Opinion
Case No. 01-30923-SFM Chapter 11 Adversary Proceeding No. 01-3086
June 26, 2001
ORDER REGARDING APPLICATION FOR PRELIMINARY INJUNCTION
The application of plaintiff Pacific Gas and Electric Company ("PGE") for a preliminary injunction (the "Application") came on for hearing on June 5, 2001. Appearances are noted in the record. The court has reviewed the Complaint, the Application, the supporting and opposing memoranda of points and authorities, other pleadings on file in this action, such additional matters of which the parties have requested the court take judicial notice, the arguments of counsel and stipulations of counsel on the record, and the parties' post-hearing proposed orders and cover letters to the court, dated June 15, 19 and 20, 2001, from Jerome B. Falk, Esq. for PGE, June 18 and 20, 2001, from Edward Berlin, Esq. for the California Independent System Operator Corporation ("ISO"), and June 21, 2001, from Terry J. Houlihan, Esq. for Reliant Energy, Inc. and Reliant Energy Services, Inc. ("Reliant").
Upon consideration of the foregoing, IT IS HEREBY ORDERED that: 1. As to matters relating to PGE, defendant ISO and each of its officers, employees, agents and representatives are enjoined from violating the orders of FERC as they are then in effect regarding "creditworthiness requirements" for the procurement of wholesale power and other services in ISO's market (including without limitation imbalance energy, ancillary services and all other procurement of electric capacity or energy for scheduled or unscheduled transactions whether arranged in the ISO's real time markets or through bilateral transactions) from third parties (sellers of power and generation services other than PGE) (collectively, the "FERC Orders"). Without limiting the foregoing, ISO must comply with FERC Orders requiring either a "creditworthy buyer" or "an acceptable form of a credit support that provides adequate assurances of payment for third-party suppliers" such as "appropriate support from creditworthy counterparties." PGE and ISO do not dispute that PGE is not "creditworthy" as that term is defined in the ISO tariff and the FERC Orders. The court is aware that because of "unresolved" issues ISO might schedule power purchases on PGE's "load's behalf" in good faith only to find out later that such purchases were in violation of the FERC Orders. The court will consider this and any other appropriate factors if and when it is asked to take action for any violation of this order, or is asked to deny a claim arising out of power purchases arranged by ISO.
Feb. 25, 2001, FERC Order, text accompanying n. 14, 2001 WL 275661, *7, and April 6, 2001, FERC Order n. 7
The April 6, 2001, FERC Order states that "[c]ontrary to the ISO's interpretation, the February 14 Order did not exempt any transactions from the requirement to have in place a creditworthy buyer." Id. text accompanying n. 7.
Feb. 14, 2001, FERC Order, 2001 WL 275661, *8 — *9. See also May 25, 2001, FERC Order, text accompanying n. 10 (refering to both "creditworthy counterparty" and "creditworthy buyer"), and June 13, 2001, FERC Order, text accompanying nn. 19 and 24 (concluding that "we acted reasonably and within our authority" by requiring "that the ISO obtain prior assurances of payment for all third-party power supplied to . . . PGE, whether directly or through purchases by DWR (or another creditworthy counterparty) on their loads' behalf.").
See June 13, 2001, FERC Order, text accompanying n. 19 (noting "unresolved" issues concerning how to "ensure creditworthiness for real-time transactions") (citation omitted).
The court is aware of the tension between ISO's authority to issue dispatch orders and the power suppliers' right to credit assurances (see June 13, 2001, FERC Order, p. 8). While this might result in the assertion of claims by power suppliers against PGE's bankruptcy estate whether or not ISO violates the FERC's "creditworthiness requirements," those issues are not before the court and this injunction is limited to the matters argued and stipulated at the hearing on June 5, 2001.
2. ISO and each of its officers, employees, agents and representatives are enjoined from filing any administrative claim under Section 503 of the Bankruptcy Code, 11 U.S.C. § 503, arising out of any transactions described above. Any invoices submitted by ISO to PGE reflecting the costs of such transactions shall be solely for informational purposes, the receipt of such invoices by PGE shall not constitute an admission by PGE of any liability for the amounts reflected on any such invoices, and PGE shall not be required to respond to such invoices at this time. Nothing in this order affects the rights of parties other than ISO to file such claims, or PGE's defenses thereto. Nothing in this order affects ISO's rights to file pre-petition claims or administrative claims for amounts due for grid management charges, for reliability must-run services, for charges not covered by the FERC Orders, and where it is required to do so on behalf of third parties, all such rights being reserved.
3. The court will address any outstanding discovery disputes and the briefing and hearing schedule at the status conference currently scheduled for July 16, 2001, at 1:30 p.m. At that time the court will also entertain requests for modification of this order. The court deems such flexibility necessary in light of the procedural history of this matter, the post-hearing disputes between the parties, and the ongoing developments before FERC.