UNITED STATES OF AMERICA
`BEFORE THE
`FEDERAL ENERGY REGULATORY COMMISSION
`
`Docket Nos. EL02-60-000, et al.
`
`Docket Nos. EL02-62-000, et al.
`
`(Consolidated)
`
`))))))))))
`
`Public Utilities Commission of the State of California
`v.
`Sellers of Long Term Contracts to the California
`Department of Water Resources
`_____________________________________
`
`California Electricity Oversight Board
`v.
`Sellers of Long Term Contracts to the California
`Department of Water Resources
`
`JOINT CLARIFICATION OF REPLY COMMENTS IN SUPPORT OF SETTLEMENT
`
`On May 29, 2012, both the Dynegy Parties and the CPUC filed Reply Comments in
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`support of their Joint Offer of Settlement in this EL02-60/62 Proceeding.1 Although the Parties
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`submitted their Settlement Agreement on a joint basis, each Party submitted reply comments in
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`support of the Settlement on an individual basis.2 We are submitting this Joint Clarification to
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`ensure that the Commission appreciates the Parties’ divergent views on certain issues and does
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`not rely on the arguments advanced on these issues in an unintended way.
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`At the outset, we wish to be crystal clear that both Parties are united in steadfastly urging
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`that their Settlement should be approved as fair and reasonable and in the public interest, as
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`required by Rule 602 of the Commission’s Rules of Practice and Procedure, 18 C.F.R. § 385.602
`
`(2011). The Parties similarly are united in urging that the Commission not second-guess
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`litigants’ individual litigation risk assessments or the structure and value of a mutually agreeable
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`settlement.
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`Indeed, the Parties continue to disagree strongly on the underlying merits issues in
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`1
`Unless otherwise defined herein, capitalized terms have the same meanings set forth in the Parties’ Joint
`Offer of Settlement and Joint Explanatory Statement.
`
`2
`See Dynegy Parties’ Answer Opposing Late Intervention and Reply Comments in Support of Settlement
`Agreement (May 29, 2012) (“Dynegy Parties’ Reply Comments”); Answer in Opposition to Motions to Intervene,
`and Reply Comments, of the Public Utilities Commission of the State of California (May 29, 2012).
`
`

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`the case, but agree that the Commission need not weigh in on that disagreement in order to
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`decide whether to approve the settlement
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`they have reached.
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`In particular, the CPUC is
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`concerned that part of the rationale advanced by the Dynegy Parties as a basis for finding the
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`Settlement to be fair and reasonable could, if endorsed by the Commission, be argued to set
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`precedent for remaining respondents on the merits of the underlying litigation.
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`In view of the
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`CPUC’s concern in this regard, the Parties are making this joint submission to clarify and
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`underscore the following points:
`
`the
`Solely to elucidate their own analysis regarding the reasonableness of
`
`Settlement and not as evidence on the underlying merits of the litigation, the Dynegy
`Parties argued in their Reply Comments that the overall consideration under the Settlement
`agreement “is fair and reasonable, particularly when one considers that the pricing under the
`Dynegy Long-Term Contract was within the zone of contemporaneous third-party Cost of
`New Entry benchmarks, suggesting the significant obstacles the CPUC would face in
`establishing any damages in this case.” Dynegy Parties Reply Comments at 4; id. at n.8
`(underscoring limited purpose for which this discussion was offered). The Dynegy Parties
`also proffered an analysis of the monetary consideration under the Settlement as compared to
`the Sempra settlement, based on a scaling of the underlying long-term contracts. Id. at 15.
`
`Notwithstanding the limited purpose for which the Dynegy Parties advanced these
`
`arguments, the CPUC vehemently disagrees with the Dynegy Parties’ analysis. For its part,
`the CPUC contends that the record evidence in this case, and such further evidence as might
`be permitted in any further litigation if the Commission adopts the procedures outlined in the
`CPUC’s January 2009 Answer and Cross-Motion for an Order Governing Procedures on
`Remand, would support significant damages. The CPUC also disagrees with aspects of the
`analysis comparing the Dynegy Parties’ Settlement with the Sempra settlement.
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`There is no need for the Commission to address or resolve these differences
`
`because the only question before the Commission now is whether the Settlement appears
`fair and reasonable.
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`However, in view of the CPUC’s desire to avoid any confusion or inadvertently affect
`
`the Parties jointly request
`that
`the
`the litigation vis-á-vis remaining respondents,
`Commission not endorse the Dynegy Parties’ arguments regarding comparisons of the
`Dynegy Long-Term Contract to Cost of New Entry Benchmarks, or regarding comparisons
`to the Sempra settlement, and likewise not endorse those portions of the Stoddard Affidavit
`(Attachment A) that address these issues.3
`
`3
`These issues are addressed in the Stoddard Affidavit and Dynegy Parties’ Reply Comments as follows:
`Stoddard Aff., ¶ 3:7-14; ¶¶ 8-30; ¶ 38:14-23; Dynegy Parties’ Reply Comments at 4 (“This overall consideration is
`
`2
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`

