's request for disallowance of MID's Claim in its entirety is based on 20 20 PG&E's alleged right-of setoff for claims against MID which (a)have been asserted against MID in 21 21 State Court and in CPUC proceedings. but which have been unsuccessful to date, and (b)have never 22 22. been asserted against MID in any~forun and are for unknown amounts based on a "variety of theories, 23

. V. X inqiuding violation of sta¶,ute,,negligence, intentional interference with economic relations, intentional 24 24 interference with prospective economic advantage,, inverse condemnation, and unjust enrichment.'

25 Despite IPG&E',s contertiQn in its Nqticethat its Objections "involve only matters of law that can be 25 26 26 determined in theiz ntirety at the initiathearing," both PG&E's Objections and MMD's Response thereto 27 27 amply demonstrate thathpre are significant material factual disputes to be resolved in determining the 26 28 validity andamount,ofMM's Claim. Cqisequ ntly, MID submits that the initial hearing on PG&E's

\, " - ' "

F ._

MID'S RESPONSE TO DEBTOR'S OBIECTEON TO CLAIM MID'S RESPONSE TO DEBTOR'S OBJECTION TO CLAIM Cast No.01-30923 DM Case No. 01.30923 DM

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1 Objections should be treated as a status conference, in accordance with Local Bankruptcy Rule 3007-i, 1 against that which is actually imported, measured during half-hourly increments. Under the IA, MID

2. so that the Court may address appropriate procedures for resolution. of MID's Claim arnd PG&B's .2 must remain witkr 5 megawatts (MW) of the amount it schedules. If MID's actual power imports 3 Objections, including conversion of this contested matter to an adversary proceeding. In the event the exceed its scheduled imports by more than 5 MW, it must pay a penalty to PG&B for all power beyond 4 4 the 5 MW "deviation band." If the amount of power MID ex orts is exceeds its scheduled exports by Court intends to receive evidence at the initial hearing and to rule on th rmerits, MID respectfilly,.,

requests that the PG&E's Objectons te overriledfor each of the foUowipn reasons: more-than 5 MIN, then that power above the 5 MW "deviation band" is deemed to be delivered to PG&

6, 6 free of eharge. The latter generally occurs when MID either purchases or generates more power than it

.is 7i RESPONSESTTOP(Q&E'S OBJECTIO1I(S. needs to serve its customers. ,

a I' ft.I -JJ I VTM UI--- - f 4 L ~ n - - "O-I-. -. 5 PG&E's.Objection contends that whenMID sot'poo*eI to Pd&E, MID effectively exported 9 9 more than it scheduled, making all excess power above the 5 MW deviation band free to PG&E. There MID has asserted a claim in the amount of $1,894,818 for wholesale eectric power that MID

10. are several obvious problems with PG&E's position, 10 sold to PG&E during the periods May 1,2000, through April 6,2001, inclusive. PG&E's Objection 11 11 First, it presumes that any sale to PG&E was transacted under the IA. However, as the asserts that: (a) it already paidMD the sum of$1,431,424 forpreuctition ne~rgysales, and thatMID's 12 Declaration of Roger VanHoy makes clear, the sales at issue here were transacted pursuant to the FERC 12: claim must be reduced by that amount; (b) MID is not entitled to payment for any amount of energy 13 132 approved Westem Systems Power Pool Agreement (the "WSPP Agreement"). That the parties agreed delivered to PG&E above the "deviation band" established in the Interconnection Agreement (the "IA")

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14 between MID and PG&E; and (c) MID's claim should be limited to the actual amount paid by tle that power sales could take place independent of the IA idbeyond dispute. The IAspecifically provides 15 1 ' ohftransactions such as that addressed in MID's Claim: Section 6.3 of the IA provides for CAISO to PG&E. None of PG&E's assertions has merit, and its objections should be overruled 3

I6 1. MID's Claim Already Reflects PG&E's Pre-pet#l!on Payment Therefore, MID's 'Coordinatin Services.' In relevant part, that section provides::

17 Claim Sbould Not Be Reduced. 17' At anytime duning this Agreement, the Parties may choose to negotiate MI concurs that PG&E paid to MID the sum of $1,431,424 for prepetition ehergy sales. 18; gowcs Si.s ortinission'services as Coordiuiation Seivices,'as~ iolows:

19 However, as the Declaration of Roger VanHoy states, MID credited that amount to PG&E's bill, and 19 6.3.1 The price for each Coordination.Service shall be negotiated and established within a 20 alreadyreduced the amount due and owing from PG&E to MI) by that amount. MID's claim isthe 20 ceiling, the formula for determining which has been filed with FERC in advance.

21 21 outstanding balance after receipt of that payment. See Declaration of Roger VanHoy filed herewith, Thus, MID and PG& contemDlated and agreed that hey~cquld enter into power purchases and 2Z 22 p. 2:17-24, and Exhibit "A" thereto. Thus, contrary to PG&E's assertion, MID's claimashould not be sales, exclusive; fthe 'deviation band" constraintsupon terms and conditions pertinent to each such 23 23 reduced. transaction. PG&E's argument that M:ID isnot entitled to payment beckise the sale could not have 24 24

2. PG&E's Argument That Energy Delivered To PG&E Outside The "Deviation taken place under the IA is readiiy disposed of-25 Band" Is OLost" Misinterprets the IA, and Does Not Apply to Sales of Energy In 25 Any Case. If PG&E meallybelieved this argument is correct, then each time MID delivered that power to 26 26 PG&E, PG&E should haie accounted for the power wnL'is the "deviation band. This is because the IA 27 PG&E asserts that MID misinterprets the parties' FERC-approved IA in calculating the amount 27 requires that if excess power is delivered within the bandwith (+/- 5MW deviation from the scheduled 28 of money owed to MID. PG&E's Objection, ¶30, PG&E's argument is apparently based on the 28 amount) such.imbaltnce is to be repaid by like amounts ofpower in the next half-hour, or as soon provisions of the IA that require MID to balance the amount odpower it schedules to be imported

-2.. .3-MID'S RESPONSE TO DEflTOR'S oBJECrION TO CLAIM roped~ Ai.,%~nn m Cise o.a01.30923 DM

j) 1: thereafter as is possible. IA, Section 4.6.1. However, PG&E did not do so, The reason, of course, is related costs were then to be recovered on an equal basis from all customers, whether they remained as 2:

2 that PG&E understood that thse transactions were traditional purchase arrangements, under which it 12 "bundled" customers, elected direct access or departed for self-generation or aiternative utility service.

was to pay for all thepower, inciuding that within the "Deviation Band." Declaration of Roger VanHoy

3. Section 368 isubdivision (b)- thus states in relevant p art.

. The cost recoveryrplan shall provide for identification and 3:25-5:26. separation of individual rate components such as charges for, 5

3 PG&E's objection to MID's claim with respect to energy sales should be overruled. 10 -energy, trfanshiission diributioh public benefit programs and recovery of uneconomic costs. The separation of rate 6

B. Sales from New Hogan Power tiant. , comiponents required by this subdivision shall be used to 17 MID's Claim sought $76,800 for power MID sold to PG&E from MID's New Hogan Power 7 ensure'that custornerspf the electrical corporation Gino become eligible to purchase electricity. from suppliers other than the 8

Plant. Since that claim was filed, MID has learned that Calaveras County Water District filed a .eictrical cdrpoi A ay tesah unbundled component charges,

-4 91 other tfan e-ergy, that a bundled service cisten~er pays. No cost 14 duplicative claim. MID hereby withdraws this portion of its Claim. shifting among customer classes, rate schedules, contract, or tariff I5 MID's Antitrust ClaIM.

10 options shall result from the-separation required by this subdivision.

10 C.

1116 ii MID brought suit in the United States District Court, Northern District of California (Case No. (Cal. Pub. Litil, Code 3d8, 6 subd. (b), emphasis added.'

12 12 98-3009 MHP), alleging, in general terms, that PG&E had engaged in anti-competitive conduct. On Llstiosilcg CTe; theCgllferfiaPubiic Utilities Comni.ssion (the "Comnission") provided 13 23 April 21,'2004, the Couiitfiled its Amended Memo randm and Ordef granting summary judgment in clear policy guidance - CTCs were to be collected in a "manner that is competitively neutral, is fair to 14' ,favor of PG& on of PG& on the basis that MID had not

? suffered antitrust damage.ID

,;ef

i t; ill of has :1e XaAL..i, of various claim sdfratepayr5 anid doesi-ot increase rates." Commission Decision (D.) 95-12-063 as ii appeal, and. plans to pursue that appeal, If the matter is remanded to the District Court, MI will pursue nodifled'y'D: 960'1-009 [Paited of 72,Paii V; The goal was not necessarily to guarantee full transition 16 its antitrust claim vigorously. The ruling that PG&E cites is.not yet final,, and this Cpurt Should mnake no cost recovery by the electric utilities but to' design a rate structure that would in whole provide the 27 17 separate ruling on PG&E's objection. uuilities "With the opportutnitylo earn a fair return on their investment." I. at Part V, Section C, citing 1a A. Negative CTC CaIm. 180 Wouesne Light Co: v.Bar*c. 4 1Xt. 299 (1 988).

24-19 1, AB 1890 All1ws Departing Load Negative Competition Transition Charges The Commission determined that the CTCs were to be calculated on a residual basis by 20 2250 (CTC). l -;:: I A' 27 subtricting thy iower xchange ("Pi ) energy cost from the generation portion of the bundled rate 21 PG&E deliberately plislo~nstrues M's claim for negativq CYCs. Competition transition 22 22 charges, "CTCs," are a creation of the California Legislature. They were contrived as part of AB 1890 '-PG&E's tarifF allowing colltcti6n of CTCs, as uporoved by the Commission, contains a clear statemen 23' about CTC equality as set forth in Secton 368(b). PG&B Electric Preliminary Statement Part BB (Cal..