`

`CONCLUSION
`
`The Parties believe this clarification is important to preserve their respective interests.
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`Both the Dynegy Parties and the CPUC have fiercely advocated their opposing positions in this
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`longstanding litigation and the Settlement Agreement is a substantial achievement given the
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`extremely contentious issues that still divide the Parties with respect to the merits of the
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`underlying case. The Settlement is fair and reasonable and in the public interest and the
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`Commission should approve it.
`
`________________________
`fair and reasonable, particularly when one considers that the pricing under the Dynegy Long-Term Contract was
`within the zone of contemporaneous third-party Cost of New Entry benchmarks, suggesting the significant obstacles
`the CPUC would face in establishing any damages in this case.”); id. at 14 (“Dynegy, for its part, thinks that any
`damage claim the CPUC might have hoped to obtain in this proceeding would be dependent on prices paid under the
`Dynegy Long-Term Contract. As discussed in the affidavit of economist Robert B. Stoddard that is being submitted
`herewith (Attachment A) (“Stoddard Aff.”), those prices were in the range of Cost of New Entry (“CONE”)
`benchmarks developed by various impartial third-parties. Stoddard Aff. ¶¶ 6-30.”); id. at 15 (“Based on this
`analysis of pricing under the Dynegy Long-Term Contract vis-à-vis the CONE benchmarks, Mr. Stoddard concludes
`that the Settlement consideration is in the zone of reasonableness. Id.”); id. (“Based on this analysis, Mr. Stoddard
`concludes that the $20 million in cash consideration under the Dynegy Settlement provides at least as much value as
`the Sempra settlement, even without considering the additional $102.5 million in consideration related to the EV
`Charging Station Project. Stoddard Aff. ¶¶ 31-38.”).
`
`3
`
`

`

`.
`
`Frank Lindh
`Frank Lindh
`Mary McKenzie
`Christopher Clay
`Public Utilities Commission of the
`State of California
`505 Van Ness Avenue
`San Francisco, CA 94102
`(415) 703-1123
`cec@cpuc.ca.gov
`Attorneys for the
`Public Utilities Commission of the
`State of California
`
`Respectfully submitted,
`
`.
`
`John N. Estes III
`John N. Estes III
`Donna Francescani Byrne
`Robert W. Warnement
`Skadden, Arps, Slate, Meagher & Flom LLP
`1440 New York Avenue, NW
`Washington, D.C. 20005
`Tel: (202) 371-7950
`Fax: (202) 661-8213
`John.Estes@skadden.com
`Donna.Byrne@skadden.com
`Robert.Warnement@skadden.com
`Attorneys for Dynegy Power Marketing, LLC,
`Cabrillo Power I LLC, El Segundo Power,
`LLC, and Long Beach Generation LLC
`
`Jason A. Buchman
`Dynegy, Inc.
`601 Travis Street
`Suite 1400
`Houston, TX 77002
`Phone: (713) 767-8008
`jason.a.buchman@dynegy.com
`Attorney for Dynegy Power Marketing, LLC
`
`Christopher C. O’Hara
`Averill Harrington Conn
`NRG Energy, Inc.
`Houston Pavilions Office Tower
`1201 Fannin
`Houston, Texas 77002
`Tel: (713) 537-2245
`chris.ohara@nrgenergy.com
`averill.conn@nrgenergy.com
`Attorneys for Cabrillo Power I LLC, El
`Segundo Power, LLC, and Long Beach
`Generation LLC
`
`4
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`

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`CERTIFICATE OF SERVICE
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`I hereby certify that I have this day served an electronic copy of the foregoing document
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`upon each person designated on the official service lists established in Docket Nos. EL02-60-000,
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`and EL02-62-000. I have served a paper copy via first class mail upon each person designated
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`on the official service lists established in Docket Nos. EL02-60-000, and EL02-62-000 who is
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`not otherwise served an electronic copy.
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`Dated at Washington, D.C. this 6th day of June, 2012.
`
`____/s/_____________________________
`Jayne Sabolinski
`Legal Assistant
`
`