23 to permit PG&E and the other electrio utiUties to recover the uneconomic costs of generation resources P.U.C. Sheet No. 19907-t, filed April 1, 2003) states: I 24 24 "stranded" as a result of the electric market restructure. California Public Utilities Code section 367 C[ C Paymnent Amounts: Bundled Service, Direct Access, and Virtual Direct Access 25 25 provides: "The commission shall1detifd and determine those costs and categori*socosts for Customers-Will bebilled for and are responsible for maring ClS aid other 26 nonbypassable charge payments to PG&E as part of their regular monthly bills for utility 26 generation-rqlated assets and obligations. . thatwere being collected in A ision-aproyed rates on service, as pecifitedin accordance with thiebilling procedures specified in the Rate 27 Schedule under Which service istao. Departing Load custmners are resporisible for 27 December Q., I-9 and th t may become uneceonoic as aresult of a.coaspetitve genoeration market in the same CTC and other nonbypassable charge payment amounts as any similarly

• 28 2a that these costs may npt be recoverable in marketprices in a comptiti e market. . .'!,Jhesp generation situated Bundled Serzvce4Direct Access, or Virtual Direct Access Customer.

(Emphasis added.)

w MID'S RESPONSE TO DEnTOR'S On WION TO CLAIM MD'S RESPONSE TO DB3TOR'S OnJECrION TO CLAIM CascNo. 01-30923D bT n I.iwn7 nmTV

I  ;).

(determined by subtracting the PX energy cost from the total bundled rate). D.97-08-056, Part VIII,. credits/refunds. PG&E has settled some of these claims for high-fractions of the amounts claimed. This Section B.I. PG&E adopted this calculation in its CIC tariffs Eie'mpt and B-Depart. Thus, the 2 Court has approved these settlemients. For example;'on July 14, 2003, this Court approved a stipulation i

uneconomic portion of PG&EB generation resources that would be ircluded in the CTC was determined 3 and release related to Claim No. 12010 by the Association ofBay Area Governmeents Power (ABAG by subtracting the market benchrnwrk (thePYX energy price)-from thenet costof the generation 4 Power). -The Claim 'for S21,355,463:88 was allowed as anunsecured non-priority claim in the amount ol resources 2 . By the very nature opQttocalcuiation presented, the potential ncgaoive result eiists.

rfoid 5 $7,oo00,000.00, plus'accrued interest from December 1, 2000; at asi annual rate of 4.19 percent.

Thus, the Commission provided for the recognition of negative CTCs. 6 .The reasons for allowing bill credits to direct access Encrgy' Service Providers such as ABAG

2. Commission Has Approved, And PG&EHas Provided, CTC Credits/Refunds to 7 Power apply equally to allowing negative CTCs tor entities suh as'MMI, who vere responsible for Customers. 8 paying the CTCs of certain departing load customers during the iame time period. It removes inherent The validity of a utility granting customer refunds/credits when the market costs are higher thin' 9 biases against competitionrand custonmef choice, the ultimate goal of the Legislature in enacting AB.

the generation asset costs was recogrunzed by the Cormumission, at the request of PG&E afid the other 10 1890. Cal;:Pub. Util. Code § 330. To disregard negativeCTCs for-departing load customers in the face utilities, in the direct access context. In Decision 99-06-058 the Commission approved a settlement 11 of such allowancez for irect access ctustomers would also violate the prohibition of Califomia Public among the utilities and direct access customers whereby tariffprovisioris prohibitirig negative direct 12 Utilities Code section 308 against discrimination and cost shifting among customer classes.

access bills (or credits to direct access customets9j was eliminated. PG&bEagreed to provide bill credits .13 3. PC&E Mnd Its Bundled Customers Received An Overall Benefit From MID's to direct access customers v.here the PX credit exceeded the total bill. D.99-06-058, p. 16. The 14 Service to Departing Load Customers During The Period In Which Negative CTC Accrued.

mandated revisions were subsequently made to PG&B's relevant tariffs. Language was inserted 15 There is no basis for treating departing load customers differently from direct access customers clarifying that "the customerwill receive a credit for the Power Bxchange componet." PG&E Advice 16 with regard to negative CTC payments. The reasons justifying payment of direct access claims, as Letter 1883-E. In November 1999, and during the period July through October 2000, as well as certain 17 re6ognized by the Commission and this Cog apply equally to departing load. PG&E's suggestion that months thereafter, PG&E in fact refunded such bill predits to its customers. See PG&E's Petition for .18 any recofnition of negative CTQs would "compound" its losses - causing it to incur the stranded costs Modification of Decision 97-10-087 dated November 9, 200O,4 stating that "Tor te past four months 19.

and pay out the negative CTCs (Objection, p. 9, lines 8-9) must be disregarded, Stranded costs are only direct access customers in California have been receiving negative utility charges." 20 those uneconomic costs that cannot be collected from customers in a competitive market. Contrary to This Court has also approved payment of customer claims for such credits/refunds. Various 21 what the Legislature envisioned when it enacted AB 1890, PG&B aid not divest its generation assets, direct access customers have submitted large claims against PG&E's estate for CTC related iz.

but rather retained ownership and use of many of its resources, Where the costs associated with such resources is lower than the market cost of power, generation costs are not uneconomic. The utility The Commission recognized that "it would be obviously unfair if, as nart of our restructuring, we 24 were to require customers to pick up the cotts of high-cost generation without at the salre time incurs no loss from "stranded" costs for that period. Just the opposite occurs. The utility and its 2s accounting for the benefits of low-cost generation. . . bundled customers benefit from the use ofthe less expensive generation resources instead of market 3The eliminated provision was referred to as the "zero minimum bill" provision. For direct access 26 customers the CTC was reflected in their bilis as "the PX credit." (For purposes of this 6ziorandum, purchases. Negative CTCs are a mechanism to account for this benefit.

the terms "PX credit' and "Negative CTC" have common meaning.) . 27 Furthermore, PG&E ignores the value to it and.its bundled customers of MI) providing electric

,On Dernember 21, 2000, PG&E filed an Amended Petition for Modification stating that it was 28 suspending its direct access credit refund policy. The matter wnadisctiised in proceedings before the generation to departing load customers during the 2000-2001 time period. MID service to such Commission.

CLAIM MID'S RESPONSE TO DEBTOIt'S OBJECTION TO P.BSPONSSTO MID'SRESPONSE MID's TO DEBTOR'S OBJECTION To DEBTOR'S OBJECrION CLAIM TO CLAIM r... w Amm).i T)m . CwsNo. 01-30923 DM I

customers saved PG&E generation-related costs that exceed the value of MmD's negative CTC claim.

would lead to discriminatory rate treatment for departing load customers in violation of AB 1890, 11 MID provided electic service, including power supply, to appr6ximately 50 Megawatts of former 2 Commission policy, and PQ&E's Commission approved tariff.

PG&E electric customer load during this period, FG&B saved power supply purchase costs because 3 Second, the August 24, 2000, Energy Division letter,, by PG&E's own testimony, resulted from a PG&E did not have to purchase enenegy at a loss for this customer load during periods when PG&E's .4 meeting between PG&E and members of the Commission's Energy Division No notice of the meeting power supply purchase rates were substantially above PG&E's frozen retail rates. PG&E cost savings a was provided to other interested parties. No opportunity was provided to P

such interested parties to createdby MID's actions are presently held by PG&E in the form of unpaid negative CTC credits. *E' participate in the process or provide support for positions contrary to PG&E's. Such interpretation of Frorn aPG&E power supply perspective, MID's situation is identical to the situation Where the power 7 legislative action and implementation ofPG&BEtariff impacts can only be made through properly

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supply for these customers came from a direct access Energy Service Provider. There is noequitable 6 noticed Comnmission proceedings providing opportunity for participation by potentially affected parties.

justification for PG&E to object to MID's negative CTC claim while providing full or substan ially full 9 A fundamental premise of administrative rulemaking is that notice of same provide "'a reasonable payment of negative CTC PX credits to direct access Energy Service Providers. .10 opportunity for those subjectto such rules to present views and arguments in advafice of their The Commission's stated policy guidance on CTCs, its determination of C'C calculations, and 11 }prorrulgation."' Schenlev Affiliated Brands Cor. v, Kirbv 21 Cal.App.3d 177, 192 (1971); see. also its approval of PG&E's CTC rate structures, all support the recognition of negative CTCs as.well as LIZ

.. '.  ;*esternOil & Gas Assn v. Air Resources Board. 37 Cal.3d 502l 526 (1984). Had this letter been the positive CTCs. Negative CTCs prevent the cost shifting between various customer glasses prohibited by *13 official determination of the Commission on this question, it was invalidly adopted as an "underground California Public Utilities Code section 368, subdivision (by and prevents the utilities from obtaining a 14 regulation." Tidewater Marine WesternL Inc. v. radshkw 14 Cal.4th 557, 568-577 (1996).

disproportionate return on their generation assets.

- . - r

. l The August 24, 2000 Energy Division letter does not support a denial of MID's negative CTC

4. PG&E's Reliance On The August 24, 2000, Letter From The'Commission's Energy claim.

Division Is Misplaced. '

17I 5. G&E's Pdaz Practice Estops it Fom Arguing The Invalidity Of PG&E relies solely on a single letter from the Commission's onergyDivision to support its Negatlve; CTCs.. ,

Aegition that negative C Viar'e, unlavgi:lt i'G&' provides no reference'to any law hathastin-g 19 PG&E's.policy'and actual practicb of providing bill credits and refinds to direct access contravened. This is because, asset forth above, it cannot do so. Negative CtCs are well.within the 20 custorners is set forth above. PG&E aiso has a past practice of recognizing negative CTCs. In its mandates of AB 1890 and the Commission's policy dtermiunations regaiding the implementation of 21 calculations of annual net positive CTCs due to PG&E and attributable to MID's customers during such legislation. Payment of negative CTCs is also consistent with PG&E's electric tariffs for departing 22: calendar year 1999 (before the onset of the 2000-2001 Calffobiia Liergy Crisis), PG&E credited MID load customers. ;3

23. thythe value ofnegative CTCs that PG&E determined to exist in the Mnonth of November 1999.

- ;"' f - ' '  ;/

First, a letter from a Commission staff member, even an Energy Division Manager, does not 24 Declaration of CbistopherJ. Mayer, 6:8-r'i. Suchecourse of dealinigisint contrary to any law, have the force and effectof a Cork .onDecision. Nor does it hav.pny precedential ya.pI regarding 2S ,¢ommissiosi decision, ot PG&E Utariffprovision. PG&E's actions at the'ine the negative CTCs were the legality of negative CTCs ,under AB 1890. The particular letter at issueod,4 ates appsitipn that 26 occur-ing is stroug evidence of its coritemporaneous understanding of its obligations to departing load would, if interpreted as suggested by PG&E, be contrary to established ,Co.'mission decisions 27 custcmers, See, e.g., Crestview Cerietarv Assn. v. Dieden, 54 Cal.2d '744, 753-4 (1960). PG&E should permitting credits or refunds for direct access customers. D.99-06-58, Enforcerient.of such letter 28 no, now be allowed to argue that negative CTCs cannbt be recognized.

!'.  : ~~ -  !  ::. . . MID'S RESPONSE TO DEETOR'S OBJECrION TO CLAIM Mm's RSsPONse TO MM'S PESPONSE OBjECTION TO DEBTOR'S OBJECrION TO DEBTOR'S TO CLAIM CLAIM

.. .. ..... .. I IW kSiOMB TO DMMR'S OBJWnON TO CLAIM

6.' Public Policy Supports Departing Load Negative CTC. 'setving reversal of its previous position cannot be supported. MID has standing to claim the negative 2

As set forth above, publiecpolicy strongly favors conpetition, and choice among electric'eaergy 2 CTCs related to'the identified customer loads.

.3 providers. Imposition of CTC charges for departing toad without conmmnsurate nega'dve CTC credits is 8. MI is Entitled To $6,652,288 From PG&E For Unpaid Negative

, ' CT.C. -. ,'.-' '

4 anti-competitive., PG&E w1oull expenence a windfall, while departinag loadbots thiacost. .Whenthe 4

.5 mnarket price' exceeds PG&' portfoio costs, stranoded coit,s arm by definition 5 'PG&3'iiotes that, if any negative CTCs are allowed, MID's claim must be reviewed to ensure its 10 accuracy. Mn) has undertaken such review. Duc to several events occurring after MID submitted its

', 6 eltinated, In addition, PG&E experiences' real dollar savings by not having to piurchase Ower to serve 6 the extra load that has departed to other service providers such as MID. Such $avings ar.:not capped, 7 claiun, most'significantly the Commission's issuance of Dccision 04-01-026 setting the end of the rate

..7 Negative CTCs provide the balancenecessary to sustain departing load competition. 135 cotrol period as of Janury 18,2001, MEDhas madeanuinberofadjustments to its claim. These

.9.

7. MMID Has Statiding To Claim Negative CTC. a4junstmens arie described in detal initho Declaration of Christopher J. Mayer filed and served herewith, 10

,,PGB also attemnpts to disputeMID's '-standing'toclaimnegative CTCr. PG&BSinterprets 19 MID's nekative CTC claim should be revised from $10,104,226.00 to $6,652,288.00.

11 MID's contractual obligations to its customers, concluding that because MID's agreements with its 11 9. PG&E's Claim For Damages Is Not Determinative Of MID's C,,: mi'TcNegativeC"S.'

1l cstomers only explicitly address MID's assumnption of responsibility for CTCg owed'to PO&B, MID 12 13 4annot claim rights to negative CTCs,, PG&E points to no contractual language denyiringMlD the- 12 i PG&E alleges that thc negative CTCs MID seeks would be due, if at all, to customers MID 14..

zegative CTCs, Contracts must be'tinterpreted as to give effect to the mutu" intention oftthe paittins at 14 served in violation of California law. It is worth noting that PG&E did not refuse to bill or collect CTCs 15 it existed at the time of cortracting." Cal. Civ. Code § 1636;: The parties to the ag eemrnhts refefeiced 215* on such basis. Where PG&B recognized the obligation related to a customer load, it must likewise 16 5 hy PG&B, of which PG&E is not one, do not dispute the inrent of those agrc~irents. The contra'tiual 16 equitably recognize any benefit that may core due to such customer klad. PG&E's allegations are 17 eictin.e 'P'idid wrong, but should in any case be disregarded, . .. -

7pig ncut of CTC responsibility to MID was atl-encompassing - the'CT'ditirin 17 18 covered by the contracts, whether positive or niegativi, being to D -*c ' - E. MID's Sale to the CAISO, . -

19 Furthernore, PG&E itself~as in the past recognized MID's sight to receive payments connected 81  ; hlCAIEO p wer sale claim should be allowed, subject to offsrt, if any.

'20 with the CTC cbligations. Duiiing ti e1997-1998 period imnediately preceding the period of MID 's 20 'a Q'section statos,: ".:. [a]lthough this portion of the Claim is disputed by reason of the negative CTC claim, PG&E'acfto W a $1,823,995 payment fron MMID for net CTCs due from MID's ongoing FF.RC p-oceeings, this'Obje tion Will not addresiDobtor's'reponses to this portion of the 21 '21 22 customers. Subsequent decisions of the Commission reduced the rates used to calculate the CTCs 22' Claim .. :' PG&E's Objection, at 5:24-26. Likewise, PG&E'also states' .".. this Objection will not 23 rcsulting in a $456,586 crcdit; PG&E sought andreceived approval of the Commission pursuant to its 23 address the PG&E's sesponses to this portion of the Claim." PG&B's Objection, it 13:5-6. Thus, Advice Letter 1964-E to pay this gredit directly to MID and not toMID's customers. PG&E ultimately 24 24 subject only tb any reduction in the amount of MID's claim that may result from the ongoing Mitigated i'5 did pay this amount directly to MID. Declaration of Christopher J. Mayes, 5:26-6:7. PG&E's self- 25 Market Clearing Price proceeding now pending before FERC, the portion of MID's Claim relating to the 26' 26 CAISO power sales should be allowed.

27 27 28 MID assumed CTC responsibility on behalf of several departing load customers. The negative CTCs 28 claimed by MID areattributablein part toxach of those custoiers. No customcr has protestedMID's claim or filed any claim of its own for the negative C 'Cs.

.  ;: - ' - ~ '  :' '

MID'S REsPONSE TO DEBTOR'S OBJECTION TO CLM MID'S RESPONSE TO DEBTOR'S OBJECTION TO CLAIM Cue No. 01.30923 DM

To F. PG&E Is Not Entitled to Setoff of the State Court Action. In the instant case, PG&E objects to MlD's Claim based on an alleged right of setoff, but fails to 2

PG&B claims that it isentitled to set off against MID's claims amounts PG&E claims are carry its burden of proof on its objection.. The law is well-established with respect to the burden of proof

.3 owed by MID to PG&E. In particular, PG&E identifies the following: (a) damages PG&E seeks in an 3 on claims and objections to claims. A proofof claim which sets forth sufficient facts to support the

'4 action filed by PG&E against MID in Stanislaus County Superior Court (the "State Court Action"); 7. claim is prima facie evidence of its validity and amount in accordance with Federal Rule of Bankruptcy

'5 (b) amounts sought by PG&E in various California Public Utilities Commission dockets; and (c)other 12 Procedure 3001(f) and will be deemed allowed absent a timely objection. In re Holm 931 F.2d 620, 623 unspecified claims. Section 558 of the Bankruptcy Code provides that the estate shall have the benefit 6 (9" Cir. 1991). The'burden of going forward then shifts to the objecting party to produce sufficient 7 of any defense available to the debtor as against any entity other than the estate. Although the defense 17 evidence to 'negate the pnrma facie validityof the filed claim. Rarii h v. IlI. Dept. of Revenue, 120 U.S.

of setoff isnot specifically listed, courts have held that Section 558 preserves any right of setoff the C:. 1951 (2000). Thits;iin 6bjfecting to a claim, the debtor must establish sufficient, credible facts to

., debtor may have had under state law. In re Clark Retail Enterorises, Inc., 308 8.R 869, 896 (Bkrtcy,, rebut the proufof claim, and the trial court is not requireti' befieve the debtoxiand shift the burden to E.D. Ill. 2004); In re Tran-Action Cdmmercial Investors. Ltd., 2002 WL 32341923 (Bankr., ND, Cal. 10 the creditor. .Inre Lundell. 223 F.3d 1035 (9:' Cir. 2000)1 Thedebtor's burden is significant, as an 2:0 2002), In rePsA, 277 B.R. 51, 54 (Bkrtcy, D. Del. 2002). 11 objection does not deprive a claim of itspresurptive validityounless it is supported by substantial 1i1 12 Under California law, the riglit of setoff was formteily set forth in the statute providing for 12 evidence. Kahnv. Juniper Deelogment GrouI 114 S.Ct. 303,onremand 174B.R. 148 (Bkrtcy.D.

13 counterclaims (forner Cal. Code of Civ Proc. §438), Although counterclaims are now abolished under l'8 Mass. 1994). PG&E's burden ofproof ith respect to its claim objection is also consistent with its i4l California law, the right of setoff remains the!subjectdof specific statuiesj includiiigtat ION of Civ.

19 burden in asserting a right of setoff as an affirmative defens. o, 4n hW , 86 B.R. 280, 282 is' Proc. §§ 431,706, 741 (regardinggood~faith improverofttd), aof'tns (Bkrtcy. M.D. Fl. 1988) (setoff constitutes an affirmative dxefense,)q v,. Citicorn Credit Services. Inc.,

15

1. ction). Independent of statutory setoff; California law, recognizes the doctrine-of cuitabli -ff- 15 F.2d 1507; 1514 (94 Cir. 1994) (the party asserting an affirmative defense has the burden of proof of 16 17' Ipursuant to which a judgment debtor may-seek setoffof a claim against judgment creditor. See, p Lin 17 the defense).

re Marriage of William, .203 Cal.Rptr. 909, 914 (Cal.App.5 Dist. 1984); Grosstnan.vi'Lioson, 146 Based on the evidence in the record, PG&E has failed to carry its burden with respect to its 18 Ca1.Rptt. 741 (1978). When aliabilityis contingent, and notfited,-it is.uiavailablais asetoffwithout 2.4 setoff defense. MID concurs that PG&E may offset damages awarded to PG&E in the State Court 19 19 the consent of the plaintiff. Bell v.Walsh. 7 Cal. 84 (1857). Further, a claim urged as a setoff, must be Action, or as a result of the CPUC Dockets, to the extent that PG&E actually can prove that it is entitled 20 20 mature at the time equitable setoffissought. Bazdasarian v. Gragnot' 31 Cal. 2d 744 (I948). o'such damages and obtains such a damage award. However, no such damages have been awarled to

22. 21 16 PG&E and, as discussed in detail below, PG&B's claims in the State Court Action and before the CPUC 22 22.

Dockets are without mnerit. Tus, to the extent PG&E seeks disallowance of MID's Claim based on suc 23

'6.Cal. Code of Cv. Proc. §431.70 states:

Where cross-demands for money have existed between persons at anypoint in tinMe when neither setoff rights, PG&E's Objection is premature at best an4 should be overruled to the extent PG&E seeks 24 demand was barred by the statute oflimitations, and an action is therafter co nericed by'ond'such 24' person, the other person may assert inthe answer the defense of payment in that-the two.d mands are an immediate decision on the 'merits. See eg., In re Luz International. Ltd., 219'B.R. 837, 843 (9th Cir.

25 Ctmpenaated so far as they eual each other' hetwithstanding that enpende action asserting the 25 person's claim would at the tirne f efillg the.answer be barred by the statute of lUiitations If the cross- BAP. 1998) (reversible error for bankruptcy court to make a final adjudication of setoff in complex

26. dianid Would otherwise be barred the statute of limiiationi,.the relief accorded under this section

• 26 shall not exceed the value oft'.e relief.gante4 in the otherparty. Thedefensmaprovidedby this sectioni financial transaction in the context of motion for relief from stay); In re Envirodvne Industies. Inc., 183

• 27 not available if the cross-demand is barred for failure to assert it in a prior action under Section 426.30.

• 27

[Neitherperson can be deprived of the benefits of this section by the ass.gnment or death of the other. B.R. 812, 826 (Bktrcy,, N.D. 111.1i995) (determniniation of whether setoff under Section'553 of the 28 For the purposes ofthis section, amoney judgment is a "demand for money" and, as applied to a money 28 B karuptcy Code would be premature pending determination of merits of counterclaim on which setoff judgment, the demand is barred bythe statute of limitations Zhen enforcement of the judgment isbarred under Chapter 3 (commencing with Section 683.010) of Division I of Title 9.

MID'S R5SPONSE TO DEBTOR'S OBJECrION TO CLAIM MID'S RE5PONSE TO DEBTOR'S OBJECMON TO CLAIM Cue No, 01-30923 DM Cae No. 01.30923 DM

.- ~ I -

I I ; i;,V.

1 was based);. With regard to PG&B's claim for an offset from "other affirmative claimrs" (see PG&E 1 Thus, PG&E. "must demonstrate that a source outside of section 106 entitles [it] to the relief 2 Objection, at 14:16), PG&E's contentions are notidentified with any particularly nor supported by any 2 sought." In re Hardy. 97 F.3d 1384, 1388 (11th Cir. 1996). Waivers of sovereign immunity"must be

.3 evidence and are therefore insufficient to enable MID to prepare a response, let alone to satisfy PG&E's 3 unequivocally expressed ... (and] are~not generally to be liberally construed." In re Jove Engine 'Ms.

4 burden of proof on its objection to MID's Claim, andfor that reason should be overruled. 4 I., 92 F.3d 1539, 1549 (11th Cir. 1996), citing United States v. Nordic.Villaze. Inc., 503 U.S. 30,33 5 1 PG&E's State Court Claims Are Without Merit. .5 (1992).

.6 PG&E filed its State Court Action on June 6,2003, PG&B is now on its Third Amended 6 The California Legislature abrogated all common law and judicially created causes of action.

'7 Complaint. This version seeks damages based on four common law grounds, violation of a "mandatory 7 Accordingly, Stanislaus County Superior Court granted MID's demurrer to four of PG&E's six causes duty," and inverse condemnation. As recently as March 12,.2004, the Stanislaus County Superior Court a. of action on that ground. Further, the Court ruled that PG&E could not establish a duty designed to

.9 granted a demurrer to PG&E's second amended complaint on the ground that PG&E had not stated facts 9 protect its interests sufficient for PG&E to state a "mandatory duty liability" under California 1o sufficient to state a cause of action. The problem with ?G&E's complaint is that the California ,10 Government Code § 815.6, nor was there a taking of an interest sufficient to state a cause of action in

.11

• 11 legislature has abolished all common law theories of liability against public agencies (such as MID). As 11 inverse condemnation. Since the Superior Court has ruled that PG&E cannot state a cause of action in

• toPG&E's theory that MID had violated a "mandatory duty," the-court concluded that any duty imposed 12 that forum, PG&E's argument that MMDhas waived sovereign immunity has no bearing on the merits of

.12 13 by the statute MID was alleged to have violated was not enacted to protect PG&E's interests, and 13 its claim for offset based on the State Court Action.

14. therefore could not be the basis for.a damages action. Moreover, 'MID argued that PG&B had not. 14 2. PG&E Is Not Entitled To Unspecified Offsets.

,1 bmuffered the requisite "injury" under the California Tort Claims Act (Cal. Govt. Code § 810 et seq.) 15 As discussed above, PG&E has the burden ofproof with respect to its objection and Pinally,.as to inverse condemnation, PG&E has not alleged a "taking" of a cognizable property interest. 16 setoff defense and has failed to articulate with any specificity the validity or amount of the "other 17 ough PG&E tas amended its complaint following the sustaining of the most recent demurrer, it has Il affinrative claims" which PG&E assert as an offset. In particular, in its Objection, PG&E alludes only 18 alleged no new causes of action, nor facts materially different than those set forth in its most recent 18 to damage claims in unknown amounts based on a "variety of theories, including violation of statute, 19 uinsuccessful pleading. MID has demiurred, and a hearing is set for-July J2,-2004. A-true and correct 19 negligence, intentional interference with economic relations, intentional interference with prospective 20 Oopy of MID's Demurrer and supporting papers is attached as Exhibit "A"Wt6 the supporting declaration 20 economic advantage, inverse 'condemnation, and unjust enrichment."'

21 of Scott T. Sieffen. 21 Given the fact that none of the "other affirmative claims" have been asserted by PG&E against 22 Since PG&E cannot state a cause of action against N4D, it is not entitled to a setoff of those. 22 MDN,there is no indication whatsoever of the amount which PG&E alleges should be setoff against 23 amounts against MID's claim, 23 MID's Claim on account of the "other affirmative ciaittif," and that PG&E's Objections is devoid of any 24 Despite PG&E's assertion to the contrary, ME) has not, by filing its Claim, waived its sovereign 24 facts or evidence to support the validity and amounts asserted in the "other affirmative claims," PG&E's 25 in~iunity with regard to-the causps of action in the State Court Action. Waivers of sovereign immunity 2S Objection on this ground should be overruled. In re Lundell supra 223.F.3d at 1039; I re Holm.

26 are set forth in 11 U.S.C. § 106.. In particular, Section 106 (a)(5) provides: 26 suMr. 931 F.2d at 623.

27 "Nothing in this section shall create any sublstantiye claim for relief 27

. 28 or cause of action not otherwise existing under this title, the federal 28 Rules of Banlruptcy Procedure, or nonbankruptcy law." H1 To MID'S RESPONSE TO DEBTOR'S OnJECTION CLAIM -1s-MlbS DEBTOR'S OnJECTION RESPONSeTO DEBTOWS OBJECTION TO CLAIM To CLAIM MID'S RESPONSE.TO MID's RESPONSE TO DEBTOR'S OBJECnON TO CLAIM

11. .1 -- I.,

CONCLUTSION*

3 Based on the foreoiig, MIDrespec fiully requests that PG&E's Objections be overruled and for 4 such other and further relief as the Court deems proper.

Dated: June 7,2004 .

6 .MODESTO IRRIGATION DISTRICT and GOLDBERG, STINNETT, MEYERS & DAVIS A Professonal Corporation By:

,. -. .. ene.ay.StateBarNo. 121002)

• 12 , Attorneys fr odesto Irrigation District 13 i4 B,:.

16  :

17 19 20

.21 22.

23 24 25 26 27 28 ..- .

ODMA\PCDOCS\DfOC5\0737\S MID'S'RESPONSE TO DEBTOR'S OBJECTION TO CLAIM r,.,. Vn AlAA01 nUt